What is RRSP and How Does it Work?
Are you searching for the perfect way to secure your future? Are you looking for a great investment you can rely on when you retire? An RRSP may be the right solution for you. If you already have a financial advisor, chances are you have heard them mention it before. If you haven’t, no matter as we will be introducing you to RRSPs below:
What is RRSP?
RRSP is the acronym for Registered Retirement Savings Plan. It is an account specially designed to help Canadians save for their retirement. Contributions are made to the account every year to build up long-term savings, to be used for retirement.
RRSPs have been around in Canada since 1957. The account benefits from tax deferment until retirement. RRSP was created by the government to give tax breaks to individuals that invest money in RRSP, as motivation to save for their retirement.
How Do RRSPs Work?
The most significant feature of RRSP is how it is taxed. Contributions made into your RRSP are tax-deductible. As long the money remains in the account, it grows tax-free. But when the money is withdrawn, taxes will be paid as if it is income. The benefit of this is when it comes time for retirement, your annual income will most certainly be lower than it is currently.
For instance, if you earn $78,000 per year and you decide to save $14,000 to the RRSP. When it comes to taxation, the CRA will tax you as if you earned $64,000. Although the tax deferment does not mean tax-free, you will pay the tax eventually when you withdraw the money from your RRSP. However, the tax payable on these funds will surely be lower compared to paying income tax at the time when earned.
What Is the RRSP Contribution Limit?
As a registered account, RRSPs are regulated by certain rules. One of the rules guiding running an RRSP account is the amount of money you can contribute in any given year. The maximum amount you can save is either 18% of the previous year’s income or a maximum amount, whichever is smaller.
The Canada Revenue Agency usually regulates and specifies the maximum RRSP deduction limit allowable for each year. For 2020, the limit allowed was $27,230 while $27,830 is allowed for 2021. The limit is set to avoid excess contributions.
If you want to minimize the effect of taxes on your income and save for retirement, an RRSP may be a good option. Speak with your financial advisor for guidance on how to open an RRSP account and how to make contributions to the account without hassles.
Why Should I Get an RRSP?
A Registered Retirement Savings Plan (RRSP) is a savings account that you register with the federal government intended to assist you in saving for your retirement. Since this form of savings is not the only retirement plan available, you may be wondering why you should invest your hard-earned money into an RRSP.
To help highlight the reasons to open an RRSP, we asked a few of our financial advisors to share their top reasons below:
Your Contributions are Tax-Deductible
One of the most popular reasons shared as to why open an RRSP is that your contributions to the plan are tax-deductible. In other words, your RRSP contribution can be claimed as a deduction from your income on your tax return. As well, if you experience a reduction in your income, the tax deduction for your contribution can be held until your income increases once again. Consequently, once you have moved into a higher tax bracket, you will enjoy greater tax savings on your contributions.
Your RRSP Can Be Converted to Regular Payments After Retirement
Your RRSP savings can be easily converted into an annuity or an RRIF after you have retired without paying any tax. However, once converted, you cannot avoid paying tax on the regular payments that will be sent to you annually. Nonetheless, if you fall into a lower tax bracket after retiring, your tax will be lower.
Your Savings Increase Over Time
If you continue keeping your investment earnings in an RRSP, you will not be required to pay any tax on them or any income earned. As a result of this, you can rest assured that your savings will keep growing over time.
You Can Borrow from an RRSP to Finance Your Home or Education
Are you planning to buy your first home? Would you like to pay for your education? RRSPs allow you to borrow from your contribution to take care of these key items. For your first home, you can get as much as $25,000 from your RRSP contribution through the Home Buyers’ Plan (HBP). If you want to finance your education or that of your spouse, you can borrow as much as $20,000 from RRSP via the Lifelong Learning Plan (LLP). As long as you ensure the money is repaid within the agreed timeframe, you don’t need to pay any tax on the loans.
A Spousal RRSP is Capable of Lowering Your Combined Tax Load
If your income is higher than that of your spouse and you want to assist them to improve their tax-free savings, you can take advantage of a spousal RRSP. The spousal RRSP will allow you to divide the retirement income into two equal parts. As a result of this, the total amount of tax on each part may be lowered.
An RRSP may not be right for everyone, but with the above information and the expert advice of a financial advisor you will be better prepared to make that decision for your future.
5 Ways to Save a Down Payment for a Home or Any Other Big Purchase
Saving money for down payments on a home or another large purchase can oftentimes be challenging. The financial requirements of everyday life can interfere with saving money, especially those unexpected requirements such as car repairs or medical emergencies. It can leave you feeling as though there is no way you can achieve your savings target. However, there is always a way to achieve your financial goals, and with some smart financial decisions you can save up for that down payment quicker than you think.
Here are 5 ways to save money and achieve your financial goals.
Partner With A Financial Advisor
A financial advisor is invested in helping you achieve your financial goals. They will answer any questions regarding finances you may have and help you improve your financial literacy. They will also help you invest your money wisely so you can achieve your goals sooner.
Prioritize
Understanding what expenses are considered a need versus a want versus a nice to have is important when looking to save money. Needs should be prioritized above wants, and nice to have should be pretty much eliminated. Prioritization also comes in with your wants, as you should cut back on unnecessary expenses while still enjoying life. Achieving your long-term financial goal of saving for your large purchase or for a deposit on a home, should be a priority as well.
RRSP Contributions
If you’re intending to purchase your first home, you can withdraw up to $25,000 from your RRSP. This is an excellent approach to help save for a down payment, and it can help avoid financial distress. Not only will investing in an RRSP help to lower the total taxes you will need to pay at the end of the year, but you can also pay back the money to your RRSP in annual installments. You should discuss with your financial advisor for additional information on how withdrawing money from your RRSP for purchasing your first home will benefit you.
Tax-Free Savings Account
A tax-free savings account is a great solution for saving for a down payment. Your invested money can grow and accrue interest, tax-free. You won’t be responsible to pay any taxes on the growth of the money in this account. Your financial advisor can cover the nuances of this method of saving for your home’s down payment.
Pay Off High-Interest Debts
With today’s low-interest rates, you may be tempted to continue paying off the minimum payments on what you owe. It is important that you compare the amount your interest paid on your debts versus the amount of interest earned on your savings. Begin by paying off the higher interest debts first, this will allow you to pay down the principle quicker, and save on interest fees. Another benefit of paying off your debt is when the time comes to apply for a mortgage, you wouldn’t want past purchases to interfere with your approval.
When saving for a down payment for a home or saving for any other large purchase becomes a priority, you need to formulate a plan to achieve this goal. It is a good idea to have a professional on your side, start by partnering with a reliable financial advisor who can help you achieve your financial goals. Together put a plan in place, follow the plan, and achieve your targets.
How To Save For Retirement?
Planning for retirement is something that you can never start doing too early, but in reality is something many of us put off, and do not prioritize until later in life. When you are younger and working to pay off monthly expenses and to have some expendable cash for outing and frivolous spending, saving for your retirement may not even be a thought. But, at a certain point, you must ask yourself, how much longer do I intend to work? And, what type of lifestyle do I plan on living when the steady paycheques stop coming in? These are universal questions that almost everyone will ask themselves and perhaps even worry about. The earlier you begin saving for your retirement, the more comfortable you will be taking on these questions, and the more certain you will be about the type of lifestyle you can lead after retirement.
To assist you with preparing for retirement, we have put together these tips on how to save for your retirement.
Start retirement planning as early as possible
You may think it is too early to start planning for my retirement in my 20s or even 30s, but this is not true. Even though there is plenty of time before you begin to contemplate retirement, with every day that passes there is less time to prepare for it. The earlier you begin saving, the better off you will be. Every month try to save something for your retirement and put it in a separate saving account or RRSP. Even if it is only $25 a month, it is a starting point for your retirement fund. And by the time you are ready to retire, you will find that you were able to accumulate a nice sum of funds to help you enjoy your retirement.
The true power of starting early lies in the principle of compounding, where your earnings begin to generate their own earnings over decades. By giving your capital more time to grow, you actually reduce the total amount of out-of-pocket savings required to reach your ultimate goal compared to someone starting much later. Embracing this proactive mindset in your younger years transforms time into your greatest financial asset, ensuring that even modest contributions today evolve into a substantial pillar of support for your future self.
Make a budget and stick to it
A budget helps you control your expenses, by building a budget you set the amount of money you have to spend on different areas of your life on a monthly basis. For many, building a budget is not difficult, all you need to know is how much money is coming in and where to allocate the funds. Sticking to a budget is the hard part because you can always find a reason to justify buying something or spending money on a night out. Even though there will always be some unexpected expenses that will fall outside your fixed expenses, you are still able to account for these by budgeting some funds monthly for unexpected expenses. In your budget, you can help increase the amount you are saving by reviewing and reducing your non-essential spending.
View your budget not as a restriction on your current lifestyle, but as a strategic tool that empowers you to prioritize what truly matters. When you provide every dollar with a specific purpose, you eliminate the guesswork and emotional friction that often lead to overspending. This disciplined approach creates a sustainable rhythm for your finances, allowing you to enjoy your present life with the confidence that your long-term retirement goals are being consistently funded and protected.
Seek a professional
Saving is not the only way to prepare for your retirement, when selecting your career path, you can find a position with an organization that has great retirement benefits. However, this is not always an option. Another way to increase your funds for retirement is to have your money work for you. Having your saving just sitting in a low-interest account may be safe and comfortable, but your money is not growing at an optimum rate or even the rate of inflation.
Seeking the assistance of a professional financial advisor can help accelerate the rate of return on your savings. Once you sit down with a financial advisor, you will be introduced to all of the different options available for you to plan out your retirement. Your financial planner will guide you through the different options and the risks associated with each, they will also help you with your monthly budgeting to ensure you still have enough money to continue to enjoy your current lifestyle.
Taking Control of Your Retirement Journey
Saving for retirement is a marathon, not a sprint, and the strategies you implement today will define the quality of your life years down the road. By combining the power of early, consistent contributions with the discipline of a well-maintained budget, you create a dual engine for wealth accumulation. While the process requires patience and persistence, remember that even small adjustments to your daily habits can lead to significant financial shifts over time, providing the security and freedom you deserve in your later years.
The most effective retirement plans are those that are regularly reviewed and refined to meet life’s changing circumstances. Seeking the guidance of a financial professional can provide the clarity needed to navigate complex investment options and tax strategies, ensuring your hard-earned savings are working as efficiently as possible. By staying proactive and informed, you can move toward your retirement goals with the confidence that you are well-prepared for a vibrant and financially stable future.
5 Tips for Renewing Your Mortgage
With the most popular mortgage length in Canada being 30 years, chances are you will need to renew your mortgage term at least a few times before your home is fully paid off. If you are renewing your mortgage, the best-case scenario is to renew your mortgage on a new term with a lower mortgage rate. While it may be tempting to simply sign the first offer that arrives in the mail, doing so could cost you thousands in potential savings. By treating your renewal as a strategic financial milestone, you can ensure that your home remains an affordable and productive part of your overall investment portfolio.
Even though mortgage rates are directly tied to the policy interest rate set by the Bank of Canada, there are steps you can take to help ensure you get the best mortgage rate at the time of renewal. Proactivity is your greatest asset in a fluctuating market, as it allows you to lock in favourable rates before they potentially rise. Understanding the factors that influence lender decisions will give you the confidence to negotiate terms that reflect your current financial strength.
These include:
1. Take a holistic view of your finances
When the renewal forms from your current mortgage provider arrive, you should look at your current financial state and where you plan on being in the next 3-5 years. Ask yourself, does my current mortgage provider offer a product that works with my goals? For example, if you know you will be looking to move to a new home, city, or even downsize/upsize in the next few years, it wouldn’t make much sense to sign a five-year fixed-rate mortgage. Perhaps look for a 3-year mortgage instead. Your mortgage should never exist in a vacuum. It needs to complement your retirement savings and daily cash flow requirements. If you expect a significant change in income or family size, now is the time to adjust your payment structure accordingly.
If the new mortgage product offered to you will not go against your financial plans, accept it.
2. Don’t wait until the last minute to shop around
You should begin the process of looking into other lender’s rates a few months before your mortgage matures. You can even ask your current lender for their quote at this time. This will help avoid a last-minute scramble to find a new mortgage provider if you do not come to a new agreement with your current provider. Securing a rate hold early on can protect you against market volatility while you weigh your various options. This buffer period also gives you the necessary time to correct any errors on your credit report that might otherwise prevent you from getting the most competitive offers. Securing a rate hold early on can protect you against market volatility while you weigh your various options. This buffer period also gives you the necessary time to correct any errors on your credit report that might otherwise prevent you from getting the most competitive offers.
3. Request a better mortgage rate
Your existing mortgage provider will send you renewal forms or even give you a call in an effort to lock you into the current going rate. Quite often this works, as people are comfortable renewing with their existing provider, it is easy for them, and the rate is the same as what is advertised on their website. However, the posted is hardly ever their best rate and if you request a better rate for being a loyal customer chance are you will get one, especially if you are in good standing and have made all your previous payments on time. If you are told they cannot offer a better rate, ask if they will match a quoted offer from another institution. This is where the data you collected from your research early on can pay off.
4. Use a mortgage broker
When shopping for a better deal to refinance your mortgage, contacting a mortgage broker saves you time and stress. Mortgage brokers work for you and not the lenders, their main goal is to get you the best deal possible so you will sign with one of the providers they represent. A mortgage broker will provide you with a comprehensive list of lenders and their rates. Because brokers have access to a wide network of both traditional banks and private lenders, they can often find niche products that aren’t available to the general public. They can also handle the complex negotiations on your behalf, ensuring that you understand the fine print regarding penalties and prepayment options. This will save you’re the time and energy required to get multiple quotes yourself and will allow you to switch lenders easily and with peace of mind.
5. Start the re-mortgaging process early
On occasion, you may not want to renew with your existing provider. If this is the case and you wish to switch lenders. Do not wait until your mortgage matures, start your research as early as possible. The process of switching your mortgage provider is very similar to that of applying for a new mortgage. You will need to submit paperwork including a copy of your mortgage renewal letter, proof of income, proof of homeownership, and proof of property insurance. The new provider may take some time getting back to you with a rate and approval notice, so starting early affords you the time to complete the process without having to worry about running out of time.
In short, do not renew your mortgage without considering your options, and seek the assistance of a mortgage broker so that you will not need to do all the heavy lifting and research on your own. By following these steps, you turn a routine administrative task into a powerful opportunity to improve your financial health. A well-planned renewal is a vital step in the journey toward being mortgage-free and achieving long-term wealth.
5 Tips to Get Approved For a Mortgage
Owning a home of your own is a goal that many individuals have set out for themselves, the process of achieving this goal isn’t always simple. First, the decision needs to be made that it is time to jump into homeownership, then you need to find your ideal home, make an offer on the home that gets accepted, and finally qualify for a mortgage. The process can be as overwhelming as it sounds at times, but if you are well prepared the process will go a lot smoother. Taking the time to understand the requirements of lenders today can save you significant stress once you find the house of your dreams. Being proactive about your financial health ensures that you are seen as a low-risk, high-quality candidate when it comes time to sign the dotted line.
If you are a first-time home buyer looking to realize your goal of homeownership, we can’t help you find the perfect home but we can help you qualify for a mortgage by utilizing the tips below.
1. Assess Your Credit Score
Your credit score is not the only factor that is used by mortgage lenders when assessing an application, but it is an important factor. Knowing your personal credit score prior to applying for a mortgage will give you an early indication if your application will be approved. The minimum credit score usually considered for mortgage approval is 660, but that doesn’t mean you are automatically approved with a higher score or declined with a lower score.
It is a good idea to pull your credit report early to check for any errors or outstanding collections that could negatively impact your rating. Improving your score even by a few points can sometimes qualify you for a much lower interest rate, saving you money for years to come.
2. Prepare for a Down Payment
Having a significant down payment for the purchase of your home is a positive in the eyes of the lender, this shows that you have prepared for the purchase and have some personal equity involved in the purchase. It is unrealistic to approach a mortgage lender without having a meaningful down payment. In addition to your credit score, your down payment size also plays an essential role in getting you approved. Having a down payment of around 20% of the property value will greatly assist in your mortgage approval. Reaching that 20% threshold also allows you to avoid the additional cost of mortgage default insurance, which can add thousands to your total loan amount. Even if you cannot reach 20%, every dollar you save now reduces your future monthly interest payments.
3. Your Income Matters
It is extremely important to provide evidence of a steady flow of income to repay the mortgage. Lenders will likely not be willing to approve an application by an individual that does not have the annual income to sustain the property being purchased. Avoid changes in your career prior to your mortgage application, if you are thinking of changing companies or starting your own business, hold off until you have possession of your home. Lenders do not like uncertainty in employment. Stability in your professional life suggests to the lender that your ability to make payments will remain consistent over the long term. If you are self-employed, be prepared to provide at least two years of tax returns to prove your income is reliable and sufficient.
4. Pay Off All Existing Debts
Another way to get approved for a mortgage fast is by paying off your existing debts. When you are debt-free, it will boost your chances of getting quick approval. A lender may refuse your application if you have too much debt as they may feel that you do not have the capacity to make all of your payments on time. Keeping a nil debt profile will affect how much you can borrow, as it also affects your credit score. More debt means lower chances of getting approved.
Reducing your credit card balances and car loans improves your "debt-to-income" ratio, which is a key metric lenders use to determine your maximum loan amount. The less you owe to others, the more a bank will be willing to lend you for your new home.
5. Get Pre-approved
Contact your mortgage lender for financial evaluation and pre-approval. The process considers your financial status, and it is valid for 90 to 120 days. The assessment of your financial situation and a pre-approval will help expedite your search for the perfect home as you can focus on properties that are within your pre-approved price range. This will also help you move quickly on making an offer on a home you like, as you know you will be approved for the mortgage.
Turning Your Vision into Reality
Achieving homeownership is a marathon, not a sprint, and these foundational steps are designed to keep you on the right track. By focusing on your credit, savings, and debt management today, you are doing more than just satisfying a lender. You are building the financial discipline needed to maintain a home for the long term. While the paperwork and requirements may seem daunting, remember that each step brings you closer to the front door of your new house. With a solid plan and a bit of patience, you can navigate the mortgage process with confidence and secure a future in a home of your own.
How Do I Build an Emergency Fund?
No life is without its hassles, being able to successfully withstand any unexpected financial challenges will reduce worry and provide a positive outlook. Building an emergency fund is a great way to reduce the impact from unforeseen financial challenges that may pop up in the future.
What Is an Emergency Fund?
An emergency fund is basically money set aside, most often in a separate bank account to help take care of unforeseen expenses. That can arise including medical expenses, major car repairs, emergency home renovations, home-appliance repair or replacement, sudden unemployment, or a pandemic. Not having emergency funds set aside to handle these unforeseen issues can lead to high levels of stress, frustration and may leave you feeling helpless.
Building an emergency fund is not always simple, it requires planning and a strategy. Seeking the support of a financial advisor for advice and guidance can help make the journey more manageable.
How to Build an Emergency Fund?
There are a lot of differentiating strategies online about how to go about building an emergency fund. Some of it may be confusing, or slightly overwhelming. Here is a simple guide on how to begin.
Contact a Financial Advisor
It is best to contact a professional for guidance to help you set goals and to achieve them. A financial advisor will ask you several questions about your current financial situation and will help design a feasible plan.
Decide How Much to Save
Having a targeted savings amount and a time frame to achieve your goal may help keep you on track. Based on your consultation with the financial advisor which should have included your income, expenses and current savings, a goal can be set based on the figures which include weekly and monthly amounts.
Where to Put Your Emergency Funds?
An important decision that your financial advisor can assist with, is where to put your savings. Will you choose to keep it in a savings account, or perhaps an RRSP (Registered Retirement Savings Plan) or a TFSA (Tax Free Savings Account) or some other form of investment account. This decision needs to be made based on what your goals are, just remember the purpose of an emergency fund is to have quick access to funds to help handle any unexpected financial needs, so don’t tie up your funds in a long term investment.
Automate Your Savings
The easiest way to ensure you remain on track to achieve your emergency fund goals is to have a standing order on your daily banking account to enable a preauthorised amount to be automatically transferred into your emergency fund account or investment monthly.
Takeaway
It is never too late to start building an emergency fund, seek advice from a financial advisor, set a target, and keep to it by preauthorizing your savings transfers. You will be surprised how much money you can save in a short amount of time.
How to Better Prepare Financially if there is Another Pandemic?
There is no denying that the COVID pandemic has been a frightening experience, most are worried about their health and the well-being of friends and family. The economy throughout the pandemic has also been frightening to observe. The only thing people were certain of is that we were headed into uncertain financial times. The advice from many in the financial industry was to not panic and to continue to follow the plan you had in place prior to the pandemic. After all, investing is a long-term game, and trying to time the market hardly never works.
As most Canadian provinces begin to reopen, people are hopeful that life will begin to get back to normal. However, it is tough to ignore the financial impact the pandemic has brought with it. You may have lost your job or faced reduced income, if you are a business owner you probably had a decrease in revenue and had to make some hard decisions about your business and your spending. All of this took many by surprise, and many were not financially prepared. Leading to the question, how can you better prepare in case another pandemic hits?
Have an Emergency Fund
At times of financial uncertainty, cash is king, and ensuring you have enough cash on hand to cover basic living expenses for 3-6 months is a good place to start. In the case of a pandemic, you cannot really be sure how long your income will be stalled for. Having an emergency fund to help you cover your family’s day to day expenses is crucial in helping you remain mentally healthy during these unforeseen times. Worrying about your family’s health and safety as well as finances can take a toll on anyone, and can lead to fractures in the family unit as stress levels will be extremely elevated. Having this emergency fund does not mean you will not be worried about finances, it will however relieve some of the anxiety associated with the financial uncertainty. Building these emergency savings is not an easy process, and most of us don’t have this kind of money available to just put aside. Setting up a monthly transfer from your daily banking account to an independent emergency account can help you save over time.
Build a Budget
By keeping track of your average monthly spending, you will easily be able to review your expenditures and eliminate any non-essential spending. Having the ability to reduce spending early into a pandemic will help stretch your savings further, and give you more financial security. There are free budgeting applications out there that will help you keep track of your expenses if you are not into learning new software you can always use a spreadsheet or even a pen and paper to keep track of your spending. It’s a good idea to cross-reference what you have recorded versus what is shown in your bank and credit card statements monthly to ensure your records are accurate.
Diversify Your Investments
Ensuring your investments are spread across different assets will help manage your risk during any unexpected downturn. Partnering with an experienced financial advisor will help give you the inside track on where to place your investments, they will also be there to look for any early signs of volatility. Over time a diversified portfolio should yield a higher return while providing lower risk than any individual holding. I said it before and I will say it again, investing is a long-term game, and having someone there to help you achieve your goals is undeniably a benefit.
There is no sure-fire way to completely protect yourself from an unforeseen financial downturn like the COVID-19 pandemic, but you can be financially prepared to navigate the next pandemic by making a few minor adjustments and building a few positive habits.
COVID-19 Support For Small Businesses
If you are a small business owner, chances are that it is not business as usual for you and your team. The COVID-19 pandemic has forced many businesses to take a close look at their operation. If your business has been deemed an essential service by your province, you had to look at how you continue to operate while maintaining a safe environment for your staff and customers. If your business was not on the list of essential businesses but was still able to operate at a distance, telework and video meetings has become your new norm. For those businesses in industries that were required to temporarily close without a way to continue to work at a distance, you are probably waiting anxiously to hear about how and when your province will reopen and trying to plan for what your new norm will look like.
Both the Provincial and Federal governments have developed programs to help small business owners through this unprecedented time. Not all businesses will be approved for all programs, but if you have experienced a significant reduction in revenues, you may qualify for support for your business with the below programs.
TEMPORARY WAGE SUBSIDY
Eligible employers will receive a three-month temporary 10% wage subsidy. This will be in the form of a reduction in the total amount of payroll deductions you are required forward to the CRA. Eligible businesses must possess a business number and a payroll account with the CRA as of March 18, 2020 and must have been paying salaries, wages, bonuses, commissions to qualifying personnel.
Key Details:
Dates: March 18, 2020 to June 19, 2020
Subsidy: 10% of the remunerations paid during the eligible period
Allowances: Maximum of $1,375 for each eligible employee. Maximum subsidy of $25,000 per employer
Application Process: No application is required; however, each employer is responsible for calculating their own permissible subsidy. The amount of the subsidy is subtracted from the payroll remittance that you send to the CRA monthly.
CANADA EMERGENCY WAGE SUBSIDY (CEWS)
The CEWS was created for Canadians to retain their current employment by providing employers that were facing serious reductions in gross revenues. The program is set to run for 12 weeks and the subsidy will cover up to 75% of employee’s wages during this time. Qualifying employers will also be eligible to receive a 100% refund for specific employer contributions to CPP, EI, QPP, and QPI for employees that are on leave with pay.
Key Details:
Dates: March 15, 2020 to June 6, 2020
Subsidy: 75% of an employee’s wages during the eligible period. Gross revenues must have dropped by a minimum 15% in March and 30% in April and May.
Allowances: Maximum of $847 per employee per week. If you are eligible for the Temporary 10% wage subsidy, the amount of your benefit from that program will be subtracted from the amount you are eligible under CEWS for the same period.
Application Process: The quickest way to apply is by using the CRA My Business Account. Take advantage of the calculator tool to determine your subsidy amount to simplify the application process. We also suggest setting up direct deposit with your payroll account to get access to the subsidy quicker.
CANADIAN EMERGENCY BUSINESS ACCOUNT (CEBA)
This interest-free loan is intended to assist small businesses and not-for-profits cover their daily operating expenses during the time of reduced revenues. To qualify for the up to $40,000 loan, you must have paid between $20,000 and $1,500,000 in payroll for 2019.
Key Details:
Dates: Application process is now open, if the balance of the loan is repaid by December 31, 2022, 25% of your loan will be forgiven.
Allowances: Up to $40,000 loan
Application Process: Applications are submitted through the banking institution associated with your main business account.
CANADIAN EMERGENCY COMMERCIAL RENT ASSISTANCE (CECRA)
The CECRA has not been implemented yet, but the federal and provincial governments are collaborating to provide commercial rent relief to those businesses hardest hit by the COVID-19 crisis. The program will provide landlords with qualifying commercial properties forgivable loans that will cover 50% of the rent for a 3 month period, if the landlord agrees to reduce the rent by 25% during this period, effectively leaving the eligible small business owner to cover 25% of their rent for April, May, and June.
Key Details:
Dates: Expected to be operational by mid- May and apply to April, May, and June rent.
Allowances: To qualify, a tenant you must be paying less than $50,000 in rent per month, and have experienced a minimum 70% drop in pre-COVID revenues.
Application Process: Full details are not available yet, but it will be the landlord’s responsibility to apply for the CECRA in support of their tenants.
The above highlighted programs are just a few of the available programs developed by the Federal and Provincial governments to support small businesses. For a full list of available programs visit Canada’s COVID-19 Economic Response Plan. Whether you qualify for any of the above programs or not, we suggest you consult with your accountant and financial advisor to better understand your expenses, available cash and to build a financial plan that will assist you as you navigate this challenging time.
Get Ready, Get Set for Tax Time
Many people feel overwhelmed at tax time. If your clients do their own taxes and are confused or don’t know where to start, here’s a quick primer to help them file their personal tax return. Hand it out at your next meeting, or fire it off in an email — it’s a great way to remind your clients you’re here to support their financial well-being.
Tax Time Crib Notes
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- The deadline for filing a tax return is just around the corner: June 1 for personal and June 15 for the self-employed.
- Submit your return on time. If you owe taxes, you’ll pay a late-filing penalty of 5% of the tax owing plus 1% for each month you’re overdue, up to 12 months. You’ll also pay interest on the amount owing, plus on the late-filing penalty, starting May 1. Interest is compounded annually. If you miss more than one year, you’ll pay even more.
- T4 and T5 slips are supposed to be mailed by February 28. Collect all your slips before you start and keep everything in one place. (This will also prepare you in case the Canada Revenue Agency asks you to provide any slips or receipts.) Follow up with financial institutions and other issuers if you believe something is missing.
- If you’re married or living common-law, consult with each other before you file. If you’re working, for example, make sure that the one with the higher income claims certain credits — and make sure you don’t both claim the same thing. If you’re retired and there’s a large difference in income, you could jointly elect to split pension income.
- Check last year’s Notice of Assessment for important information such as RRSP contribution limits and repayments to the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP).
- Gather charitable receipts. You’ll receive a federal tax credit of 15% on the first $200 of donations, and 29% of the remainder. (There’s also a smaller provincial credit.) Consider pooling receipts with a spouse (letting the higher income-earner claim), or carry forward up to five years, if that gets you a higher tax credit. If you’re a first-time donor you may be able to get an additional 25% on the first $1,000 of donations.
- Collect all medical expenses for yourself, your spouse or common-law partner and minor children. You’ll get a tax credit for amounts over 3% of your net income or $2,397, whichever is less. You can make the claim for any 12-month period that ends in the 2019 tax year. (If you’re also claiming for a dependent, you need to use the same 12-month period.) Check which expenses you can claim before you submit.
- Claim RRSP contributions. Deposits made in January or February of this year can be claimed now or carried forward to next year. Check last year’s Notice of Assessment to confirm how much you can claim without penalty.
- Be sure to claim all that you are eligible for if you are a full-time student or graduate of a recognized post-secondary institution, if you paid union dues or certain professional membership fee, if you bought a home last year if you care for an elderly parent or a family member with a disability.
- Check your return, tax-filing software or the CRA website for complete lists of what is claimable and what is not.
- If using tax filing software, be sure to check overall fields before filing, including auto-filled fields, to ensure all information is correct and up to date.
If you have any questions or your tax situation is more complex than most, don’t hesitate to reach out. At Awealth, we have a team of tax experts to help with complex situations.