Capital Gains tax occurs when you sell capital property for more than you paid for it. In Canada, you are only taxed on 50% of your capital gain. For example, if you bought an investment for $25,000 and sold it for $75,000 you would have a capital gain of $50,000. You would then be taxed on 50% of the gain. In this instance, you would pay tax on $25,000. In Canada, there are some legitimate ways to avoid paying this tax: Tax shelters, Lifetime Capital Gains Exemption, Capital Losses, Deferring, and Charitable Giving.
If you are nearing retirement, you may be starting to think about creating retirement income for yourself from your RRSPs. Registered Retirement Savings Plans (RRSPs) are considered accumulation vehicles. This means they are used to save for your retirement in a tax efficient way. When the time comes to start using your hard-earned savings to fund your retirement, you may want to consider moving them to a payout vehicle called a Registered Retirement Income Fund (RRIF).
The amount deposited into a Tax Free Savings Account (TFSA) is subject to a yearly contribution limit. For 2020, and again in 2021, the annual limit has been set at $6,000. As of 2021 the lifetime maximum contribution has grown to $75,500.
If an over-contribution is made Canada Revenue Agency will levy penalties.
Every investor wants to know the answer to the question, “How much money will I need to retire?” Many factors contribute to this determination and it is unique for everyone. For example, someone who earns $70,000 per year will likely be able to live comfortably on $60,000 per year in retirement, but another person who makes $200,000 each year will likely not find that income level realistic. There is a simple way to discover the amount of retirement income you and your family will require, and it is called the Financial Independence Number.
If you have been a good saver and contributed religiously to your RRSP, you should be rewarded with a sizeable six or seven figure RRSP that would make your retirement that much more enjoyable. The only issue now is – how do you get the money out of the RRSP without paying more tax than you should? Typically, it is advised that investors leave their RRSPs alone for as long as possible to take advantage of the tax-free growth. While this can be true for many people, it is important to crunch the numbers before you retire to make sure this makes the most sense for your unique retirement situation. Many retirees, especially those with a high net worth, may find there could be a more efficient way to withdraw retirement income.
Whether you should invest in a Tax Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) is a question that affects almost every investor. For most, the answer is “a bit of both.”
If you have a looming short or medium-term need (under five years), the untaxed TFSA withdrawals are likely the right choice. For longer term retirement needs, you’ll want to invest in an RRSP.
Guaranteed Withdrawal Benefits, or GMWB, are options in some segregated fund contracts that allow the policy holder to receive a guaranteed income for life. These types of contracts can be appealing for retirees looking for a guaranteed income stream and who are nervous about market fluctuations.
With a new year comes new tax numbers! Below is a quick reference of important tax numbers for three years, including 2021. CRA has utilized a 1% indexing (inflation) for those numbers subject to that condition.
Participating insurance can serve a variety of purposes for both individuals and businesses. For business owners, it may work well as a tax planning vehicle. For individuals, it may serves as a way to provide a modest inheritance to their loved ones after they are gone. Whatever the purpose of the policy, Participating insurance comes with a set of characteristics that offer great value to the policy owner.
While uncomfortable to think about, effectively planning ahead for when you are no longer here can save your loved ones a great deal of time, money, and emotional hardship. Estate planning can be complicated, but there are some basic “must-do’s” that should be regularly updated and reviewed. Below is a simple checklist for making sure your estate plan is up to date.