2015 Tax Season & Tax Saving Programs

Tax Season is here!

Tax season is upon us and, as a reminder, the deadline to contribute to your Registered Retirement Savings Plan (RRSP) for amounts you want to deduct on your 2015 tax return is February 29, 2016!

An RRSP is a retirement savings plan that you establish, to which you or your spouse/partner contribute to. This helps Canadians defer the amount of income taxes they pay.

This investment (transferred to a Registered Retirement Income Fund or RRIF) can be used in order to receive an income during retirement, but keep in mind that you will still pay taxes on the money you will receive. Once retired, it is likely that your marginal taxes rate will be lower as you may receive less income each year than during your higher earning working years.

The penalty free limit you can contribute each year is calculated on your previous year's earned income, up to 18% with a $24,930 maximum amount for 2015 contributions.

The gains made on an RRSP investment (capital, dividends or interests) will not be taxable during the year they are made but when they are withdrawn or received, for example, as an annuity.

This means that your RRSP can be cashed out at any time. The amount you withdraw will be added into the taxable income of that year, but exceptions may exist.

The Home Buyer's Plan: It is possible for home buyers to use their RRSP contributions towards a down payment purchase on their first home. The amount you can borrow is a maximum of $25,000 and this "loan" will have to be repaid within 15 years. Your repayment period starts the second year after the year you withdrew the funds from your RRSP. You can repay the full amount into your RRSP's at any time. Each year, the Canada Revenue Agency (CRA) will send you a Home Buyers' Plan (HBP) statement of account, with your notice of assessment or notice of reassessment. To make a repayment under the HBP, you have to make a contribution(s) to your RRSPs in the year the repayment is due or in the first 60 days of the year after. Once your contribution is made, you can designate all or part of the contribution as a repayment.*

Lifelong Learning Plan: The Lifelong Learning Plan will allow you to withdraw amounts from your registered retirement savings plan (RRSPs) to finance full-time education or training. This can be for yourself, spouse or common-law partner. You cannot participate in the LLP to finance your children's training or education, or the training or education of your spouse's or common-law partner's children. The limit is up to $10,000 during a calendar year and the overall withdrawal cannot exceed $20,000. You have up to 10 years to make repayments to your RRSP or PRPP or both. Usually, each year you have to repay 1/10 of the total amount you withdrew until the full amount is repaid.

The latest year you can start repaying your LLP withdrawals is the fifth year after your first LLP withdrawal. However, in most cases, you have to start repaying your withdrawals before that year. This is determined by Canada Revenue Agency and line 322 of Schedule 11 on your tax return.*

Bill Cossitt, Centum Mortgages

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