12 Tips for Smart Financial Planning

A Registered Education Savings Plan (RESP) is a government-assisted investment vehicle that helps families to save for a child’s education. A key incentive of the plan is the federal government’s Canada Education Savings Grant (CESG) which is equal to 20% of the annual amount contributed, up to a maximum of $500 per year for each child under the age of 18.

A financial planner can assist with calculating your carry-forward amounts to ensure you are maximizing your contributions and grants.

• There are contribution limits that you can put in each calendar year and the government will also add grants and/or bonds to your plan. The government provides a maximum of $7,200 in grant money to the plan per child, based on your contributions.
• If you have not received the full grant amount in each year, any unused grant room carries forward until your child turns 17.
• Your savings grow tax free and there is no tax on the investment earnings within the plan.
• There are a wide variety of investment options available for you to choose from for RESPs.

For more information, visit the Government of Canada’s website.

Tax Free Savings Account (TFSA) TFSAs are another registered account created by the federal government to provide Canadians with another means to save for themselves. Any Canadian who is 18 or older can open and contribute to a TFSA.

• If you’ve never contributed to a TFSA, your accrued limit is $75,500 as of 2021.
• Normal annual contribution limits are $6,000 per year. Unlike an RRSP, the contribution deadline is the end of the calendar year.
• Investments within the TFSA grow and compound tax-free, just like an RRSP.
• Contributions to a TFSA do not provide you with a tax deduction (like the RRSP does), but withdrawals from a TFSA are completely tax-free and withdrawals can be made at any time.
• TFSAs can help with your retirement goals, if your RRSPs are maximized or your current tax rate is low and/or you have minimal RRSP contribution room.
• Withdrawals from a TFSA during your retirement years will not impact any Old Age Security (OAS) benefits you are collecting.
• Existing non-registered savings can be used to fund your TFSA contributions and thereby shelter future investment income from tax.
• If a beneficiary is named for your TFSA, then estate administration taxes (probate fees) can be avoided on the value of these savings.
  

Registered Retirement Savings Plans (RRSPs) are a great tax planning tool and can potentially improve your 2021 personal tax return. 

• An RRSP is a personal savings plan that is available to all Canadians that have an “earned income”
• Contributions are calculated on your earned income from the previous year. Your RRSP contribution room is calculated as 18% of your earned income or $27,830 (the maximum RRSP contribution limit for 2021), whichever is less.
• You can find your RRSP contribution room on your Notice of Assessment, which can be accessed on the Canada Revenue Agency website via My Account, or your accountant can access it for you based on your previous year’s tax return.
• Amounts deposited to an RRSP are tax deductible and grow within the accounts on a tax deferred basis, until funds are withdrawn from the account
• Funds can be deposited into a Spousal RRSP to help split income and thereby lower taxes in retirement
• Extra RRSP contributions in January and February can potentially improve the preceding year’s personal taxes. 
  

Any donations over and above the first $200 in a calendar year may reduce your tax bill by 46% to 50% of the donated amount!

As an added bonus, if you donate publicly traded shares, in addition to receiving a donation tax credit for the value of the shares donated, the capital gain on the shares is non-taxable, provided certain criteria are met! If you are considering this, consult with your financial planner to discuss your particular situation.

Everyone, regardless of wealth, should have a Will. A Will carries out your wishes when you are gone. You can ask your financial planner for help with this process.

• Review your will every 5 years or when a significant event occurs in your life, like the birth of a child, marriage or divorce or a material change in financial situation, for example. You will want an updated Will to make sure that your cherished assets will be distributed according to your wishes. Otherwise, the government will do it for you.
• Prior to the appointment with your lawyer, do some homework to make the most of your time. Prepare questions in advance and gather your financial and personal information. Make a list of all your assets and liabilities and bring copies of your insurance policies.
• Give some careful thought about various parts of your estate and most importantly your beneficiaries. Do you want to leave part of your estate to your children, favourite charity or perhaps a legacy fund with your community foundation?
• Consider who might be your executors. Are they responsible, knowledgeable and do they want this job? Have you considered naming trustees for money left in trust? Who will be the guardians of your minor children? A well written Will can give you peace of mind knowing your loved ones are taken care of when you are gone.
  

Start a discussion about succession for your family business regardless of where retirement sits on the horizon. This process should include consultation with your accountant and financial planner about the tax-effective transfer of wealth to the next generation.

Be prepared that expectations will differ among the various family members, so choose your timing wisely; the Christmas dinner table might not be the best choice, but getting the conversation going sooner rather than later certainly is. 

For a good article to stimulate some thought, read Does Your Family Business Have a Succession Plan.

Life insurance is like an airbag in your car – you don’t plan on ever using it, but it’s a good safety feature few of us would want to be without. Consider the following:

• Gather all your insurance policy information together – focus on policies that are still valid and make sure you know what your current coverage amounts are.
• Check the beneficiary designations on your current policies to ensure they are still valid.
• Add up your income sources, current annual savings (actual and/or planned), your current assets and total debts, plus any other financial obligations you may have.
• Determine what benefits surviving members of your family might be entitled to, such as your pension plans, business assets, or other sources of capital or revenue.
• Are there any specific family members you want to receive funds, or estate tax considerations (the family cottage is typically one), or do you want to see your favourite charity receive something?
• If you have a business, you may have buy-sell considerations as well.
• Make a list of your other financial goals, as those will also impact your insurance need.
• Take the above information to your financial planner to crunch the numbers and see if your current coverage would meet your financial obligations and your financial goals.
• It is important to ensure you have sufficient coverage. You don’t want too little insurance, but you don’t want too much either!
  

Did you know that on your tax return you are eligible to claim a tax credit for out of pocket medical expenses for any 12-month period ending in the taxation year? For example, on 2021’s tax return, you could claim medical expenses for the period of April 1, 2020 to March 31, 2021.

Since medical expenses are reduced by 3% of your net income or $2,421 (for 2021), it’s important to review the dates on your medical expenses to ensure you’re taking full advantage of the tax credit each year if there are large or unforeseen amounts paid during the year. Additionally, consider timing the payment of large amounts (i.e. orthodontics) to take full advantage of the medical expense tax credit.



For more details, including what qualifies as a medical expense, read our firm's Personal Tax Credit: Medical Expenses article.

Typically to make a claim, the employee must have spent at least 50% of their time during the year at their home office and the employer is required to complete Form T2200 – Declaration of Conditions of Employment for each eligible employee for each year. Once that is secured, the employee can claim a deduction based on the actual home office expenses. For more details, see our Newsletter Article on Tax Deductions for Remote Employees.

Employees with commission income are entitled to claim a portion of their property taxes and insurance as well.

For 2020, the Canada Revenue Agency (CRA) allowed a temporary simplified method for employees who worked at home due to COVID-19 more than 50 percent of the time for at least four consecutive weeks during the pandemic, to claim an amount of $2 per working day (up to a maximum deduction of $400) without a requiring T2200/T2200S form or maintaining documented receipts to validate the claim. Keep an eye on if this becomes available for 2021 again or not.

Having a financial plan (or updating the one you have) is a good way to make sure you are moving in the right direction to achieve your goals. It’s like having a good road map before you start your road trip – it will help you get to where you want to go. 

If you already have a financial plan, each year you should have your advisor update numbers and run projections. If you’re not on track, it’s better to know, to make a course correction sooner rather than later!

• If you don’t have a plan yet, you will need to start gathering your financial information together so you can summarize the following:
• Your main assets, including home, investment savings, and other assets you expect to appreciate over time
• Your main liabilities, including your mortgage and other debts.
• Your income sources, including salaries, dividend draws from corporate holdings, withdrawals from savings, rental income, farm income, etc.
• Information on your current wills and powers of attorney.
• Information on your current insurance coverage – life, disability, critical illness.
• Write down your main goals – retirement, children’s education, a major purchase, and anything else that will require financial consideration.
• Tabulate all this information in writing or in a spreadsheet – or your accountant or advisor will have a form you can fill in to make the process easier.
  

Budgeting has many advantages including giving you better control over your money, keeping you focused on your goals, helping you to save more and helping you to anticipate and plan for potential problems.

There are many good budgeting tools available – consider reaching out to your financial planner for some tools to help you!