Taxes done

This weekend I sat down and did my taxes. 2008 was a crazy year for work, I was afraid to find out how much taxes I owed. It’s not too bad, but not so great either. Yes, I owe the government money. I am doing everything I can to minimize the damage though. Here are a few things I remembered last minute.

Gifts and Donations credit: I donated money over the course of the year, which meant I've completely forgotten what I donated by now. Luckily, I saw this coming. So every time I made a donation I requested a tax receipt to be e-mailed to me and then saved it all in an electronic folder. I just had to print it all out and fill out the right donation tax credit schedule.

Education credit: I took a business course last year, which I should be able to claim credit for. Most schools now allow students to access and print their receipts online instead of sending a hard copy. Not having a hard copy, I almost forgot about it.

Foreign tax credit: When I received dividends from US stocks I own, withholding taxes were automatically deducted. I believe we can claim a credit for what we’ve already paid. However, because it’s a separate form (it’s not part of the tax package and needs be printed from the CRA website) I almost missed this one as well.

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New Trading Account

They say Canada has five seasons: Spring, Summer, Fall, Winter, and RRSP season. So forgive me if I have RRSP on my mind lately. Here is where I am.

Previously, my RRSP were all invested in a company group plan. When I left my job last summer I had to transfer them out of the group plan. Since I was planning to take it out for buying a place soon, piled everything into RRSP short term GICs.

As of right now, I'm planning to take out all that RRSP for my home purchase when the time comes. However, any additional contributions make in the future, I have no plans on taking out.

Another thing with my future contributions is that I will have total freedom in deciding how to invest them. I'm not going to be contributing through my new company's group plan. Why? Because I won't get a contribution match from the company so there is no point in limiting myself to the group mutual funds.

I've been thinking about what I want to do with my future contributions. I think I want to open a registered trading account. It's a good thing to have. I already have a regular trading account. Lately, when I'm considering buying something I have caught myself occasionally thinking I should buy this in a registered account instead and can't because I don't have one.

Any suggestions? I have one account in mind, but I have to look into it some more.

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RRSP slips

I made a list of tax slips I should expect for the 2008 tax season. There was a lot going on this year, and I didn't want to miss anything. For T4 slips alone, I counted that I should get 5 (on account of the 5 jobs I had).

As of right now I am missing 2 major RRSP slips. The RRSP Contribution Deadline for 2008 Tax Year is March 02, 2009. What if I was waiting to get all my RRSP slips to see if I've contributed to my maximum limit? I'm not, but I'm just reasoning that they should have arrived by now. No?

How about you, readers? Did you get all your RRSP slips already?

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Tax Free Savings account

I noticed that the Tax Free Savings Account I opened with ING, is now officially a TFSA. I topped it up to exactly $5000 this weekend. I also did a quick browse on the CRA website to inform myself of the rules and penalties. You can read up on it here.


Here are some parts I took note of.

Don't over contribute. If you do, the excess will be subjected to a tax of 1% per month, for each month the excess remains in the account.

You can withdraw at any time for any reason. And withdrawals will be added back to your TFSA contribution room at the beginning of the following year. So if you take out $1000, this year, next year you can contribute $6000.

The types of investments allowed for a TFSA are similar to those for RRSP. Thing like Mutual funds, stocks, GICs, bonds etc.

I put all my in ING high interest account. When allocating investments mutual funds, equity, GIC etc. it makes sense to have those investments will pays interest in a tax sheltered account. Interest is taxed at 100%, where as capital gains is not. Also, with a high interest savings account, my money is not locked in like GIC so I could use this TFSA as an emergency fund.

Anyway if anyone is interested in opening up an ING account, considering using my Orange Key 14795960S1 (also up on the side bar). By opening an account with $100 or more both the new account holder and referrer get a $13 bonus :)

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Preparing for tax season hit

This year I finished an old job and started a new one. There was a little overlap in pay cheques.

I took on a part time job. They did not take any taxes because as far as they are concerned I haven’t reached the minimum tax limit.

In addition, I’ve sold a few stocks which gained in value. Even though the rest are down, I do not realize a capital loss until I sell them. I could probably sell some this year to offset the capital gain. However, I don’t see it happening. Most of the stocks I bought for long term holdings. The few I sold, I only sold partials because they had gains which make them a bigger part of my portfolio than I wanted. Plus I’ve had dividends and interest payouts.

This means come tax season, I’m going to have some taxes to pay. I’m starting a Tax fund. Pre estimating how much taxes I will have to pay and setting that money aside marked – NOT TO BE SPENT!

Why am I doing this? Because once the money is in the Tax fund it is considered money gone. In a way I’m giving myself more time to accept this big hit emotionally. Secondly, when I was younger, Dad contributed to his company stock purchase plan – his only equity investment. Then one day things jumped and he sold a chunk of it to realize a big gain. Things were happy and rosy. It was my second year away at university and the year they bought a place in the city they lived.

However, come tax season, Dad did his taxes (on the last day) and realized he had to pay the government $10K for the gains he realized. $10K he did not have readily because they had put all their cash into down payment on the place. The whole family cleaned out our accounts to meet that payment. So for a month in university I had no money, mum and dad had no money, and Sis had no money. It was an uncomfortable month wondering if our pay would come in time to meet all the bills due dates. It was the closest I ever came to debt. I was brought up on the principle that no debt is good debt. My parents are even uncomfortable with big mortgages. Actually, they are even uncomfortable with the idea of no savings. I think their earlier days have a lot to do with that thinking, but that’s a whole other post. Point is if I can help it I don’t want to be caught unaware like Dad did that year.

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Tax Refund

So everything arrived last week and I finally finished my taxes. As expected the refund is less than I estimated without the couple of income trust and stock distributions, but money is money. I’m getting $700 and change back.

I’m looking forward to getting the refund. I’m also looking forward to getting my Assessment so I know exactly how much limit I have for my RRSPs so I can started planning for 2008 taxes. I already have a guesstimate but I just like to be totally sure.

One more thing to add about dividends from foreign sources. Like I said before this is taxed fully unlike dividends from Canadian corporations. However, remember when you get your dividends? And sometimes there is a deduction called Withholding tax? Claim tax credit for that so you don't end up paying taxes twice.

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Taxes

I’ve been reading about tax returns from fellow bloggers for weeks now. I’ve been impatient to get my own return done. However, I am still waiting for two forms: one from income trust shares I own, and another from ETF shares.

Mar 31, 2008 is the deadline for them to send out the forms. Mum has received hers but nothing for me. Then I read this little bit “it isn’t uncommon for companies to send forms out after the deadline”.

Since I got everything else, I did a rough draft of my returns without those forms. Just to make sure I’m not owing anything and everything is good.

It looks like I might be getting a small refund. It’ll probably be less once I factor in the distributions from the income trust and ETF, but I’m just glad not to owe anything.

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A Couple of Things I Learnt this Tax Season

I’ve been working two years and maybe investing a year and half. So this newbie is still learning. I’m learning. Here are two things news things I learnt about taxes.

RRSP Employer Match: I knew that my employer RRSP match counts towards my contribution limit, but I was puzzled when it didn’t come up anywhere in my 2006 tax returns. I called the tax help line and turns out it was just in a form I did not recognize.

On my T4 there is a section under Pension. That is my employer match, which should be reported on 2006’s return and would show up on my Notice of Assessment as Pension Adjustment. This adjustment will then lower my RRSP contribution limit for 2007.

Good to know. Would have been better if I had known it earlier, but good thing I did not max out my RRSP 2007 contributions (I was anticipating something like this).

Dividends: I learnt earlier that dividend income is better than interest income because they are not taxed at the full rate (interest is). However, what I didn’t realize is that this only applies to dividends from Canadian companies.

Well, it’s a learning process. Now I know. It probably won’t change how I invest very much but it’s another thing to consider when looking at stocks.

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