With a new year upon us and Tax Day just three months away, now is a good time to begin planning to file. Last year, a number of tax changes went into effect and several new ones have been instituted for 2020. Financial advisors and tax accountants alike advise preparing as early as possible so you’re in a good position when spring rolls around.
Brampton, Ontario’s Ed Rempel, is both a fee-for-service financial planner and tax advisor. He says it’s important that you be aware of some of the changes taking effect and talk with your accountant about what you can expect.
“Taxpayers will see increases in both Federal and provincial income takes.” says Rempel. “On the other hand, employment insurance premiums are going down by four percentage points from last year. Also, the amount used by the government to determine Canadian pension plan contributions is increasing this year, from $57,400 to $58,700 and the annual contribution limit for tax-free savings account has been increased by $6,000, adding to last year’s limit bump of the same amount.”
The really good news, according to Rempel, is for first-time homebuyers. As Canada’s real estate prices have continued to increase, making first-time home buying extremely difficult for many, especially millennials. “The problem,” he says, “is saving for a down payment. It’s been estimated that it takes a full three years for millennials to accrue enough money for a down payment, and that amount doesn’t cover other necessary expenses, like closing costs.”
Rempel notes that the new home buyers’ plan, or HPB, addresses this issue by allowing first-time homebuyers to withdraw money tax-free from their registered retirement savings plans. However, if you do this, you’re mandated to pay that amount back over the next 15 years, starting two years after you made your first withdrawal. Also, the money you withdraw must have been in your RRSP for at least 90 days before you take it out.
Speaking of housing, Federal tax brackets have also been adjusted this year based on a 1.9 per cent rate of inflation. That said, the actual inflation rate may be higher in Canadian cities that have booming housing markets.
This is why, says Rempel, that it’s wise and prudent to begin planning your 2020 tax filings now. As you do this, there are several things you’ll want to pull together. They include:
- Tax forms from your employer
- Tax forms related to extra income
- All real estate tax records
- Records of all taxable investments
- Any inheritance information
- You expense records and receipts from self-employment
- Tax records relevant to your children
- Anything else that the government considers a tax liability
Rempel advises getting started now by organizing your records and creating a spreadsheet on your computer. There are lots of good apps that allow you to do this easily.
Then, schedule a meeting with your tax preparer sooner than later. Discuss your liabilities with him or her and prepare everything that needs to be filed. Then, you can breathe a sigh of relief when April in winding down.