The following is general tax filing information that may or may not apply to you.
Our clients will be receiving a tax package from their Portfolio Management team onlyif you have a Non-Registered account and there was activity in your Non-Registered account(s) in 2022. If you do not have a Non-Registered account you should not expect to receive this.
The tax package includes a Statement of Annual Management Fees, Foreign Asset Report, and a Realized Gain & Loss Report for Non-Registered accounts if there was any activity in 2022. You will need the Gain & Loss Report to pair with your T5008 tax slip that you will receive from your Custodian. The Gain & Loss Report provides the book value of activity in the account, while the T5008 provides the proceeds of disposition. Please provide both documents to your tax preparer. If there was no activity in your Non-Registered account or you do not have a Non-Registered account, you will not receive these forms.
Special Reporting: Our Portfolio Managers may invest in certain holdings which have a different type of reporting. The distributions for Non-Registered accounts that contain these holdings are reported on CRA Form T3 and/or T5013. These forms are expected to be sent out near the end of March. Your Portfolio Manager advises you to wait until after March to file your return to ensure you receive all necessary slips.
Note that if you have made an RRSP or Spousal RRSP contribution in the first 60 days of 2023, the deadline for mailing these slips is the end of March.
Please ensure you have received all necessary slips before filing your 2022 tax return. If you are signed up for online access with NBIN and have your preferences set to electronic delivery, your tax slips are available online only. Therefore, you will need to login to your account to check for tax slips as there will not be a hard copy mailed.
Today we’re talking about another common question from clients – what is a RIF and how does it work?
A RIF is simply a conversion from your Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund. So the income version of the tax sheltering that you receive from a registered account. A RIF is set up so you can continue to enjoy growth on your assets without paying tax as the assets grow.
Of course, you are going to be taxed when you take money out of your RIF. So how does that work?
You have to convert your RRSP to a RIF at age 71, and you must begin to draw income out of the RIF at age 72.
You can convert to a RIF prior to that if you choose to. You can also convert partially to a RIF from your RRSP account if you choose to, which can be a great way for you to use the pension tax credit for example.
So how much do you take out of a RIF when it’s time to convert? You have to take out a designated amount that’s specified by the Government as a percentage of your assets. Your assets will be calculated on December 31 of the previous calendar year and a percentage applied to it based on what CRA determines. This will give the minimum amount that you have to take out of your RIF once it’s in RIF format. You can always take more out of your RIF if you choose.
When you take money out of your RIF, it is taxed as ordinary income. The RIF minimum will not be taxed immediately, but you need to consider it in your tax planning for the year. Anything over and above RIF minimum will incur a withholding tax, and that portion will be taxed as you go. You can ask to have your RIF minimum taxed as you go as well, but it’s not automatic.
Another common question we get asked is whether you are taxed twice on a RIF? And the answer to that is absolutely not.
When you make a contribution to your RRSP in your working years, typically you are at a much higher income than you are in your retirement years. Often this means you get a great tax benefit throughout your working career to make those RRSP contributions. Following that up, you pay a much lower rate of tax when you draw that money out from your RIF.
So are you taxed on your RIF? Absolutely, but you’re certainly not double-taxed. And typically, you are seeing a significant benefit in terms of tax planning from your working career to your retirement years.
If you have any questions about how your RIF fits into your financial plan, please contact your advisor or give us a call.
If you feel confused when you look at your investment statements, you’re not alone. We often get asked how to read and understand the information on these statements. In this video, Kelley Doerksen walks you through the key information you will typically find on your statement and what it represents.
On a typical investment statement, you’re going to start by seeing the book value. The book value represents the cost of your investment, so the amount that you’ve purchased as well as any additional dividends or distributions that have been added to that particular position or security. That book value is going to be all of those contributions less any withdrawals that you’ve made on that security.
You’re also going to see the market value, which is the amount that particular position or security would sell for on the given day. Book compared to market value is important information when you’re looking at an investment in a Non-Registered account particularly because that’s going to indicate some of the taxation information that you might need to know.
The difference between book and market is going to be your gain or loss. If you’ve got an unrealized gain or loss, it means that you haven’t sold that position, and you are going to eventually realize that gain or loss when you make a disposition.
Our clients will also see income on current positions on their statements. This represents for most of our clients, the dividends that they’re earning on that particular holding. It could also represent the interest income that you’re earning on the bond position.
Another really important piece to your statement of course, is the performance. So, on your statement you’re going to typically see a net result – what your portfolio has done less fees have already been considered. That’s typically going to be a percentage, and you’re going to see that indicated for short, mid-term, and long-term performance. The most important indicators tend to be the longer-term history of your portfolio performance because it shows how consistent your performance has been and what a job your portfolio manager has done for you.
You’re also going to hopefully see fees in a clear and transparent way. Your statement should show what you’re paying for the cost of fund management and for the cost of advice that you’re receiving.
Another important element to your statement is going to be the asset allocation. That’s going to show you the amount of stock versus bond, or fixed income that your portfolio holds. Every client has a different asset allocation depending on their needs and their level of growth desired, and this is going to be indicated on your statement. You will typically see a listing of all of your stocks together with a percentage that you hold in stocks as well as a listing of your fixed income posted together with a percentage there as well.
If you have any questions about your statements, how to read them and what they mean, we’re always happy to help so please reach out to one of our advisors. To learn more about the type of investment solutions we offer, visit blackburndaviswealth.ca.
We often get asked what the differences are between a TFSA (Tax-Free Savings Account) and RRSP (Registered Retirement Savings Plan) account.
We’ve put together this summary to review the primary differences and rules pertaining to each account. If you have any questions, please reach out to us here.
TFSA (Tax-Free Savings Account):
There is no deduction available, but no tax on withdrawals
TFSA contribution limit is cumulative, less contributions; withdrawals provide room back (including growth) in the new calendar year
Can be used for short-term savings, mid-long term, and estate planning
Can name spouse as successor owner, and beneficiaries for estate planning
Withdrawals do not generate a tax slips; drawing money out does not impact income-tested benefits
You must be 18 years old in order to open a TFSA, and can contribute and withdraw based on the plan rules for your lifetime
Can invest using many of the same types of investments as within an RRSP or Non-Registered account
You might be required to pay non-resident withholding tax on US situated investments
There is no need at any time to convert your TFSA to an income plan, it can be held as-is until your death if desired
RRSP (Registered Retirement Savings Plan):
Deduction provided against T4 earnings; suitable if you are earning employment income, not dividends
Contribution room is limited to 18% of previous years’ earned income, less adjustments for pension contributions, up to a maximum specified by CRA each year. Accumulates if you don’t use it
Access available through the Home Buyers Plan or Lifelong Learning Plan without immediate tax consequences
Naming beneficiaries on an RRSP other than your spouse can have unintended tax consequences and it’s important to speak with your Financial Planner, Accountant, and Lawyer to determine your best course of action
Withdrawals are taxed as ordinary income
On death, an RRSP may be eligible for a “spousal rollover”, shifting taxation of the RRSP to the death of the recipient spouse
When withdrawing from RRSP assets once retired, most individuals are in a lower tax-bracket than during their working years which could result in favourable tax outcomes
Depending on your situation, a spousal RRSP could be used to accomplish long-term income splitting
You must convert your RRSP to a RRIF (Registered Retirement Income Fund) by age 71, and you must begin to withdraw a CRA mandated minimum at age 72
Both TFSA & RRSP Accounts:
You can’t deduct interest costs related to borrowing to invest in either a TFSA or RRSP
You can’t deduct investment management fees in either a TFSA or RRSP
You can’t claim a capital loss in either a TFSA or RRSP
Please reach out to us for further information regarding these accounts, or if you have a specific question pertaining to your individual situation.
Here are the contribution limits and cut-off dates for RRSP and TFSA contributions if you are planning to make one this year and have not already done so.
What is the contribution limit and deadline for RRSP accounts?
The cut-off date for your RRSP contributions to count toward reducing your income for 2021 is Tuesday, March 1, 2022. In order to meet this deadline, you should make your contribution by February 25 to allow for your deposit to clear your bank account. The contribution limit for the 2021 taxation year was 18% of your taxable income up to a maximum of $27,830, whichever is less. The contribution limit for the 2022 taxation year is a maximum of $29,210. If you have unused contribution room from previous years, you may use this room as well.
What is the contribution limit for TFSA accounts?
If you would like to contribute to a TFSA for 2022 the limit is $6,000 for the year, unless you have not maxed out your contributions. The maximum one could have deposited into their TFSA account since 2009 is $81,500 as of 2022. Please note that the Portfolio Managers will be processing these contributions between January 15 – February 11.
How To Make an RRSP or TFSA Contribution? Contributions can be made through one of the following methods:
Transfer from Non-Registered Account: If you have a Non-Registered account set-up with enough funds in it, you can simply send your Financial Advisor an e-mail indicating the amount you would like transferred from this account to your RRSP or TFSA. Instructions must be sent to us by 11:00am on Friday, February 25 in order to meet the deadline.
Online Banking Transfer (Bill Payment): Add your Custodian (“Credential Securities” or “National Independent Network”/”NBIN”) as a “Payee” through your online banking and enter your account number as the bill account number. If you need assistance finding your account number or are unsure who your Custodian is, please contact your Financial Advisor. If you choose this method, please also notify us with the amount you are contributing, so we can have your Portfolio Manager watch for it. Please note this must be submitted before midnight on Monday, February 28 in order to meet the deadline.
EFT from your Bank: You will just need to sign an EFT form if you have not already done so, which allows your Custodian (Credential or NBIN) to take the money directly out of your account with your consent. Once you have signed the form, you will need to email your Financial Advisor to indicate the one-time amount you are authorizing the Portfolio Manager to withdraw from your bank account and which account (RRSP or TFSA) you would like it deposited to. We must receive these instructions by Friday, February 25 at 3:00pm at the latest in order to process before the deadline.
If you have any questions or would like to book a video or phone appointment to review your accounts, please contact our office.
