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TFSA, RRSP or Mortgage: Where Should Your Money Go?

TFSA, RRSP or Mortgage: Where Should Your Money Go?

What would you do if you suddenly won the lottery? Would you save the money? Would you spend it on the things you desire?

The most basic option is to spend it, pay your debt, give the money away or invest it. However, there are even more ways in which you can use the money available to you – you can pay down a mortgage, contribute to a retirement savings plan or a tax-free savings account.

Mortgage or RRSP

People often wonder if they need to pay their mortgage down or increase their RRSP savings. The method commonly used is to increase the RRSP, which promotes some tax savings, usually in the form of a tax refund. This refund can then be applied to your mortgage. It’s a win-win.

Paying the mortgage down will ensure savings while there is no guarantee of a favorable return from an RRSP. It’s also wise to pay off the mortgage before your children are ready for college as it’ll be easier to pay university fees. You should always pay high-interest debt and credit cards off before you contribute money to an RRSP.


The marginal tax rate (MTR) today and the possible MTR rate you may get in retirement is what you need to consider when deciding between a TFSA or an RRSP. If the MTR is higher now than you feel it’ll be in retirement, it’s time to contribute to the RRSP. This will allow you to benefit from the tax savings at the high rate now and pay at a reduced rate later on when you need to make withdrawals.

However, if the MTR is low now and is projected to increase during retirement, it’ll be more beneficial to go with the TFSA. You won’t get the tax deduction now, but you could save more in taxes during retirement.

Mortgage or TFSA

When it comes to the option of supplementing your TFSA or paying the mortgage down, they are quite similar, as they both offer a tax-free return rate. If you have a 4% mortgage rate, then paying the mortgage down means getting a 4% guaranteed return rate after taxes. If you attain a larger rate of return in the TFSA than the mortgage interest, then go with the TFSA option.

There are other considerations to take into account. If your mortgage is fully paid off, are you likely to invest the same payments you were submitting to the mortgage? If not, then paying the mortgage down first doesn’t make a lot of sense.

Credits to Consider for This Tax Season

Credits to Consider for This Tax Season

With the 2016 tax season behind us, now is a great time to start planning how to implement some of the tax credits listed below into your next year’s returns in order to minimize your tax liability. Here are some tax credits made available to you and therefore should be utilized in the forthcoming season to maximize your refund next year:

1. Claiming and Transferring Credits

It is important that you don’t forget to highlight on either yours or your spouse’s tax return any donations you’ve made. You can be rewarded with tax reliefs once the donation exceeds $200.

You should claim any medical expenses you incurred throughout the year once the amount you paid was over $2,237, or if it exceeds your income at 3%. A good tip is to claim medical expenses on the tax return of whichever spouse earns the least amount of income.

Anyone of the age of 65 or over is entitled to a tax credit of up to $1,068 once you earn less than $35,927. If your income is $83,427 or more you will not receive any credit amount from the CRA. A disability tax credit also falls under this age bracket, whereby if you’re deemed disabled you can claim any expenses in structuring your home to make it disabled-friendly. This credit can be as much as $10,000.

Tax credits such as pension, disability, age, family caregiver, education and tuition can be transferred to your spouse once you don’t require the credit to reduce your tax liability to zero.

2. Principle Residence Tax

Newly introduced in 2016, you must now disclose the amount you sold your principle residence for by completing a Schedule 3 and including it with your T1 income tax return. You must also reference the year of acquisition and a description of the property. The Canadian Revenue Agency qualifies a property as a principle residence if you or your family own and occupy it. This should be carefully considered as the profits attained from the sale of a principle residence are out of reach from the CRA. Penalties of up to $8,000 could accumulate as a result of failing to report the sale of your home to the CRA.

3. Employment Expenses

Don’t forget to include expenses that were required to fulfill any business duties in order to earn income for your company or business. The most commonly used credit under this category is travel. If it was a necessity to use a taxi, train, plane and/or car in order to earn income for your business, then you can and should claim this as a tax deduction. Any other expenses such as meals, laundry and/or telephone costs incurred during the trip can also be claimed as a deduction.

3 Tips to Help You Achieve Financial Independence

3 Tips to Help You Achieve Financial Independence

Wealth Management is a carefully designed strategy to help you meet your financial needs and goals, one of them being financial independence. The ability to live your life as you choose with a secure financial backing for you and your family is considered, by many, the ultimate success.

1. Financial Literacy

Research has shown that people who are financially literate end up with more wealth than those who are not. There is a strong monetary incentive for becoming financially sophisticated. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life. Make use of the knowledge your financial advisor provides. Financial learning and financial independence are lifelong endeavors.

2. Think Long Term

The level of your wealth should be measured by the length of time you could maintain your standard of living without an additional pay check. In other words, if you had to stop working right now, how long could you maintain your current lifestyle needs? The principles of gaining financial independence seem simple, although we all know it is in the application that we occasionally stumble. Spend less than you earn. Keep investing. It is important to take a long-view focus as you work towards your financial goals. It takes more than a few weeks to achieve financial independence.

3. Good Debt vs. Bad Debt

Consumer debt is the bane of financial independence. Borrowed money should only be used for investing, not to finance lifestyle needs. ‘Bad debt’ is used to finance consumables and other lifestyle preferences. ‘Good debt’ could be termed as strategic loans used to invest, or money used to make more money. Your gains need to be greater than your borrowing costs; borrowing to meet short-term desires is counterproductive.

5 Tax Deductions to Watch for Next Income Tax Season

5 Tax Deductions to Watch for Next Income Tax Season

Another tax year in the books — all that paperwork, filing, vigorous receipt saving has finally come to an end for many. But was something missed? It’s a lot of work to remember every tax benefit from year-to-year, but for your benefit, we put together a list of five tax deductions to be cognizant of for next year’s filling.


1. Moving expenses

Did you move to be closer to a new job, run a business, or go to school? You may be able to deduct the moving expenses. Eligible expenses include transportation and storage costs, costs for meals and accommodations, real estate commission and legal fees.

2. Medical expenses

Be sure to claim non-refundable tax credits for medical expenses paid by either you or your spouse or common-law partner. Expenses that total more than $2,052 or 3 per cent of net income can be claimed. To make the most of the tax credit, the expenses should be claimed by the person with the lowest net income.

3. RRSPs 

All contributions to RRSPs are tax deductible. You are allowed to contribute up to roughly 18 per cent of your earned income from the previous year, and deduct that amount from your income at tax time.The government even gives you an extra two months past the end of the previous calendar year to sock that money away — hence January and February being RRSP season.

4. Capital losses

Losses from buying and selling shares in an unregistered account (not your RRSP or your TFSA) can be carried back to any of the previous three years or carried forward indefinitely. These can be applied against capital gains to reduce your total income from investments.

5. Employment Expenses

If your employment contract requires you to pay out-of-pocket expenses, you may be able to get those deductions back. Note that your employer has to certify these expenses by way of form T2200 – Declaration of Conditions of Employment.

7 Common Tax Mistakes You Need to Avoid

7 Common Tax Mistakes You Need to Avoid

It’s not uncommon for people to dread tax season, however pushing the thought of preparing them aside or waiting until the last minute to file can make the process much more painful than it needs to be. Here are seven common mistakes taxpayers often make when scrambling to file their returns.


1. Reporting Income Incorrectly

It’s very common for taxpayers to make mistakes when reporting their income, whether it be double reporting taxable benefits that are already included on their T4 slip or simply failing to report investment income. Failing to report your income correctly can lead to you being stuck with unwanted penalties and interest charges.

2. Not Keeping Receipts

Even if you file your returns electronically, you need to keep your receipts. If the CRA requests you to prove an amount that you’ve claimed and you cannot, your return will be re-assessed without that credit or deduction included.

3. Filing Returns Late

Assuming you have taxes owing, you’ll face a late-filing penalty amounting to 5% of the balance owing, plus 1% of the balance for each month your return is late, to a maximum of 12 months. If you have filed late in previous years, the late-filing penalty is 10% of the balance owing, plus 2% of the balance for each month your return is late.

4. Overlooking New Credits

The CRA makes changes from year to year, which introduces the risk of not claiming an available credit simply due to the fact that you were unaware of its existence.

5. Not Filing Capital Losses

Failing to claim capital losses on your return can result in you missing out on thousands of dollars of negated capital gains. If you have no gains during the year, know that capital losses can be carried forward indefinitely to be used in future years.


6. Not Fixing Errors From Prior Years

If you have anything you forgot to file in the past, you can recover missed tax refunds and credits by filing an adjustment to prior filed returns up to 10 years back in the case of the federal T1. You can even do this online.


7. Not Claiming Safety Deposit Boxes

Many people miss claiming their safety deposit box. Those missed deductions can add up over time. This is especially true for high-income earners. Investors should also review statements from their financial institutions to make sure interest costs and brokerage fees are claimed as carry costs.

Three Tax Tips When Claiming On Your Rental Properties

Three Tax Tips When Claiming On Your Rental Properties

Thanks to favorable economic conditions and historically low interest rates, real estate investing has boomed here in Canada. If you have invested in rental properties, or plan to in the near future, take in these three tax tips on how to make the most out of your real estate investment(s).

1. Keep Proper Records

Keep proper documentation of any income or expenses coming from your rental property. Do not be tempted to mix these transactions with your personal bank account. It’s a common oversight which often leads to headaches for you, your accountant and the CRA around tax season. The CRA will expect proper filing in an organized fashion; and don’t be fooled into thinking just a bank transaction history will do.

2. Buy and Hold – Don’t Sell Too Early

Be careful to not sell your rental property too quickly. The CRA may actually view any profit earned as business income. If that’s the case, you will have to pay taxes on your profit. It’s favorable to hold onto your property a long-term basis. If and when you decide to sell, it’s far more likely that the profit will be classified as capital gain, thus making one half of your gain safe from a tax hit.

3. Consider Depreciation

Depreciation, or Capital Cost Allowance (CCA), can be a good way to protect your real estate income from taxes by transferring your obligation to future tax years. CCA works by amortizing a portion of the cost of your rental property against your rental income – roughly 4% of your building’s cost on a declining basis year by year. But note that selling your property may result in a recapture of your CCA. You would be forced to add this recaptured amount to your taxable income when preparing your tax return. Unlike capital gain, recapture is 100% taxable.