Category Archives: Tax Planning

Odette Morin

When to avoid RRSP

For most people, RRSPs are pretty hard to beat however they are a few instances that quickly come to mind when RRSPs are not the way to go.


  1. When you need the money in the short term, you should avoid contributing to an RRSP.  Not only you will owe the tax refund back, but you will also lose your deduction limit. Some tax advisers would recommend a short-term RRSP when your tax rate is high and will drop in the following year to benefit from the tax difference but again, I do not advocate this because eroding your contribution room is quite costly. The tax free compounding is very valuable over the long-term.
  2. When your income is going to be higher at retirement.  This is very rare but if you anticipate your income to be higher at retirement than it is today, you should avoid making an RRSP contribution. Avoid a situation where you obviously have to pay more tax later than the tax saving today.
  3. When you are close to the GIS qualification. If your savings are modest and you anticipate having very low income at retirement, it would be best to avoid RRSPs which could jeopardize qualifying for the Guaranteed Income Supplement.
  4. When you expect a very large RRSP at 71. If you calculate that your RRSP will be so big at age 71 that the minimum annual payment might clawback your Old Age Security (OAS) benefit it would be best to stop contributing to your RRSP.

If you meet one of these situations, you may be best to contribute to a TFSA or make a non-registered investment.

Careful calculations and projections must be made to plan properly.  Make sure to discuss these few points with us at your next annual review meeting.


RRSP or not

Terry Broaders

Read How This One Small Mistake Can Cost You A Lot of Money !

Did a missing tax slip such as a T3 or T5 or T4 show up in your mail box after you filed your taxes last spring? Did you find a forgotten one in a drawer?  You must file that tax slip with the Canada Revenue Agency (CRA) right now !


Thinking that CRA will simply pick it up and reassess? Think again. You will be shocked to know that a retired tax payer was recently imposed a $3,600 penalty by CRA for failing to include a T5 slip.  This penalty was on top of the interest and tax owed on the income.


Here is an example. In 2011 tax year you forget to report a $50 T5 slip from the ABC Financial Institution.  OK, no big deal; Canada Revenue picks up on it, reassesses you later and charges you about $15 tax on that $50 of income you forgot to report.  But you have used up your “strike one”.  Now in 2013 tax year (which you report in the spring of 2014) you have an $18,000 T5 slip that you forget to include. Canada Revenue will assess you the tax owing on that $18,000 which results in a surprise tax bill of about $5,400 plus interest.  But on top of that they will assess you a 20% penalty of the amount of income you failed to report or an extra $3,600.   So you pay the $5,400 tax you owe on that $18,000 plus a further $3,600 penalty !


If two T-slips in a four-year period are not reported you may face this 20% penalty.  It is 20% of the T-Slip income not reported, not of the tax owed.  This penalty is very steep and means that you need to make sure that you include all T-slips even if the amount is very small.  If you realize you have forgotten a T-Slip from 2013 or from a prior year  bring it in to us so we can prepare a T1-adjustment.

Please note that it is ultimately the tax payer’s responsibility, not the tax preparer.  As you know, we make every effort to cross reference with the previous years and with your investment accounts to ensure that all your T-slips are indeed reported.  But again, you are ultimately responsible for giving us all documents needed to prepare your declaration.

Terry Broaders

You’ve Got Mail ! ………….. from CRA !!

In early 2015 the Canada Revenue Agency (CRA) will be sending approximately 33,000 letters to selected taxpayers in early 2015.  In 2010, the Canada Revenue Agency (CRA) began a letter campaign to inform selected taxpayers about their tax obligations and to encourage them to correct any inaccuracies in their past income tax and benefit returns.The CRA will send about 33,000 letters to randomly selected taxpayers who claim business or rental losses or are employees who claim employment expenses on line 229 of their tax return. First of all if you receive a letter don’t panic, don’t be upset and don’t take it personally. Don’t leave the letter there unopened. That won’t help anything. Most taxpayers such as you are honest but inevitably CRA has to send a lot of letters to honest people first before they find a minority of those who were not so innocent.

If you are a You First client just contact us as we can advise you as to how to properly respond to the letter and will in most situations be able to take care of preparing the reply for you.  In most cases CRA is simply looking for documentation to substantiate your claims or to determine the reasonableness of your expenses. For example if you are depreciating the cost of a new car on your business expenses surely CRA is justified in determining whether or not you actually bought a new car. Or maybe you claimed over $5,000 in meal and entertainment expenses for your business even though you had only $20,000 of income. On the surface this may seem excessive but perhaps your business is the type that requires the cultivation of a great many prospects. Canada Revenue merely has the duty to determine that the expenses claimed on your tax return are legitimate.

On a personal note and from 23+ years of preparing tax returns we have seen only one single letter that required more than just the basic amount of verification to Canada Revenue. This was a situation of a client who had reported a $2,186 rental  loss on a new  apartment in his house.  While not overly complicated the response to the letter required the client to provide information on the size of the apartment in relation to the overall house; the name of the tenant; a projection as to when profitability would be achieved; and they asked for copies of the maintenance receipts. That was all that CRA wanted. A few weeks later the client received another letter from CRA to say that all was fine and then that was the end of it. See nothing to worry about.

So if you receive one of those CRA letters don’t worry.  They just want to see how honest you are !

Odette Morin

CRA wants to know what is happening in your bedroom and it is not just to be nosy.

CRA bedroom








You may be receiving a new questionaire from CRA regarding your true nature of your relationship.  CRA wants to know what is happening in your bedroom and they have a good reason.

Here is why? There are all kinds of tax advantages to be considered spouses.  Some disadvantages as well however.  But in many cases, to be considered spouses, especially with the new “family tax credits” and at retirement with the pension splitting advantages, it may mean several hundred or thousands of tax dollars saved.  CRA want to make sure that you are indeed common law spouses, not just roommates.

Here a link to an article written this week about this.


Odette Morin

Beware Canada Revenue may be closer then you think.

Got a fancy new car? Doing a major renovation to your home? Eating at a lavish new restaurant? Why not let all your friends know what you’re doing by posting this to your social media accounts?

CRA monitors social media websites like Facebook for people who boast about their income or assets and they make sure everything has been properly declared.

You can read more here. 

Odette Morin

Should the RRIF rules be modified?

The CALU (Conference for Advanced Life Underwriting) has recently submitted its recommendations for the 2015 Federal Budget to the House of Commons Standing Committee on Finance.

The submission is based on the fact that approximately 11 million Canadians will reach age 65 by the year 2036. And longevity studies have also shown that seniors are living longer than ever before. Here are two of their recommendations. I am reproducing here the actual recommendations from the link below.

1. RRIF withdrawal rules should be modified.

This would help seniors retain and spread out savings over their lifetimes. These rules should be adjusted periodically (every 20 years or so), based on demographics and economic conditions.

Moshe A. Milevsky, a professor at the Schulich School of Business and managing director of Longevity Extention Corporation, proposes one adjustment model. He suggests the current required minimum distribution (RMD) rates need to be changed to take lower interest rates into account, and the fact that, since Canadians are living longer, they’ll need more income. This doesn’t change the original intent of the RRIF legislation, which was to limit the deferral of income taxation, and spread personal pension payments evenly over a retiree’s lifespan. But, these rules haven’t been updated since 1992, he says.

Milevsky recommends that, each year, the RRIF holder should withdraw a percentage of the RRIF’s value at the start of the year equivalent to what a life annuity would pay at that age (see “Optimal RRIF spending rates in an economic lifecycle,” below). The numbers would reflect changes to interest rates and demographics. This would keep the RMD rates fair.

Optimal RRIF spending rates in an economic lifecycle

RRIF Value at 70: $200,000

Pension Income: $10,000

Survival to Age 95: 28% chance

REAL Interest Rate: 1.50%

Longevity Risk Aversion: High (=8)

Current RRIF rates (%) Age RRIF value Optimal
withdraw (%)
Total spending
5 70 $200,000 4.55 $19,110
7.38 71 $193,960 4.69 $19,080
7.48 72 $187,860 4.84 $19,050
7.85 75 $169,200 5.27 $18,950
8.75 80 $137,128 6.35 $18,675
13.62 90 $72,073 10.4 $17,484
20 95 $42,124 15 $16,300
Source: Conference for Advanced Life Underwriting

2. A federal tax incentive for long-term care insurance should be implemented.

This would encourage Canadians to become more self-sufficient with respect to their long-term health care needs. CALU cites a recent paper by the Canadian Life and Health Insurance Association (CLHIA) and an upcoming report by the C.D. Howe Institute discussing the needs of our aging population. With Canadians living longer, they’re more at risk of contracting chronic diseases and will need support, whether at home or in an institution.

In fact, the chances of requiring long-term care are 1 in 10 by age 55, 3 in 10 by 65, and 1 in 2 by 75, according to Statistics Canada. And more than 750,000 Canadians over the age of 65 will reside in health care institutions by 2036. CALU recommends allowing long-term care insurance to qualify as an investment for an RRSP or RRIF, or letting investors withdraw up to $2,000 per year from RRSPs or RRIFs to purchase long-term care insurance.

Both issues are critical and timely. We should lobby and discuss these recommendations with our parliamentarians. We also should let clients know what our professional association is doing on their behalf. I say we should take this opportunity, in these pre-budget days, to support CALU and its recommendations.


We will keep you updated on any RRIF changes. Here is the link to the full report.