Income Tax and Budgeting

Pin It

I don’t know why we’re soooo afraid or worried about doing our taxes. Many of my friends wait, wait, wait, worry, worry, worry, worry, and then, once getting into crunching a few numbers, they begin to feel better.

It really is a moment of truth. We stare our expenses right in the face, especially if you have a proprietorship or small business. That’s why income tax and budgeting go hand in hand.

For example, in 2012, for my personal stuff, I spent $1,209 on my cell phone and $1,865 on my internet and television connection last year. If you add in my hydro and gas then my utility bill is over $4,300 dollars a year. It used to be 10 bucks for cable and 15 bucks for the phone a month.

Utilities are one expense that has skyrocketed through the roof over the last few years. On top of these raw basics were two more expenses: a government utility tax of $1,102 and $1,896 for property taxes. Now the total is over $7,000 a year for basic utilities and property taxes.

We used to debate whether or not a computer or a cell phone was a necessary expense… not anymore. We’ve invented a new cyber jungle full of curious creatures like multiple cell phone contracts all slightly different with perhaps one feature a little better than some other competitors, multiple television bundles that tend to only have a couple of channels you really want, but to get all the ones you really want you must purchase a comprehensive packages with all kinds of channels you will never look at, and then the high-speed internet connection eats up even more of our net incomes – because we need the connection, we need the cell phones with text messaging and mobile email and so on…

Filing taxes is a more advanced stage in the budgeting process. We see 12 months worth of transactions… for some, it is an awakening. We now know where all of our money is going, and how much we earn. This makes filing a tax return an opportunity to get serious about budgeting – and about saving money and reducing our taxes.

As I am not a tax expert, I have copied the following useful information from the CRA website for my readers and stakeholders.

Rates for Money Purchase limits, RRSP limits, YMPE (Yearly Maximum Pension Earnings), DPSP (Deferred Profit Sharing Plan) limits and Defined Benefits limits

Outlined in the following tables are data on Rates for Money Purchase limits, RRSP limits, YMPE, DPSP limits and Defined Benefits limits used to calculate PA, PSPA and PAR.

Year

MP limit

RRSP $ limit

YMPE

DPSP limit
(1/2 MP limit)

1990

$11,500

(Old limits)

$28,900

$5,750

1991

$12,500

$11,500

$30,500

$6,250

1992

$12,500

$12,500

$32,200

$6,250

1993

$13,500

$12,500

$33,400

$6,750

1994

$14,500

$13,500

$34,400

$7,250

1995

$15,500

$14,500

$34,900

$7,750

1996

$13,500

$13,500

$35,400

$6,750

1997

$13,500

$13,500

$35,800

$6,750

1998

$13,500

$13,500

$36,900

$6,750

1999

$13,500

$13,500

$37,400

$6,750

2000

$13,500

$13,500

$37,600

$6,750

2001

$13,500

$13,500

$38,300

$6,750

2002

$13,500

$13,500

$39,100

$6,750

2003

$15,500

$14,500

$39,900

$7,750

2004

$16,500

$15,500

$40,500

$8,250

2005

$18,000

$16,500

$41,100

$9,000

2006

$19,000

$18,000

$42,100

$9,500

2007

$20,000

$19,000

$43,700

$10,000

2008

$21,000

$20,000

$44,900

$10,500

2009

$22,000

$21,000

$46,300

$11,000

2010

$22,450

$22,000

$47,200

$11,225

2011

$22,970

$22,450

$48,300

$11,485

2012

$23,820

$22,970

$50,100

$11,910

2013

$24,270

$23,820

$51,100

$12,135

2014

$24,270

Please note that the MP limit and DPSP limit above for PA purposes are also restricted to 18% of compensation.

Defined Benefit limits

1990 to 2003

$1,722.22

2004

$1,833.33

2005

$2,000.00

2006

$2,111.11

2007

$2,222.22

2008

$2,333.33

2009

$2,444.44

2010

$2,494.44

2011

$2,552.22

2012

$2,646.67

2013

$2,696.67

2014

1/9 the money purchase limit

2012-2013 Canadian Tax Deadlines

December 31, 2012
December 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP.

January 31, 2013
Due Date for filing and remitting Goods and Service Tax / Harmonized Services Tax (GST/HST) for the prior quarterly reporting period. (Applicable to businesses, not personal tax.)

February 2013
Starting February 2013, you can get a printed copy of the 2012 General income tax and benefit package mailed to you by calling the CRA at 1-800-959-2221. Between February and early May 2013, the General guide and forms book for your province or territory are available from any postal outlet or Service Canada office near you.

February 11, 2013
The first day for using TELEFILE or NETFILE to electronically file your 2012 CRA tax return. For TELEFILE, call 1-800-959-1110.

March 1, 2013
RRSP Deadline
2013 RRSP deadline for contributing to your Registered Retirement Savings Plan (RRSP) for the 2012 tax filing year.

March 15, 2013
Quarterly instalment due if you pay taxes to CRA by instalments.

April 30, 2013
Tax Deadline
2013 Tax Filing Deadline for personal income tax filing for the 2012 tax year.

April 30, 2013
Payment to CRA of your balance owing for 2012 personal income tax is due April 30, 2013 for all personal income tax filers including self-employed.

April 30, 2013
Due Date for filing and remitting Goods and Service Tax / Harmonized Services Tax (GST/HST) for the prior quarterly reporting period. (Applicable to businesses, not personal tax.)

June 15, 2013
CRA tax deadline for self-employed persons to file their personal income tax return. Any balance owing must be paid by April 30, 2013.

June 15, 2013
Quarterly instalment due if you pay taxes to CRA by instalments.

July 31, 2013
Due Date for filing and remitting Goods and Service Tax / Harmonized Services Tax (GST/HST) for the prior quarterly reporting period. (Applicable to businesses, not personal tax.)

September 15, 2013
Quarterly instalment due if you pay taxes to CRA by instalments.

September 30, 2013
Last day for the electronic filing of your 2012 personal income tax and benefit return using NETFILE.

November 30, 2013
Due Date for filing and remitting Goods and Service Tax / Harmonized Services Tax (GST/HST) for the prior quarterly reporting period. (Applicable to businesses, not personal tax.)

December 15, 2013
Quarterly instalment due if you pay taxes to CRA by instalments.

December 31, 2013
December 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP.

Canada Education Savings Grant (CESG)

Human Resources and Skills Development Canada (HRSDC) provides an incentive for parents, family and friends to save for a child’s post-secondary education by paying a grant based on the amount contributed to an RESP for the child. The CESG money will be deposited directly into the child’s RESP.

Who qualifies for the basic CESG

No matter what your family income is, HRSDC pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

Who qualifies for the additional CESG

HRSDC will also pay an additional CESG amount for each qualifying beneficiary. The additional amount is based on your net family income and can change over time as your net family income changes.

For 2012, the additional CESG rate on the first $500 contributed to an RESP for a beneficiary who is a child under 18 years of age is:

  • 40% (extra 20% on the first $500), if the child’s family has qualifying net income for the year of $42,706 or less; and
  • 30% (extra 10% on the first $500), if the child’s family has qualifying net income for the year that is more than $42,707 but is less than $85,414.

The following chart gives you a brief overview of how the CESG is calculated depending on your family net income:

Canada Education Savings Grant summary chart

Net Family Income for 2012

$42,706 or less

$42,707 to $85,414

More than $85,414

CESG on the first $500 of annual RESP contribution

40% = $200

30% = $150

20% = $100

CESG on $501 to $2,500 of annual RESP contribution

20% = $400

20% = $400

20% = $400

Maximum yearly CESG depending on income and contributions

$600

$550

$500

Lifetime maximum CESG for which you may qualify

$7,200

$7,200

$7,200

Every child under age 18 who is a Canadian resident will accumulate $400 (for 1996 to 2006) and $500 (from 2007 and subsequent) of CESG contribution room. Unused CESG contribution room is carried forward and used when RESP contributions are made in future years provided that the specific contribution requirements for beneficiaries who attain 16 or 17 years of age are met.

The qualifying net income of the child’s family for a year will generally be the same as the income used to determine eligibility for the Canada Child Tax Benefit (CCTB).

Beneficiaries qualify for a grant on the contributions made on their behalf up to the end of the calendar year in which they turn 17 years of age.

Contribution requirements for beneficiaries who are 16 or 17 years old

However, since the CESG has been designed to encourage long term savings for post-secondary education, there are specific contribution requirements for beneficiaries who attain 16 or 17 years of age. RESPs for beneficiaries 16 and 17 years of age can only receive CESG if at least one of the following two conditions is met:

  • a minimum of $2,000 of contributions has been made to, and not withdrawn from, RESPs in respect of the beneficiary before the year in which the beneficiary attains 16 years of age; or
  • a minimum annual contributions of at least $100 has been made to, and not withdrawn from, RESPs in respect of the beneficiary in any four years before the year in which the beneficiary attains 16 years of age.

This means that you must start to save in RESPs for your child before the end of the calendar year in which the beneficiary attains 15 years of age in order to be eligible for the CESG.

The CESG and accumulated earnings will be part of the educational assistance payments paid out of the RESP to the beneficiary.

If the beneficiary does not pursue post-secondary education, the CESG is returned to the government.

Pin It
This entry was posted in Blog, Budgeting. Bookmark the permalink. Both comments and trackbacks are currently closed.