Staying current is important for our business and yours. These tax publications and resources are provided for your use. If there is information or issues that you need clarified, don’t hesitate to contact us.
Year-end tax planning ahead of 2021
December 19, 2020
People spend a lot during the holiday season. There are gifts to
buy, foods to prepare, furniture and appliance to upgrade. Think twice before
you spend a lot this year.
For those who received
Canada Emergency Response Benefit (CERB) payments, no income tax was withheld
at source. The Canada Recovery Benefit (CRB) is also taxable. The government has already withheld 10% of the amount paid for tax purposes. However, the amount withheld could be insufficient. In addition, if your annual income is greater than $38,000, you will have to reimburse 50% of the sums received in excess of this amount. In addition, tax deductions may be less than in previous years. With childcare facilities
closed, work travel halted and medical services like dentistry on hold, the
corresponding tax deductions or credits may be lower. This combination could put you in situation unlike previous years- a higher tax bill for example.
If you received overpayments, you must repay them before December
31, 2020. If you do so after that date, the T4A will show the total received
without taking into account any refunds made in 2021. You will therefore have
to pay tax on overpayments. In addition, your government benefits based on your
income, such as children’s allowances, will be reduced.
You must therefore plan ahead. The amount of tax payable depends on your marginal tax rate. This is based on all of your income for the year 2020, including benefits.
While no two client scenarios are the same, here are some ideas to plan ahead for tax savings :
Medical expenses for you, your spouse, your minor children, or other dependents. Ask the relevant professional to give you a receipt that covers your expenses for the year;
RRSP contribution-Using current year or carry-forward RRSP amounts could be a simple way to create a deduction, lowering 2020 income and taxes payable.
plan to withdraw money from your TFSA?
Thinking of withdrawing money from your Tax-Free Savings Account
(TFSA) in early 2021? Instead, do so before December 31, 2020. You will then regain
your contribution room as of January 1. This strategy will prevent you from
waiting for another calendar year.