‘Tis the Season (for tax) by Family Wealth Coach

Yes, it’s tax season. It may not feel like tax season to you, or you may be starting to feel the pressure of it. In either case, there are a few things worth keeping in mind at this time of year.

Here are two that are fairly simple and, while they vary in suitability for different people, are worth keeping in mind.

Tax Free Savings Account (TFSA)
The TFSA is a savings initiative allows for several things:

• An annual contribution limit of up to $5,500 regardless of one’s income level
• The ability to invest in short term or long term investments
• There is no maturity date
• Investment income and returns remain tax free, and the amount withdrawn isn’t added to your taxable income
• The total contribution room is $25,500 and unused contribution room carries over indefinitely

There are more details, but simply put, it allows you to invest up to $5,500 (growing tax free) and provides a lot of flexibility in how it’s used.

Registered Retirement Savings Plan (RRSP)
RRSPs are generally designed for long-term savings and mature when a person turns 71. Unlike the TFSA, they are tax deferred, rather than tax free. Here are a few points:

• Contribution is limited to the lesser of $22,970 or 18% of a person’s earned income, less pension adjustment in 2012, and that increases to $23,820 or 18% of a person’s earned income, less pension adjustment in 2013
• They reduce your taxable income
• Withdrawals are added to your taxable income (so try to save them for when you might find yourself in a lower tax bracket)
• Unused amounts can be carried forward
• Keep in mind that the deadline is March 1st

Taxes in Canada (despite what one might believe) are tipped heavily in the favour of business owners. A clear review of your tax planning, and what options might be open and appropriate to you would be wise (if we haven’t done that together already!). Few things can erode your wealth as quickly as tax – should we chat?