Tax is wealth enemy number one in Canada

Tax… wealth enemy number one!

Some Canadians may not realize that tax is the biggest eroder of wealth. Yet, it is the segment of wealth management that many Canadians do not plan for regularly or with consistency. Also, and potentially as damaging, many do not utilize a qualified tax preparer to help them take advantage of the tax credits and deductions available to them, or simple tax strategies that can be implemented with ease. 

Paying tax is not the only culprit eating away at your income and wealth, it is all the penalties and interest being charged by the Canada Revenue Agency (CRA) on late filing fees and missed schedules (even if you were unaware that something had to be filed):

"CRA began charging 10% on outstanding obligations, … On top of that, CRA charges penalties, and late fees, and interest on penalties, and interest on late fees, and interest on any taxes owing, and interest on the interest, of course. In fact, the interest CRA charges is compounded daily!"

Important Deadlines & Tax Changes

To help you prepare your information for the tax filing deadline and to help you get your tax financial affairs in order, we want to remind you of important deadlines and have included various tax changes and updates to be aware of: 

  • Who must file tax returns in Canada? If you have a balance due, disposed of capital property, disposed of principal residences, are an OAS or EI recipient, are a resident owning foreign property (offshore investor) with a cost more than $100,000 Canadian (also need to file a T1135). Basically, if you are a resident or deemed resident of Canada, including newcomers, you must file a tax return. 
    • Tip: If you have a minor earning income, it may be beneficial to file a tax return for your child to gain RRSP contribution room.
  • T3 Trust Returns, in particular Bare Trusts: surprising schedules may now need to be completed by the settlor, trustee, and beneficiary. Withholding information can cause major penalties being charged by CRA. If you have set up an In Trust For (ITF) account for your minor child, or you own certain assets jointly, such as your adult-child’s principal residence and/or joint bank accounts*, you could be subject to new trust reporting rules that apply for taxation years ending after December 30, 2023. 
    • Note: Registered plans, such as an RRSP, RRIF, RPP, RDSP, RESP, TFSA and FHSA are excluded from this rule.
    • *Bank accounts are subject to the account balance.
  • The Underused Housing Tax (UHT): as per CRA, the UHT is an annual federal 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022.  The tax generally applies to foreign national owners of housing in Canada. However, in some situations, this tax also applies to some Canadian owners (such as certain partners, trustees, and corporations).
  • Alternative Minimum Tax (AMT): how does CRA figure out if you are paying your fair share of taxes, especially for higher income earners? Through the AMT which has been updated effective Tax Year 2024. The AMT is an alternative method to calculate the income tax you owe in Canada and generally applies to higher-income individuals who have a low amount of tax payable. A key tax savings strategy affected by new rules is charitable donations of stocks/investments. 
  • Did you sell your principal residence in 2023 or have a death in the family where the individual owned a principal residence? You must complete schedule T2091 when filing your 2023 tax return to avoid penalties and interest of up to $8,000 plus potential late penalties and interest. In fact, since 2016 tax year, if you happened to have sold a principal residence and did not file a T2091, you must, and you may be charged late filing fees/penalties.
  • Making an RRSP contribution not only helps recapture taxes paid to CRA and increases your retirement funds but helps reduce net income which is what many benefits such as the child tax benefit and the new Canada Disability Benefit are based on. Do not miss out on these important benefits from the federal government. 
    • Your RRSP limit available to contribute for the 2023 tax year is found on your Notice of Assessment (the notice of assessment or re-assessment that was reported to you after you filed your 2022 tax return)
    • TFSA limits are NOT documented on your Notice of Assessment but can be obtained from your CRA online account or by calling CRA at 1-800-998-8281 and follow the prompts. 

Manage Your Overall Financial Affairs, With A Tax Management Focus

To maintain wealth and in fact grow sustainable wealth, it takes more than just saving and investing, it takes the management of your overall financial affairs now and in the future with a focus on tax management to prevent unnecessary wealth erosion. 

According to the Knowledge Bureau Report of March 16, 2022: “Tax avoidance is a legal right of the taxpayer to reduce their tax liability through legal actions, however tax avoidance must respect the spirit, object, and purpose of the provisions that the taxpayer has invoked to reduce their tax liability” – In simple language, this means a taxpayer is entitled to organize their affairs in a tax-efficient manner, to pay the least amount of tax to CRA.

“Tax avoidance is a legal right of the taxpayer to reduce their tax liability through legal actions, however tax avoidance must respect the spirit, object, and purpose of the provisions that the taxpayer has invoked to reduce their tax liability.”

It is important that you work with a tax professional who is up to date on new policies in place and tax advantages available to you. It is also important that you work with a tax preparer who is collaborative in nature, who will work with you and your financial team such as DWM to help you achieve your wealth building and protection goals and live a richer life! 

If you would like a referral to a tax preparer, please contact us.

P.S. Personal Tax Filing Deadline is April 30th.

3 Questions About Wealth We Must Ask Ourselves

3 questions posed by Real Wealth Management™ in Canada, that we must ask ourselves repeatedly, no matter what phase of life we are currently living:

  1. What can I do now to build and protect my family wealth, now and into the future?
  2. How can I be better prepared to meet upcoming life events and my personal priorities despite uncontrollable obstacles and market volatility?
  3. How can I minimize taxes, inflation, and how can I structure my assets and investments to increase my income, increase the growth of my investments and maintain my wealth? 

You have the right to arrange your financial affairs so that you can accumulate, grow, preserve/protect, and transfer your wealth even in difficult markets and times.

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