Do you REALLY need life insurance?

March 3, 2021/in Blog, Business Owners, Family, individuals, life insurance/by Horizon Financial

You most likely do, but the more important question is, What kind? Whether you’re a young professional starting out, a devoted parent or a successful CEO, securing a life insurance policy is probably one of the most important decisions you will have to make in your adult life. Most people would agree that having financial safety nets in place is a good way to make sure that your loved ones will be taken care of when you pass away. Insurance can also help support your financial obligations and even take care of your estate liabilities. The tricky part, however, is figuring out what kind of life insurance best suits your goals and needs. This quick guide will help you decide what life insurance policy is best for you, depending on who needs to benefit from it and how long you’ll need it.

Permanent or Term?

Life insurance can be classified into two principal types: permanent or term. Both have different strengths and weaknesses, depending on what you aim to achieve with your life insurance policy.

Term life insurance provides death benefits for a limited amount of time, usually for a fixed number of years. Let’s say you get a 30-year term. This means you’ll only pay for each year of those 30 years. If you die before the 30-year period, then your beneficiaries shall receive the death benefits they are entitled to. After the period, the insurance shall expire. You will no longer need to pay premiums, and your beneficiaries will no longer be entitled to any benefits.

Term life insurance is right for you if you are:

The family breadwinner. Death benefits will replace your income for the years that you will have been working, in order to support your family’s needs.
A stay-at-home parent. You can set your insurance policy term to cover the years that your child will need financial support, especially for things that you would normally provide as a stay-at-home parent, such as childcare services.
A divorced parent. Insurance can cover the cost of child support, and the term can be set depending on how long you need to make support payments.
A mortgagor. If you are a homeowner with a mortgage, you can set up your term insurance to cover the years that you have to make payments. This way, your family won’t have to worry about losing their home.
A debtor with a co-signed debt. If you have credit card debt or student loans, a term life insurance policy can cover your debt payments. The term can be set to run for the duration of the payments.
A business owner. If you’re a business owner, you may need either a term or permanent life insurance, depending on your needs. If you’re primarily concerned with paying off business debts, then a term life insurance may be your best option.

Unlike term life insurance, a permanent life insurance does not expire. This means that your beneficiaries can receive death benefits no matter when you die. Aside from death benefits, a permanent life insurance policy can also double as a savings plan. A certain portion of your premiums can build cash value, which you may “withdraw” or borrow for future needs. You can do well with a permanent life insurance policy if you:

…Have a special needs child. As a special needs child will most likely need support for health care and other expenses even as they enter adulthood. Your permanent life insurance can provide them with death benefits any time within their lifetime.
…Want to leave something for your loved ones. Regardless of your net worth, permanent life insurance will make sure that your beneficiaries receive what they are entitled to. If you have a high net worth, permanent life insurance can take care of estate taxes. Otherwise, they will still get even a small inheritance through death benefits.
…Want to make sure that your funeral expenses are covered. Final expense insurance can provide coverage for funeral expenses for smaller premiums.
…Have maximized your retirement plans. As permanent life insurance may also come with a savings component, this can also be used to help you out during retirement.
…Own a business. As mentioned earlier, business owners may need either permanent or term, depending on their needs.

A permanent insurance policy can help pay off estate taxes, so that the successors can inherit the business worry-free. Different people have different financial needs, so there is no one-sized-fits-all approach to choosing the right insurance policy for you. Talk to us now, and find out how a permanent or term life insurance can best give you security and peace of mind.

Personal Tax Planning Tips – End of 2020 Tax Year

December 2, 2020/in 2020 Only, Blog, Charitable Gifting, Coronavirus, Coronavirus - Associates, Coronavirus - Practice Owners, Coronavirus - Retired, Coronavirus - Retiring, Coronavirus - Students, disability, disability insurance, Family, financial advice, Financial Planning, health benefits, pension plan, rdsp, Registered Education Savings Plan, rrsp, tax, Tax Free Savings Account/by Horizon Financial

Now that we are reaching the end of the tax year, it’s an excellent time to review your finances. We’ve listed below some of the critical areas to consider and provide you with useful guidelines.

We have divided our tax planning tips into five sections:

Tax Deadlines
Individual tax issues
Family tax issues
Managing your investments
Retirement planning

Tax Deadlines for 2020 Savings

December 31, 2020:

If you reached the age of 71 in 2020, you can’t contribute to your RRSP after this date
Use up your TFSA contribution room
Contribute to an RESP to get the Canadian Education Savings Grant (CESG) and the income-tested Canada Learning Bond (if eligible).
Contribute to an RDSP to get the Canada Disability Savings Grant (CDSG) and the income-tested Canada Disability Savings Bond (if eligible).
Medical expenses
Investment counsel fees, interest and other expenses relating to investments
Some payments for child and spousal support
Fees for union and professional memberships
Student loan interest payments
Deductible legal fees
Charitable gifts
Political contributions

January 30, 2021

Interest on intra-family loans
The interest you must pay on employer loans to reduce your taxable benefit

March 1, 2021

Contributions to provincial labour-sponsored venture capital corporations
RRSP Repayment under Home Buyers Plan or Lifelong Learning Plan
Deductible contributions to a personal or spousal RRSP

Individual Tax Issues

To help Canadians deal with financial hardships due to job loss because of COVID-19, the Canadian government introduced several benefit programs. If you received any of these benefits, you should be aware of the tax ramifications.

The Canada Emergency Response Benefit (CERB) was the first benefit program issued by the government and ran until September 26, 2020. If you received the CERB at all during 2020, the government will issue you at T4A, showing how much money you received from the CERB program. You must then declare that as income when filing your 2020 income tax return. Since no tax was taken off at the source, be sure to put aside money to pay for potential income taxes on your CERB income.

As of September 27, 2020, the government offered three replacement benefit programs:

Canada Recovery Benefit (CRB)
This is for people impacted by COVID-19 who work but are not eligible for EI (e.g. self-employed).
Canada Recovery Sickness Benefit (CRSB)
This is for people who are employed cannot work due to COVID-19 and do not have access to paid sick leave.
Canada Recovery Caregiving Benefit (CRCB)
This is for people who must miss work to care for a family member who has COVID-19.

For all three of these programs, the government will be withholding 10% in taxes upfront, but you may end up owing extra tax, depending on the rest of your income for 2020, so it’s important to set extra money aside for taxes.

Also, there is a unique condition for the CRB only. If you make over $38,000 in 2020 (excluding the CRB), you will have to pay back the CRB at a rate of 50 cents for each dollar of CRB you earned above the threshold.

If you paid interest on an eligible student loan in 2020, you can claim a non-refundable tax credit in the amount of interest you paid by December 31. In addition, you should be aware that student loan payments were frozen for six months – from March 30 to September 30. No interest accrued on student loans during that period.

Family Tax Issues

Check your eligibility for the Canada Child Benefit
(CCB)
To receive the Canada Child Benefit in 2021/22, you need to file your tax returns for 2020 as the benefit is calculated using your family income from the previous year. Eligibility for the CCB depends on set criteria such as your family’s income, how many children you have, and how old they are. You may qualify for a full or partial amount, depending on whether you have full custody or shared custody.
Consider family income splitting

The CRA offers a prescribed low-interest rate on family loans. Therefore, it makes sense to consider setting up an income splitting loan arrangement with your family members. If you do this, you can potentially lock in a family loan at a low-interest rate of 1% and then invest the borrowed money into a higher return investment while benefitting from your family member’s lower tax status. Don’t forget to adhere to the Tax on Split Income rules.

Managing Your Investments

Use up your TFSA contribution room

If you can, it’s worth contributing the full $6,000 to your TFSA for 2020. You can also contribute more (up to $69,500) if you are 29 or older and haven’t made any previous TFSA contributions.
Contribute to a Registered Education Savings Plan (RESP)

The Registered Education Savings Plan (RESP) is a savings plan for parents and others to save for a child’s education. The Canada Education Savings Grant (CESG) will match up to 20% of your contributions up to a maximum of $2,500.

That means the CESG can add a maximum of $500 to an RESP each year. The grant room accumulates until your child turns 17. Therefore, any unused CESG amounts for the current year are automatically carried forward for possible use in the future years.

The income-tested Canada Learning Bond (CLB) is paid directly to a child’s RESP by the Canadian government to low-income families. No personal contributions are required to receive the CLB.

Contribute to a Registered Disability Savings Plan (RDSP)

The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others to save for the financial security of a person who is eligible for the Disability Tax Credit (DTC). The government will pay a matching Canada Disability Savings Grant (CDSG) up to 300% – depending on the beneficiary’s adjusted family net income and amount contributed.

Also, low-income Canadians with disabilities may be eligible for a Canada Disability Savings Bond (CDSB). If you qualify, it will be paid directly to your RDSP.

The government will pay matching grants or bonds into the RSDP up to and including the end of the year the recipient turns 49. Be aware that there is a 10-year carry-forward of CDSG and CDSB entitlements.
Donate securities to charity

Donating by year-end will provide you with tax savings. If you donate eligible securities or mutual funds, capital gains tax does not apply, and you can receive a tax receipt for their full market value. Also, the charity gets the full value of the securities.
Think about selling any investments with unrealized capital losses

It might be worth doing this before year-end to apply the loss against any net capital gains achieved during the last three years. The last trading date for 2020 for Canadian and US publicly traded stocks will be Tuesday December 29th in order to record the gain or loss in the 2020 taxation year.

Conversely, if you have investments with unrealized capital gains that cannot be offset with capital losses, it may be worth selling them after 2020 to be taxed on the income the following year.
Consider the timing of purchasing of certain non-registered investments

Suppose you are considering purchasing an interest-bearing investment like a guaranteed investment certificate (GIC) with a maturity date of one year or more. In that case, you may consider delaying the purchase to the following year, so you don’t have to pay tax on accrued interest until 2021. You should also consider this with mutual funds that make taxable distributions before the end of 2020, consider delaying this until early 2021. Don’t pay taxes earlier than necessary.
Check if you have investments in a corporation

The new passive investment income rules apply to tax years from 2018 onwards. They state that the small business deduction is reduced for companies with between $50,000 and $150,000 of investment income. Therefore, the small business deduction has entirely stopped for corporations that earn a passive investment income of more than $150,000.

Note – At a provincial level, both Ontario and New Brunswick do not follow the federal rules to limit access to the small business deduction.

Retirement Planning

Make the most of your RRSP

The deadline for making contributions to your RRSP for the year 2020 is March 1, 2021. The deduction limit for 2020 is limited to 18% of the income you earned in 2020, to a maximum of $27,230. This maximum amount is impacted by the following:

Any pension adjustment
Any previous unused RRSP contribution room
Any pension adjustment reversal.

Remember that deducting your RRSP contribution reduces your after-tax cost of making said contribution.

Check when your RRSP is due to end

If you reach the age of 71 during 2020, you must wind up your RRSP this year. You must make your final contribution to it by December 31, 2020.
Convert to RRIF before year-end

If you turned 65 during 2020 or are already older than 65, you’re entitled to a pension credit that can fully or partly offset the tax on the first $2,000 of eligible income annually. Consider setting up an RRIF before year-end to pay out $2,000 annually if you don’t have any other eligible pension income.

If you have any questions about your taxes for 2020, contact us – we can help you!

6 Steps to Retirement Success

August 5, 2020/in Blog, Business Owners, Family, Investment, Retirees, rrsp, Tax Free Savings Account/by Horizon Financial

Retirement planning can be challenging, we’ve outlined what we feel are 6 steps to retirement success.

Have a written plan which merges life priorities with financial resources.
Consolidate your income-producing assets with one advisor.
Layer different sources of income in the most efficient manner.
Structure income in order to preserve valuable tax credits and government benefits.
Create efficient cash flow by investing your income-producing assets wisely.
Implement efficient solutions for health-cost risks and wealth transfer strategies.

Talk to us about a complimentary comprehensive review of your retirement plan.

Guide to Covid-19: Government Relief Programs in Canada

May 4, 2020/in 2020, Blog, Coronavirus, Coronavirus - Associates, Coronavirus - Practice Owners, Coronavirus - Retired, Coronavirus - Retiring, Coronavirus - Students, Family, individuals, life insurance/by Horizon Financial

The intention for our “Guide to Covid-19: Government Relief Programs in Canada” is to help businesses and individuals to cut through the noise and make sure they’re getting all the help they can receive from the federal and provincial programs.

Federal programs include:

Small Business Wage Subsidy
Canada Emergency Wage Subsidy
Canada Emergency Business Account
Canada Emergency Response Benefit
Student Loan Programs

Individual provincial programs include:

Utilities
Housing
Student Loan Programs

Download the Guide

Succession Planning for Business Owners

May 1, 2020/in Blog, Business Owners, Estate Planning, Family, life insurance/by Horizon Financial

Succession Planning for Business Owners

Business owners deal with a unique set of challenges. One of these challenges includes succession planning. A succession plan is the process of the transfer of ownership, management and interest of a business. When should a business owner have a succession plan? A succession plan is required through the survival, growth and maturity stage of a business. All business owners, partners and shareholders should have a plan in place during these business stages.

We created this infographic checklist to be used as a guideline highlighting main points to be addressed when starting to succession plan.

Needs:

Determine your objectives- what do you want? For you, your family and your business. (Business’ financial needs)
What are your shares of the business worth? (Business value)
What are your personal financial needs- ongoing income needs, need for capital (ex. pay off debts, capital gains, equitable estate etc.)

There are 2 sets of events that can trigger a succession plan: controllable and uncontrollable.

Controllable events

Sale: Who do you sell the business to?

Family member
Manager/Employees
Outside Party
There are advantages and disadvantages for each- it’s important to examine all channels.

Retirement: When do you want to retire?

What are the financial and psychological needs of the business owner?
Is there enough? Is there a need for capital to provide for retirement income, redeem or freeze shares?
Does this fit into personal/retirement plan? Check tax, timing, corporate structures, finances and family dynamics. (if applicable)

Uncontrollable Events

Divorce: A disgruntled spouse can obtain a significant interest in the business.

What portion of business shares are held by the spouse?
Will the divorced spouse consider selling their shares?
What if the divorced spouse continues to hold interest in the business without understanding or contributing to the business?
If you have other partners/shareholders- would they consider working with your divorced spouse?

Illness/Disability: If you were disabled or critically ill, would your business survive?

Determine your ongoing income needs for you, your spouse and family. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
Will the ownership interest be retained, liquidated or sold?
How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? Does the business have a savings or insurance program in place to address this?

Death: In the case of your premature death, what would happen to your business?

Determine your ongoing income needs for your dependents. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
Will the ownership interest be retained, liquidated or sold by your estate? Does your will address this? Is your will consistent with your wishes? What about taxes?
How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? How will this affect your employees? Does the business have a savings or insurance program in place to address this?

Execution: It’s good to go through this with but you need to get a succession plan done. Besides having a succession plan, make sure you have an estate plan and buy-sell/shareholders’ agreement.

Because a succession plan is complex, we suggest that a business owner has a professional team to help. The team should include:

Financial Planner/Advisor (CFP)
Succession Planning Specialist
Insurance Specialist
Lawyer
Accountant/Tax Specialist
Chartered Life Underwriter (CLU)

Next steps…

Contact us about helping you get your succession planning in order so you can gain peace of mind that your business is taken care of.

Self Owned vs. Bank Owned Mortgage Insurance

April 1, 2020/in Blog, Family, individuals, life insurance/by Horizon Financial

Before buying insurance from your bank to cover your mortgage, understand the difference between self owned mortgage life insurance and bank owned life insurance. The key differences are ownership, premium, coverage, beneficiaries and portability.

Ownership:

Self: You own and control the policy.
Bank: The bank owns and controls the policy.

Premium:

Self: Your premiums are guaranteed at policy issue and discounts are available based on your health.
Bank: Premiums are not guaranteed and there are no discounts available based on your health.

Coverage:

Self: The coverage that you apply for remains the same.
Bank: The coverage is tied to your mortgage balance therefore it decreases as you pay down your mortgage but the premium stays the same.

Beneficiary:

Self: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Bank: The bank is beneficiary and only pays off your mortgage.

Portability:

Self: Your policy stays with you regardless of your lender.
Bank: Your policy is tied to your lender and if you change, you may need to reapply for insurance.

We’ve created an infographic about the difference between personally owned life insurance vs. bank owned life insurance.

Talk to us, we can help.

Contact US

Estate Planning for Young Families

March 1, 2020/in Blog, Estate Planning, Family, life insurance/by Horizon Financial

Having a family is a blessing and can also bring a lot of worry. A lot of this worry can stem from not being prepared for a disaster like if something were to happen to you or your spouse.

We’ve put together an infographic checklist that can help you get started on this. We know this can be a difficult conversation so we’re here to help and provide guidance.

The Children

What will happen to the children if both parents were to pass away?
Who would take care of them and until what age?
What would happen if only parent were to pass away?

Make sure you have a will that:

Assigns a guardian for your children
If there’s an inheritance for the children, who will take care of this? Make sure you assign a trustee for the inheritance.
Always choose 2 qualified people for each position and communicate your intentions with them to ensure they’re up for the responsibility.

Assets and Liabilities

What are your assets? Create a detailed list of your assets such as: Home, Family Business Interest, Investments- Non registered, TFSA, RRSP, RDSP, RESP, Company Pension Plan, Insurance Policy, Property, Additional revenue sources, etc…
What are your liabilities? Create a detailed list of your liabilities such as: Mortgage, Loans (personal, student, car), Line of Credit, Credit card, Other loans (payday, store credit card, utility etc.)
Understand your assets-the ownership type (joint, tenants in common, sole etc.), list who are the beneficiaries are for your assets
Understand your liabilities- who’s on the hook for paying back the loan?

Make sure you have a will that:

Assigns an executor
Provide specific instructions for distribution of assets
Always choose 2 qualified people for each position and communicate your intentions with them to ensure they’re up for the responsibility.

Ongoing Needs

What are your family’s ongoing needs?

List out the living expenses
List out income needs
Do you still need to pay for school?
Determine if you have enough (assets minus liabilities) to take care of the family.

Make sure you review your insurance.

Once you determine how much need there is, review your life insurance coverage to see if it meets your needs or if there’s a shortfall.

Execution: It’s good to go through this but you need to do this. Besides doing it yourself, here’s a list of the individuals that can help:

Financial Planner/Advisor (CFP)
Estate Planning Specialist
Insurance Specialist
Lawyer
Accountant/Tax Specialist
Chartered Life Underwriter (CLU)
Chartered Executor Advisor (CEA)

There are definitely unique situations in many families and things can get complicated so please use this when you feel it’s applicable.

Next steps…

Contact us about helping you get your estate planning in order so you can gain peace of mind that your family is taken care of.

Financial Advice

February 6, 2020/in Blog, Estate Planning, Family, individuals, Retirees/by Horizon Financial

An advisor can help you determine where you are today financially and where you want to go. An advisor can provide you guidance on how to reach your short, medium and long term financial goals.

Why work with a Financial Advisor?

Worry less about money and gain control.
Organize your finances.
Prioritize your goals.
Focus on the big picture.
Save money to reach your goals.

What can a Financial Advisor help you with?

Advisors can help you with accumulation and protection

Accumulation:

Cash Management – Savings and Debt
Tax Planning
Investments

Protection:

Insurance Planning
Health Insurance
Estate Planning

How do you start?

Establish and define the financial advisor-client relationship.
Gather information about current financial situation and goals including lifestyle goals.
Analyze and evaluate current financial status.
Develop and present strategies and solutions to achieve goals.
Implement recommendations.
Monitor and review recommendations. Adjust if necessary.

Next steps…

Talk to us about helping you get your finances in order so you can achieve your lifestyle and financial goals.
Feel confident in knowing you have a plan to get to your goals.

Comparing TFSAs and RRSPs – 2020

January 30, 2020/in 2020 Only, Blog, Family, individuals, Investment, Retirees, rrsp, tax, Tax Free Savings Account/by Horizon Financial

If you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can both be effective options for you to achieve your savings goals more quickly. However, each plan does have distinct differences and advantages / disadvantages. We’ve separated our comparisons into 2 different infographics: deposits and withdrawals.

In the Deposit phase, we look at:

Contribution Room
Carry Forward
Contribution
Tax Deductibility
Tax Treatment of Growth

Contribution Room

TFSA : $6,000 for 2020. If you never opened a TFSA, you can contribute up to $69,500 today.

$5,000 for each year from 2009 to 2012;
$5,500 for each of 2013 and 2014;
$10,000 for 2015;
$5,500 for each of 2016, 2017 and 2019
$6,000 for each of 2019 and 2020

RRSP : 18% of your 2020 pre-tax earned income or $27,230. So for example if you earned $60,000, then your deduction limit would be $10,800 (18% x $60,000). If you earned $200,000, then your deduction limit would be capped at the max limit of $27,230.

Carry Forward

TFSA : You can carry forward your unused contribution room indefinitely, as long as your a Canadian resident, older than age 18 with a valid social insurance number. Withdrawals will usually result in new contribution room.

RRSP : You can carry forward your unused contribution room until the age of 71 when you have to convert your RRSP to a RRIF. Any withdrawals made from your RRSP will not result in new contribution room.

Contribution

TFSA : You are contributing to your TFSA with After-tax dollars.

RRSP : You are contributing to your RRSP with Pre-tax dollars.

Tax Deductibility

TFSA : Contributions are not tax deductible.

RRSP : Contributions are tax deductible.

Tax Treatment of Growth

TFSA : The growth inside a TFSA is tax free therefore it’s a great savings vehicle for immediate objectives such as a down payment for a home.

RRSP : The growth inside an RRSP is tax deferred, which means at withdrawal, you will need to pay tax, therefore it’s a good choice for long term goals such as retirement.

In the Withdrawals phase, we look at:

Conversion
Tax Treatment
Government Benefits
Contribution Room

Conversion

TFSA : With a TFSA, there’s no conversion.

RRSP : You must convert your RRSP to a Registered Retirement Income Fund by December 31st of the year you turn 71.

Tax Treatment

TFSA : You can make tax-free withdrawals.

RRSP : Your withdrawals are taxed as income except for withdrawals under the Home Buyers Plan, which you can withdraw up to $35,000 providing you pay within 15 years or Lifelong Learning Plan, which you can withdraw up to $20,000 ($10,000 per year) providing that the money is paid back within 10 years.

Government Benefits

TFSA : Your withdrawals doesn’t affect eligibility for income tested government benefit because TFSA withdrawals aren’t included as taxable income.

RRSP : RRSP withdrawals are treated as taxable income therefore withdrawals may affect income tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit and the Age Credit. Withdrawals may also affect government benefits you receive including Old Age Security, Guaranteed Income Supplement and Employment Insurance benefits.

Contribution Room

TFSA : You can carry forward your unused contribution room indefinitely, as long as your a Canadian resident, older than age 18 with a valid social insurance number. Withdrawals will usually result in new contribution room to the following year’s contribution.

RRSP : Contribution room is based on your previous year’s earned income. You can carry forward your unused contribution room until the age of 71 when you have to convert your RRSP to a RRIF. Any withdrawals made from your RRSP will not result in new contribution room.

An additional different to note is that:

You are able to specify your spouse as your beneficiary with both your TFSA and your RRSP, however there is a key difference with how your savings are treated upon your spouse’s death. With an RRSP, there will be taxes payable upon the monies left in the plan by your children who inherit it, whereas with a TFSA, tax is only paid on the increase in the value of the plan since the date of death in the year that it is inherited by your children. What’s more, no tax is payable if the value that they receive is less than the value of the TFSA at the time of death.

In summary, your unique financial needs will provide information on what makes the most sense for you.

Contact us and we can help.

Comparing TFSAs and RRSPs – 2020

January 21, 2020/in 2020 Only, Blog, Family, individuals, Investment, Retirees, rrsp, tax, Tax Free Savings Account/by Horizon Financial

If you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can both be effective options for you to achieve your savings goals more quickly. However, each plan does have distinct differences and advantages / disadvantages. We’ve separated our comparisons into 2 different infographics: deposits and withdrawals.

In the Deposit phase, we look at:

Contribution Room
Carry Forward
Contribution
Tax Deductibility
Tax Treatment of Growth

Contribution Room

TFSA : $6,000 for 2020. If you never opened a TFSA, you can contribute up to $69,500 today.

$5,000 for each year from 2009 to 2012;
$5,500 for each of 2013 and 2014;
$10,000 for 2015;
$5,500 for each of 2016, 2017 and 2019
$6,000 for each of 2019 and 2020

RRSP : 18% of your 2020 pre-tax earned income or $27,230. So for example if you earned $60,000, then your deduction limit would be $10,800 (18% x $60,000). If you earned $200,000, then your deduction limit would be capped at the max limit of $27,230.

Carry Forward

TFSA : You can carry forward your unused contribution room indefinitely, as long as your a Canadian resident, older than age 18 with a valid social insurance number. Withdrawals will usually result in new contribution room.

RRSP : You can carry forward your unused contribution room until the age of 71 when you have to convert your RRSP to a RRIF. Any withdrawals made from your RRSP will not result in new contribution room.

Contribution

TFSA : You are contributing to your TFSA with After-tax dollars.

RRSP : You are contributing to your RRSP with Pre-tax dollars.

Tax Deductibility

TFSA : Contributions are not tax deductible.

RRSP : Contributions are tax deductible.

Tax Treatment of Growth

TFSA : The growth inside a TFSA is tax free therefore it’s a great savings vehicle for immediate objectives such as a down payment for a home.

RRSP : The growth inside an RRSP is tax deferred, which means at withdrawal, you will need to pay tax, therefore it’s a good choice for long term goals such as retirement.

In the Withdrawals phase, we look at:

Conversion
Tax Treatment
Government Benefits
Contribution Room

Conversion

TFSA : With a TFSA, there’s no conversion.

RRSP : You must convert your RRSP to a Registered Retirement Income Fund by December 31st of the year you turn 71.

Tax Treatment

TFSA : You can make tax-free withdrawals.

RRSP : Your withdrawals are taxed as income except for withdrawals under the Home Buyers Plan, which you can withdraw up to $35,000 providing you pay within 15 years or Lifelong Learning Plan, which you can withdraw up to $20,000 ($10,000 per year) providing that the money is paid back within 10 years.

Government Benefits

TFSA : Your withdrawals doesn’t affect eligibility for income tested government benefit because TFSA withdrawals aren’t included as taxable income.

RRSP : RRSP withdrawals are treated as taxable income therefore withdrawals may affect income tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit and the Age Credit. Withdrawals may also affect government benefits you receive including Old Age Security, Guaranteed Income Supplement and Employment Insurance benefits.

Contribution Room

TFSA : You can carry forward your unused contribution room indefinitely, as long as your a Canadian resident, older than age 18 with a valid social insurance number. Withdrawals will usually result in new contribution room to the following year’s contribution.

RRSP : Contribution room is based on your previous year’s earned income. You can carry forward your unused contribution room until the age of 71 when you have to convert your RRSP to a RRIF. Any withdrawals made from your RRSP will not result in new contribution room.

An additional different to note is that:

You are able to specify your spouse as your beneficiary with both your TFSA and your RRSP, however there is a key difference with how your savings are treated upon your spouse’s death. With an RRSP, there will be taxes payable upon the monies left in the plan by your children who inherit it, whereas with a TFSA, tax is only paid on the increase in the value of the plan since the date of death in the year that it is inherited by your children. What’s more, no tax is payable if the value that they receive is less than the value of the TFSA at the time of death.

In summary, your unique financial needs will provide information on what makes the most sense for you.

Contact us and we can help.

Do you REALLY need life insurance?

Personal Tax Planning Tips – End of 2020 Tax Year

Tax Deadlines for 2020 Savings

Individual Tax Issues

Family Tax Issues

Managing Your Investments

Retirement Planning

6 Steps to Retirement Success

Guide to Covid-19: Government Relief Programs in Canada

Succession Planning for Business Owners

Succession Planning for Business Owners

Next steps…

Self Owned vs. Bank Owned Mortgage Insurance

Estate Planning for Young Families

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Financial Advice

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Comparing TFSAs and RRSPs – 2020

Comparing TFSAs and RRSPs – 2020

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