Here’s to 2018!
From everyone here at Oaken—even though we’re already at the end of the first month—we’d like to wish you and yours a very happy new year. Unfortunately, that means we also have to take this opportunity to remind you that tax season is just around the corner (sorry!).
To help ease the pain, we’ve been working hard to get the paperwork you’ll need to submit your returns. As we did last year, we’ll be sending out a single statement for your entire portfolio, as opposed to different statements for each investment you hold. This statement will group your investments according to issuer (Home Bank or Home Trust Company), and you’ll be able to see all your investments at a glance. Mailing dates for portfolio statements and tax slips vary, but you will be receiving everything you need well before the filing deadline.
Here are a few additional reminders:
- Your 2017 taxes are due on April 30, 2018, which is a Monday. That means your return must be filed or postmarked by that date to avoid penalties.
- If you made an RSP contribution in 2017, we’ll be sending out a receipt on February 5. And if you make a contribution at any time between January 1 and February 28 of this year, you’ll receive a separate receipt towards the end of March.
- If you earned interest of $50 or more during the year on any savings or investment, you can expect to receive a T5 form (and Relevé 3, if you’re a resident of Quebec). This form will show the dividends paid (including the value of stock dividends), the interest paid on the balance of any GIC or savings account, and the interest accrued but not yet received on compound instruments such as GICs.
- You can expect to receive your receipts within two weeks of the mailing dates indicated in the table below, depending on the postal service and where you live.
|T4 RIF (Statement of Income from a Retirement Income Fund)||February 1|
|T4 RSP (Statement of Retirement Savings Plan Income)||February 2|
|2017 year-end portfolio statements||February 5|
|2017 RSP Contribution Receipts||February 10|
|T4A TFSA (Retirement and Annuity Income)||February 15|
|NR4 Interest (Statement of Amounts Paid or Credited to Non-Residents of Canada)||February 16|
|NR4 RSP & RIF (Statement of Income from a Retirement Income Fund)||February 16|
|RL2 (Retirement and Annuity Income)||February 20|
|RL3 (Investment Income)||February 20|
|T5 (Statement of Investment Income)||February 23|
|2018 RSP Contribution Receipts (First 60 Days)||March 19|
The government gives back
If the thought of tax season has you down, here’s something to pick you back up: it’s also tax-shelter season. That’s because now is the time to review your finances and think about contributing to an RSP or TFSA.
We’ll deal with TFSAs next month, because there’s no deadline for contributing to them. RSPs, of course, are a different matter entirely. The RSP contribution deadline for the 2017 tax year is Thursday, March 1. You can contribute up to 18% of your earned income in 2017 (to a maximum of $26,010), and you can add that amount to any unused room from previous years. Check your Notice of Assessment from the Canada Revenue Agency to see how much room you have.
We all like to reduce our taxes. But the decision on whether or not to contribute to an RSP, as well as how much, is not always straightforward. The maximum age at which you can contribute is 71. After that, you have to roll your RSP into a RIF and start withdrawing a minimum percentage of it every year, and this is treated as income.
That complicates things. For most people, their tax bracket in retirement will be lower than what it is in their earning years, and that’s a good reason for contributing. But if your tax bracket won’t be any lower during retirement, then the benefit of contributing is reduced. In addition, the government could raise tax brackets in the future. That could also water down the tax advantage of contributing to an RSP today.
Saving money isn’t always easy
But wait, it gets even more complicated. As we all know, the really big advantage of RSPs is that everything you earn in them (e.g. capital gains, interest, dividends) is not taxed until it’s withdrawn. But you can also earn tax-free income and growth on investments in a TFSA. In addition, you can make contributions to a spousal RSP and claim the amounts on your own tax return.
On top of that, you have to consider what your future working income is going to be. If you’re going to earn a much higher salary down the road, you may want to hold back on RSP contributions today, build up your unused contribution room, and then pour lots of money into your RSP in the future. That will translate into added savings for you.
Obviously, that’s a lot to think about! We don’t make tax recommendations at Oaken, but we do recommend that you consult a tax specialist if you’re not sure what the best RSP strategy is for you. An accountant or financial planner can show you the big picture, and help you optimize a really great benefit provided by the government.
Two real estate issues to look out for in 2018
For those of us following the real estate market—either as buyers, sellers, or just spectators—there are two big issues to be aware of this year. The first is tax returns and how this relates to the sale of principal residences, while the second concerns mortgage affordability.
Principal residences: seller beware!
Most people who own property know that capital gains on principal residences are tax-free. Your principal residence can even be your cottage, provided that you used it sometime during the year. That can be very advantageous if you own a summer home that has appreciated a lot over the years, since it could have increased more in value than your house or apartment in town.
While the Canada Revenue Agency hasn’t changed the rules about principal residences, it did recently change the rules about reporting their sale. Previously, a taxpayer didn’t have to report the sale of a principal residence on their income tax return. However, in October 2016, the CRA declared that it required the disposition of a principal residence to be reported on income tax returns, starting in the 2016 tax year.
Many people are still unaware of this change, and that can be very costly. The normal time limits on reassessments don’t apply to real estate sales, which means that the CRA has the discretion to accept or reject a principal residence claim that wasn’t filed in the year the property was sold. So in this case it’s not a matter of buyer beware, but of seller beware. If you fail to report the sale, you could end up paying a lot of tax that you otherwise wouldn’t have to.
Mortgage affordability is dropping
As we noted in last month’s Oaken Update, 2018 marks the introduction of new rules for mortgage borrowing in Canada. The government’s “stress test” for mortgages took effect on January 1. This requires borrowers to qualify based on rates that are either two percentage points above existing rates, or 4.99% if this is higher.
Developments on the economic front also have to be added to those new rules. The Bank of Canada hiked its key interest rate this month, and more hikes are expected during the year. Although there is currently a great deal of uncertainty around the NAFTA trade agreement, which could dampen rate increases.
There’s no reason to be overly anxious about rising rates. After all, rates over the past decade have been astonishingly low, especially in historical context. For example, between 1980 and 1990, the average 5-year fixed rates in Canada were 11.92% (how’s that for stress!) But borrowers shouldn’t be overly complacent, either. Higher rates will make it a little more difficult for mortgage holders in 2018, and that means lower affordability in the housing market.
Almost February already? Time to make travel plans!
What better time to travel than when the blasts of winter have swept away all that holiday cheer? February is a popular month for Canadian travellers, especially for retirees who have the freedom to get up and go whenever they want. And to that end, we’ve added a new post to the Oaken Blog that’s just up the alley of people itching to head somewhere this winter.
This post is all about last-minute travel deals. Most people like to plan out their foreign adventures, and that makes sense when spending a lot of money. But there’s also something to be said for a quick, last-minute getaway that’s all about spontaneity. So we’ve given you seven great tips for finding last-minute deals, reminding you to be open-minded about where you’re willing to go and what you’re willing to do, as well as consider alternative accommodations. There are lots of travel sites on the web that offer great last-minute specials. You should also consider travel agents, as they’re a font of information about undiscovered destinations and first-hand experience of places you might want to visit.
So if you are looking to shake winter off your back and head away for a last-minute break, click here to read the full article.
Reading your way into 2018
Get ready for a great 2018 with this little list of useful reads…
- The Globe & Mail’s Jonathan Chevreau on the tricky question of how to minimize tax on RSPs and RIFs.
- A Lifehacker article on how to put the internet to work for you when planning a last-minute getaway.
- A little more detail on reporting the sale of your principal residence to the Canada Revenue Agency, from The Guardian in PEI.