A couple days ago when I was driving to Toronto to visit a client, I heard Justin Trudeau’s radio comment about how much he doesn’t like the new Family Tax Cut and how it makes the rich richer. And he will definitely cancel this Family Tax Cut program as soon as he becomes the Prime Minister.
A quick disclaimer – I am not a political person at all. I don’t know much about Canadian politics. But I can tell you with my first hand experience from this tax season – majority of my clients get some tax benefits out of this program.
2014 was the first year Canadian families get to enjoy the newly introduced Family Tax Cut. Harper Government allowed families who have children under the age of 18 to split income between the higher income spouse with the lower one, up to a maximum of $2,000.
This brings an unexpected smile to many of my clients when they see their tax returns.
Like any government programs, it is not a one size fits all solution. Some get the benefit and some do not. Equality may be the priorities for some, but to an accountant, after seeing how much people have to pay to the government, I am just happy to see any tax cut!
We are almost down to the last stretch of the tax season and the 2015 federal budget was just announced today.
Contribution limit to Tax Free Saving Accounts (TFSA) is increased to $10,000 for 2015, from the current $5,500. If you have never contributed to your TFSA before, you can now contribute up to $41,000 cumulatively and accumulate your wealth tax free in your TFSA.
If you can invest in something that gives you 10% return a year, compound annually (meaning reinvesting what you earn back again to earn an additional 10%), this $41,000 you invest in today will make you a millionaire in 35 years.
Many people may disagree – the way I see it is that the government is encouraging us to take control of our own financial lives and put our retirement savings in our own hand.
This blog post entitled Where Do Your Tax Dollars Go? basically explains it all. 15 cents out of every $1 our Federal government spends go into Old Age Security and Guaranteed Income Supplement. “Increased spending on support for the elderly has been the largest single increase under the Conservatives and that is unlikely to change regardless of which party is in power.”
15.3% of our population was seniors in 2013. By 2030, the most conservative studies show that this figure will be 23.6%.
Who’s going to support the growing senior population? These numbers just go to show us that it is irresponsible to put our financial future in the government’s hands. Of course, that’s why we are real estate investors, taking control of our own financial future!
As a small business owner, I smile when I see the Federal tax rate on small business corporation going down from 11% (15.5% combined with Ontario tax) to 9% (13.5% combined with current Ontario tax rate) over the next few years. J More reasons to own your small business. And more reasons for our real estate investors to use appropriate tax strategies to minimize their tax liabilities.
One last item to us, real estate investors specifically, if your goal is to give a part of your wealth to a specific charity, now the Federal government offers more incentives for you to do so! If you donate your real estate investment gain to a charity, you get a tax break! This Financial Post article provides a pretty good example on how it works.
Until next time, happy real estate investing.
Cherry Chan, Your real estate accountant
P.S. If you are interested in making a great return in your TFSA account, send me an email.
This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.