Ensure that any desired distributions to or from a family trust are made by December 31, 2021. If distributions are planned, ensure appropriate dividends are paid through the trust by year-end. Payments by cheques deposited and distributed before the end of the year are required, unless detailed steps are completed.
New tax reporting requirements are coming for trusts that have taxation years ending on December 31, 2021. See What’s New for 2021 for further details on these requirements. The “tax on split income” rules introduced in 2018 remain in effect and may significantly impact certain tax benefits associated with using family trusts for income-splitting purposes. Please contact your Crowe MacKay tax advisor for more details on how these new rules may affect you and to identify opportunities that may be available to plan around the new rules.
If you are entitled to a spousal tax credit for your spouse or common-law partner, you may be able to include all of your spouse’s dividends from a taxable Canadian corporation in your income if doing so will allow you to claim or increase the claim for the spousal tax credit. The election should only be made if it results in lower overall taxes. It might not always be beneficial to transfer this income between you and your spouse. Please contact your Crowe MacKay advisor to discuss this in further detail.
If you are collecting OAS and your net income in 2021 is over $79,845, you are required to repay some or all of your OAS benefits. This “claw back” is the lesser of your OAS benefits received in the year and 15% of your net income that is over $79,845. The OAS claw back is calculated solely on your net income and is not affected by your spouse’s income. Note: if your net income is $129,757 or greater in 2021 you will be required to repay all of your OAS benefits.
If you are eligible to receive OAS but are subject to a full claw back you may consider deferring receiving OAS until a year in which the claw back is reduced or eliminated. Deferring the receipt of OAS will increase your OAS entitlement when you begin to collect it and it will increase your maximum annual net income to receive OAS. Contact your Crowe MacKay tax advisor if you have any questions about OAS.
If you are earning eligible pension income you may be able to split up to 50% of this income with your spouse or common-law partner. Eligible pension income excludes Canada Pension Plan, Old Age Security, and certain foreign pension income. This pension income-splitting may be done by filing a joint election with your income tax return and can result in significant tax savings if your spouse or common-law partner is in a lower tax bracket. Your spouse or common-law partner may also be able to claim the pension income amount tax credit on the income that he/she is deemed to have received (see 'Pension sharing' below).
A $2,000 pension tax credit is available if you earn eligible pension income, which typically includes income from a registered pension plan, income from a registered retirement income fund (RRIF), and annuity payments from an RRSP. If you are eligible to receive pension income and are not currently doing so, you may consider converting a portion of your RRSP to a RRIF in order to receive eligible pension income on which the pension tax credit can be claimed. Please contact your Crowe MacKay advisor to discuss the age restrictions that apply to your circumstances
The RDSP is a registered long-term savings plan specific to people with disabilities who are eligible for the disability tax credit. Contributions may be made by the beneficiary, a family member, or by any other authorized contributor. There is no annual limit on contributions; however, there is a lifetime contribution limit of $200,000.
Although contributions to the plan are not tax-deductible, income earned inside the plan is not taxed until it is withdrawn by the beneficiary. Contributions can be made until the end of the year in which the beneficiary turns 59 and payments from the RDSP must begin by the end of the year in which the beneficiary turns 60.
There are currently two income-based programs in place to enhance the funds that are contributed to the RDSP. The Canada Disability Savings Grant Program, and the Canada Disability Savings Bond Program.
The rules related to RDSPs can be complex and we recommend you speak with your Crowe MacKay tax advisor if you believe this program may be right for you or a family member.
Regular and spousal contributions to RRSPs for the 2021 taxation year may be made up to March 1, 2022. Similarly, if you must repay a portion of your Home Buyers’ Plan or your Lifelong Learning Plan, payments must be made by that same date.
Overall tax savings are most significant for individuals who are currently in a high tax bracket but will be in a lower bracket when the RRSP money is withdrawn.
There may be an opportunity to income-split with your spouse if you contribute to a spousal RRSP, and they make a withdrawal from that spousal RRSP in a subsequent year. Be careful of attribution rules that will apply if the funds are withdrawn within three years of your last contribution to a spousal RRSP. If you turn 71 and can no longer contribute to your own RRSP, you can still make contributions to a spousal RRSP until the end of the year in which your spouse turns 71.
The Home Buyers’ Plan and Lifelong Learning Plan are also useful RRSP tools as they allow you to withdraw funds from your RRSP on a tax deferred basis to help fund a home purchase, full-time training, or education. Please be aware if the required repayments under these plans are not made by the RRSP deadline, then the amounts will be included in your income for the 2021 tax year.
We suggest that you contact your Crowe MacKay tax advisor if you have any questions about RRSPs.
The RRSP contribution limit is $27,830 for 2021 and $29,210 for 2022.
Canadian residents age 18 and over are eligible to open a TFSA. Income earned in a TFSA is not taxable as it is earned nor is it taxable when withdrawn from the account. Contributions to a TFSA are not tax deductible.
For 2021, the maximum contribution is $6,000 plus any outstanding contribution room carried forward. The cumulative contribution room granted to Canadians since the start of the TFSA program is $75,500 to December 31, 2021. Please contact the CRA, check your online CRA My Account and/or contact your investment advisor for the maximum contribution you may make for 2021.
If you are considering a withdrawal in the foreseeable future, it is preferable to withdraw these funds in 2021 rather than early 2022. Withdrawals are added back to the taxpayer’s contribution limit at the beginning of the calendar year after the year of withdrawal.
Auto benefit – If you drive an automobile that is owned or leased by your employer, you may be subject to a taxable benefit for your personal use of the automobile. You may reduce this taxable benefit by reimbursing your employer for the amount paid for your personal use of the automobile. The deadline for the reimbursement is February 14, 2022.
Interest benefit – If your employer provided you with an interest-free loan or a loan at an interest rate that is lower than CRA’s prescribed rate (excluding a home relocation loan), you may be subject to a taxable benefit. You may reduce this taxable benefit by paying the interest to your employer at the prescribed interest rate (currently 1%). The deadline for this interest payment is January 30, 2022.
This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.
If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.
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