2016 Tax Year

Where did the year go!  It seems just yesterday that we were swimming in 2015 T4’s, T5’s and RRSP slips.  It’s now time to get organized for the 2016 tax year.

Once again MMC is offering tax return e-file service or, if you prefer, we can use submit your return using paper.

Important dates to remember

Last day to file your 2016 tax return:  Monday May 1, 2017, because April 30 falls on Sunday this year.

If you or your spouse carried on a business in 2016 your return is due on or before June 30, 2017.  Any balance owing, however, is due on April 30 2017.

Installment dates:  March 15, June 15, September 15 and December 15.

Deductions and credits that may be available

Family and child care

Education and textbook credits

Disability

Pensions and RRSP’s

Employment expenses

Children’s fitness and arts amounts – 2016 is the last year for this credit

Home accessibility costs – must be over 65 of age

School supply tax credit – if you’re an eligible educator, 2016 is the first year you can claim – maximum $1, 000.00 for teaching supply costs.

 

Pay down debt or contribute to RRSP

We know, many Canadians just don’t contribute to their Registered Retirement Savings Plan.  Once all of your bills are paid, you’ve signed up the kids for extra-curricular activities, helped post secondary offspring financially and spent a bit of money to have fun, there is very little cash left over to put into an RRSP.   In fact, one of the most enduring debates among financial experts is whether it is better to use extra money to pay down debt or contribute to an RRSP. 

Thinking about the following might help you to make a decision that you are comfortable with:

·         If the interest rate on your debt is higher than the return you make on your RRSP, then it probably makes more sense to pay off your debt.  This is particularly true if your debt is a high interest credit card.  This calculator, at Get Smarter about Money, might help you decide.

·         After you’ve paid off your debt, how will you spend the extra cash?  If you are not certain that the money will be put into retirement savings, a better financial decision might be to start saving for retirement before paying down debt.  However, keep in mind the point above. 

·         Do you worry about debt repayment or retirement income?  If your debt levels keep you awake at night, paying off your liabilities will make you will feel better and reduce stress. 

·         If you are in a high tax bracket and are still working, contributing to an RRSP will reduce the amount of tax owing.  But if you will be in a high tax bracket once retired, paying down debt while still employed makes more financial sense. 

This is a complex issue and there is not a one size fits all answer.  The following sites provide more information, which can help you decide what is best for you.   

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/should-i-pay-down-my-mortgage-or-save-for-retirement/article8709241/

http://business.financialpost.com/2012/02/14/the-debt-vs-rrsp-dilemma/

http://www.talbotstevens.com/Resources/RRSPs/Releases/2011JA-TheBiggestDilemmaThisRRSPSeason.htm

Paying income tax by instalments

Paying tax on earned income is a fact of life.    Most people have their tax taken directly from their paycheque by their employer (tax deducted at source).   If you are self-employed, receive investment income or rental income, you will probably need to pay personal income tax instalments.   When the total amount of tax that you owe, less any deductions made at source, exceeds $ 3,000.00 for the current taxation year and either of the two preceding years, it is likely that you will have to send regular tax payments to the Canada Revenue Agency (CRA).

The CRA examines prior year’s tax returns and sends out instalment reminders to people who are required to submit instalment payments.  In 2013, instalment payments are due on March 15, June 15, September 15 and December 15.  According to CRA, instalment interest will apply if ALL of the following conditions apply:  

  • ·         You receive an instalment reminder;
  • ·         Are required to pay instalments;
  • ·         You fail to make a payment or payments were late or less than the required  amount. 

 However, reminders are based on last year’s income information.  If you are certain that your tax liability for the current taxation year will be less than $ 3,000, you do not need to submit an instalment payment.   As well, if you become self employed in a taxation year, CRA will not charge interest because of a failure to pay tax instalments.    In order to avoid a tax surprise in April, though, we recommend that those who are newly self-employed or recipients of income that has not had tax deducted,  either start to submit quarterly tax instalments to CRA or deposit money throughout the year in a savings account, in order to have enough cash in hand when the tax department calls. 

For complete information on instalments, see:    http://www.cra-arc.gc.ca/E/pub/tg/p110/p110-12e.pdf