2019 Taxes! 😲 Are you getting a refund this year? – Cats of Wall Street – EP.4 – Canadian Taxes


Fiona: Since we’re in the midst of tax season, this episode, we will go over the basics of
filing personal taxes as well as provide some tips Nancy: Welcome to the Cats of Wall Street I’m Nancy, Fiona: and I’m Fiona. We are Canadian professionals who have been in
the financial industry for over 10 years, and we started this online series to talk
about money from a woman’s perspective. Nancy: If you have questions or topics you want
to know more about, please leave a comment and we will try to incorporate this
into our future episodes. Now let us get started. Welcome to a happy hour. Well, February went by fast
and now is tax seasons again. Time to pay the tax man, or in some cases,
get your money back without interest. Fiona: Many of you are probably dreading this time
of the year, but if you’re organized and planned ahead such as budgeting for appropriate RRSP
contributions and using applicable tax credits, you might be getting a windfall fall
instead of having to pay more taxes. Nancy: Before we dive into this episode, keep in
mind that everyone’s tax situation is different and we’re covering just a general basic
information, which may or may not apply to you. If you have specific questions about your taxes,
it is best to seek advice from a tax professional who can personalize a recommendation
based on your financial situation. So with that in mind, let’s get
started on this fun and exciting topic. Fiona: Woo. Alright. So if you earned income during the year,
you should file your income tax return. And do it on time. Even if you think you don’t owe any taxes because
there is a penalty plus interest charged, and unless you’re leaving the country
forever, they will find you. On the bright side. You never know. You might actually get a refund. Nancy: Yeah. Income could be anything from rent, interest,
capital gains, dividend to your employment income. There is also different tax treatment on
the different type of incomes you earn. Fiona: Earned income such as rental income and
employment income are fully taxed at a marginal tax rate. Interest income is also fully
taxed at a marginal tax rate. Nancy: Capital gains are earnings
from buying and selling investments. There is a preferential tax stream and for capital
gains, currently only half of the gain is taxed. As for dividends, there is a gross up and
dividend tax credit, which is a tax advantage. Fiona: So why do we call it a tax season? That’s because a deadline for filing a tax return
for personal taxes is April 30th for income earned in the previous calendar year,
January 1st to December 31st Nancy: Unless your cell phone employed. The deadline to file is June 15th but any balance
owing must be paid by April 30th at the latest. Fiona: Corporations and trusts might have
different deadlines, but we’re not getting into those two. Nancy: To file your personal tax, you’re filling
into T1 general, which is the individual income tax form to submit to the CRA. You can fill in this form by hand, which can be
challenging or the CRA actually encourages you to fill in electronically through the NEFILE system. Or alternatively, you can file your taxes with
a professional such as an accountant or a tax preparation company. Fiona: The first step to prepare your taxes is to
go through your mail or swearing under your breath as you are trying to remember your online password
to log into your investment firm to download all the tax slips like a T3, T4, T4A, and T5. Nancy: Now you may be wondering, WTF are
these tax slips and why are there so many? Let us go through these different types of slips. Briefly. Fiona: Some exciting stuff here. All right. A bit of this to get through that. Okay. I guess we will go through these tax lips in
numerical order, starting with the T3 slip. It is a statement of trust, income allocation that
lists out the amount of income such as interest dividends, and capital gains that an investor has
received during the year by holding mutual fund units in a non-registered account. Nancy: A non-registered account is a regular
investment account that does not have any tax deferring or tax sheltering
benefit like an RRSP or a TFSA. And if you’re a trust fund baby or a beneficiary
to an estate, you will also receive a T3 for the income that was distributed to you
through the trust or the estate. Fiona: Next up is a T4 which is
a statement, a remuneration paid. The T four is issued to you by your employer,
and it outlines a total compensation received and taxable benefits provided. There is generally an amount that’s withheld that
source, so if your employer withholds more than what is required, you will
be able to get a tax refund. Nancy: A T4A is the statement of pension
retirement, annuity and other income. This slip provides details on amounts received
from a pension plan, annuities, scholarship, or a RESP Fiona: T4RSP or T4RIF are for income you’ve
received from either making it withdrawal from your RSP or RIFF during the year. Nancy: T5 is a statement of investment income that
includes interest, dividends, and capital gains paid to you. These could come from even your regular
savings account that pays interest. Fiona: And finally, the T5008
statement of securities transactions. This is for those of you who have sold some
securities such as stocks or bonds, which would have resulted in realizing
some capital gains or losses. Nancy: These are all the common
tax slips that you might receive. There are other tax slips that we will not be
covering today, because as mentioned earlier, we’re only reviewing the basic taxes. If you need more customized tax advice, it is best
to consult with a tax professional who can review your specific tax situation. Fiona: Okay, so now that you have gathered
all your tax lips, what do you do? The first step in filing your taxes is to
calculate your total income, which consists of but is not limited to employment income, rental
income, business income, interest income, gross up dividends, and taxable capital
gains from investments. Nancy: This is where the T slips that
we listed off earlier come into play. If you’re using a tax filing software, simply
enter all the boxes you see on the slip and it will sum up your taxable
income for the previous year. Fiona: Step two is to calculate your net income. This is a crucial step in tax planning because
this is where you get to claim any applicable deductions. Deductions reduce your taxable
income, dollar for dollar. Since the Canadian tax system is based on a
schedule, a progressive tax rates as income increases, lower income earners are tax at
a lower tax rate than high income earners. Nancy: By applying the deductions, you’re lowering
your income and doing so could put you in a lower tax bracket, which could lower the
amount of taxes you need to pay. Fiona: The most common tax deduction that you
most likely have been hearing about is an RRSP contribution. Unfortunately, if you’re watching this now,
you have already missed a deadline to make a contribution for 2019 oops. You’re allowed to make contributions for
up to 60 days after the calendar year end. If you miss a contribution or do you don’t
have the funds to make the maximum allowed contribution, don’t worry. The available a contribution room is
and carried forward into future years. Nancy: RRSP contribution
is a way of tax deferring. By putting money into an RRSP, you’re lowering
your taxable income for now and paying taxes on the withdrawal later. While you defer taxes, the amount that was
deferred can be invested an interest or not, that can compound without taxes. Fiona: The idea of different taxes, assuming that
you are currently in a higher tax bracket while you’re employed and earning
income, than when you are retired. So by deferring the income to retirement, the
income received then will be taxed at a lower tax rate. Nancy: You can cash out of your RRSP anytime, but
your financial institution is required to withhold taxes on the withdrawal. The amount withdrawn for an RRSP is also included
as part of your income during year of withdrawal. Fiona: The withholding tax rate depends
on the amount that was withdrawn. If it is under $5,000 then the withholding tax
rate is 10% and for amounts between $5,000 to $15,000 the withholding rate is 20% and finally
it is 30% on any amounts of were $15,000. You can, however, deduct the withholding tax
against your taxable annual income so you do not pay double the taxes. Nancy: There are ways that you can access
the money and the RRSP early without the tax implication such as the First Time Home
Buyers plan and the Lifelong Learning Plan. We will discuss more on that
in our future episode on RRSPs. Fiona: So back to deductions. Some other than actions include deductible
investment loan interest, but not RRSP loans. The CRA does not allow you to claim
an RRSP contribution deduction. And then take out a loan and
deduct interest off of it. That is too good to be true and the CRA
does not allow double dipping unfortunately. Nancy: There is also the childcare expense
deduction, which can be used within limit and it’s usually claimed by the lower income spouse
unless both parents attend school full time. Fiona: There’s also a spousal support deduction,
stock option, deduction net capital loss carryover from previous years, or moving expenses deduction. If you’re unsure whether or not you’re eligible
for the deductions, please check with a CRA or an accountant. Nancy: Now that you have applied all the
deductions, you have your taxable income, which is what you use to calculate taxes owing. Fiona: As mentioned before, the CRA has a
progressive tax system, so your total taxable income is broken down in two different tax
brackets, which is subject to change by the federal budget. For 2019 the first income threshold is subject to
15% of federal taxes on the first $47,630 of your taxable income. So the first $47,630 that you make, you
will pay the lowest amount of taxes. Nancy: The money earned in addition to $47,630 but
less than $95,259 is taxed at a slightly higher federal tax rate at 20.5%. Fiona: If you make more than $95,259 the portion
of taxable income over this amount up to $147,667 is taxed at 26% on the federal level. Nancy: This keeps going up gradually, and there
are currently five tax brackets with the highest federal tax rate of 33% on income over $210,371. For provincial tax rate, Please visit the CRA website based on
where you reside as of December 31st. Fiona: That must have been clear as mud. Let’s go over an example. Let’s say your annual income is
$65,000 and you live in Ontario. Based on the progressive federal tax rates, the
first $47,630 is subject to 50% of federal taxes and the excess income over $47,630 but under the
next threshold of $95,259 is $17,370 and that is tax at a higher rate of 20.5% in this year. Nancy: So how much federal tax will you owe? $47,630 times 15% is $7,144.50 and
$17,370 times 20.5% is $3,560.85. Fiona: That means a total federal taxes you owe
will be the sum of $7,144.50 And $3,560.85 which comes to $10,705.35. Nancy: Let us not forget the provincial taxes. Canadian residents are taxed by both
the federal and provincial government. Ontario’s provincial tax rate
on the first $43,906 is 5.05%. So on the $65,000 annual income, it would be the
first $43,906 times 5.05% which comes to $2,217.25. And the balance up to $21,094
times 9.15% is $1,930.10. So the total Ontario provincial tax is $4,147.35. Fiona: Hoof. Adding all that up comes to $14,850.70 which
is your total taxes payable on your income of $65,000. If we divide your taxes payable by your pretax
income, we will get your effective tax rate or your average tax rate of 22.85%. This is different from your marginal tax rate,
which is the same progressive tax rate you pay on your next additional dollar of income. If your annual income is $65,000 then the federal
tax you pay on the next dollar you earn is 20.5% as discussed earlier, until your income reaches
the next tax bracket at $95,259 which would put you at the marginal tax rate of 26%. Nancy: From that amount, you would then subtract
the non-refundable personal tax credits, dividend tax credits, and foreign tax credits
to get the net federal tax payable. Fiona: Tax credits are a little
different from tax deductions. Deductions lower the amount of taxable income
used to calculate the taxes you pay, whereas tax credits lower your payable taxes. Deductions have more tax advantage because it
reduces a total of taxes paid, especially if you earn a moderately high income based
on our progressive tax system. Nancy: Non-refundable tax credits are credits which
cannot be applied beyond the taxable income of $0. Everyone gets a basic personal tax credit,
which is index to the inflation every year. In 2019 the credit was $12,069. Fiona: Tax credits are multiplied by a percentage. The basic personal tax credit is multiplied by 50%
so the credit comes to $1,810.35 that you can claim against your taxes. Nancy: Students or their parents can claim a
nonrefundable tuition tax credit of 15% against textbook costs, exam fees,
application fees and so forth. Please check the CRA website for more details. Fiona: There is a first time home buyer tax credit
up to $5,000 at the federal tax rate of 15%. There are some caveats to whether you’re eligible,
so please check the CRA website as well. Nancy: If you make any donations throughout the
year, you can also claim a donation tax credit. Any donations over $20 is
eligible for a donation tax slip. Make sure you keep those slips filed away safely. The first $200 of donation you make is eligible
for 15% federal tax credit as well as a provincial tax credit. Fiona: Any donations beyond $200, you’re
eligible for our 29% federal tax credit. If your income is above $200,000 you will receive
a 33% federal donation tax credit that equals the amount of income you earn over $200,000 Nancy: Tip alert: if you’re going to donate money. Donate in the amount of $20 or higher,
so you can get a donation tax slip. Fiona: Also, unclaimed donations
can be carried forward five years. So if you make small donations and it’s better to
amalgamate several years worth of donations to get over the $200 threshold and get a higher
donation tax credit and pay less taxes. You can also claim your spouse’s
charitable donation tax credit. So you should combine you and your spouses
donation receipts and have the higher income spouse claim the credit. Nancy: Throughout the year, you may have already
prepaid some taxes, or if your employer has been withholding taxes for you. This is where you would subtract it. So if you have paid more than what
is due, you will get a tax refund Fiona: or if you have not been paying enough
taxes, you’ll then need to pay the taxes due by April 30th. If you owe more than $3,000 for more than two
years in a row, then you will need to start remitting quarterly tax installments. Nancy: Some tips on tax planning, budget
for an RRSP contribution and taxes payable. Review your paycheck and see how much
taxes are being with withheld at source. If they’re not withholding enough taxes, then
you will need to budget for quarterly taxes installments or a lump sum due on April 30th or
make regular RRSP contributions to help lower your taxable income. Fiona: Or if your employer is witholding too much
taxes from your salary at source, you will likely get a big tax refund. I know that most people look
forward to getting a refund. Nancy: Yeah, that’s what motivates me to
get my taxes filed sooner rather than later. But it may not be the financially smart thing
to do because if you’re getting a tax refund, it means the CRA has been holding onto that money
for you and not paying you any interest on it. Fiona: If you know that you’re expecting to
receive a refund, you should review the TD1 form you filed with your employer and request
that they reduce the source withholding. Or you can also ask your local CRA district office
to permit your employer to reduce your source withholdings for deductions not normally provided
for on the TD1 form such as RRSP contributions and alimony and maintenance. Please consult your tax advisor if you
think this might apply to your situation, Nancy: But if you are already getting
a refund, what should you do with it? Fiona: Hmm. I guess I am now on track with saving up for my
honeymoon to Italy and maybe my husband can start having lunch again. Nancy: Yeah. Maybe you can increase your budget for the liquid
consumption for you and your friend as well. Fiona: Right. or I can set the money aside. And make an RRSP contribution early for next
year, since retirement is a big goal of mine. Nancy: Yeah. It is generally encouraged that you contribute
sooner rather than later because the money in your RRSP is not subject to taxes until withdrawn. So while they remain in the plan, the
income earned can compound without taxes Fiona: or if your goal is short term, like a trip. or your children’s education, you can consider
putting your tax, refund it into a TFSA or an RESP. The goal is to put the funds to work
and not spend it all in one place. Passive income, baby. Nancy: Now, if this episode’you
depressed, do not worry. Next episode we’re going to talk about
getting money instead of losing money. We will dive into different sources
of income in our next episode. As you have figured out by now, filing your taxes,
there are different sources of income rather than just salary. Fiona: We will talk about employment income,
passive income, capital gains, and dividends. What do you want to learn more about? Send us your questions in the comments below. Nancy: If you liked this episode, please
subscribe and hit the thumbs up button. You can also tune into this episode and audio
only format on Spotify and Apple Podcast. Fiona: Cheers. Nancy: Yeah.

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