All posts by Jonathan Chevreau

With 2 weeks to go, two in five have yet to file their taxes for 2016

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While the tax-filing deadline has already passed in the United States (it was yesterday, April 18th this year), Canadians still have roughly two weeks left to go before the May 1st tax-filing deadline for the calendar year 2016.

Today, a survey from H&R Block Canada found two in five Canadians still haven’t filed their taxes this year. I had to shake my head because the survey arrived in my inbox shortly after I received emails from the Canada Revenue Agency advising me that returns for my wife and I had been processed, with (small) refunds deposited into our bank account.

Actually, those expecting refunds don’t get hurt too much by procrastination, although the time value of money tells you the sooner you file and get your refund, the sooner it can be properly invested, or be applied to eliminate high-interest debt.

But I worry about the 40% who still haven’t filed, especially about the subset of that group who expects to have to pay the CRA. (30% of H&R Block clients have to pay, versus 70% who get refunds).  It’s bad enough owing money and you don’t want to compound matters by having penalties and interest get tacked on on top of the outstanding balance.

Majority are between Procrastinators and Eager Beavers

H&R Block claims its survey has a bit of good news as it relates to attitudes towards filing: the majority consider themselves to fall under the In-Betweener category (55%), i.e.  those who file a few weeks before the deadline. Almost a quarter (23%) are Procrastinators who file at the very last second. Category 3 are  Eager Beavers (19%), who file well in advance of the deadline. (That would be me, although even Eager Beavers have to wait until the first week of April if they have non-registered investments: some of those T-3 slips don’t arrive until the end of March).

Eager is perhaps too strong a word. I hate filing taxes as much as anyone but I look at the annual ordeal as comparable to dentistry. If you have a toothache you want to address the pain head on, as soon as possible. And there’s nothing like the feeling of relief you get from hitting the Send button on a tax return, assuming you NetFile.

Most Canadians are anxious about tax filing, although H&R Block says one in four actually “get excited about filing and the prospect of receiving a hefty refund.” But the majority associate negative feelings with it:  Reasons range from finding tax preparation a complicated process (21%) to the inconvenience factor (19%) of filing a tax return or just the feeling of overall anxiety it evokes (11%).

The major excuses for not filing:

• They haven’t organized all of the necessary paperwork yet (34%) – with millennials being the most susceptible at 45% to state that as the main reason for not having filed

• They always file on the last week before the deadline (18%)

• They had not yet received all of the necessary paperwork (17%) to file

• They haven’t had time (11%) to file

Even so, 86% plan on filing their taxes before the May 1st deadline. Between now and April 27th, you can download the H&R Block Tax Software 100% free of charge (including all upgrades and support). See here for details.

 

 

How to earn $50,000 in dividend income tax-free (in most provinces)

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The Financial Post has just published (in Thursday’s paper and online) my article headlined “You can earn $50K in tax-free dividends but there’s a catch: You can’t have a job.”

Can’t have a job, indeed, or a large pension or any other source of significant alternative income.

The article is based on a BMO Financial Group report (May 2016) entitled Eligible Dividend Income. It shows that at least eight provinces or territories make it possible to receive $51,474 a year in “tax-free” eligible dividend income, provided there are no other major sources of income, and notwithstanding any provincial health levies.

These include Alberta, British Columbia, New Brunswick, Ontario, Saskatchewan, the Northwest Territories, Nunavut and Yukon. It’s only $45,309 in Prince Edward Island, $35,835 in Quebec, $30,509 in Nova Scotia, $24,271 in Manitoba and just $18,679 in Newfoundland and Labrador.

BMO won’t update for 2017 until all 2017 provincial budgets are released. When it first began publishing the document for the 2012 tax year, the maximum amount of tax-free income on eligible dividends was $47,888 in Ontario and eight other provinces. The amount rose to $48,844 in 2013 and to $49,284 in 2014.

Dividend Tax Credit, Basic Personal Amount are keys

This low-tax phenomenon happens through a combination of the Basic Personal Amounts (which in 2016 makes the first $11,474 tax-free federally) and the 15.02% federal dividend tax credit on eligible Canadian dividends: Continue Reading…

Retired Money: How tax filing changes in Semi-Retirement

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Here is my latest MoneySense Retired Money column: Tax filing advice for retirees.

It relates my personal experience of filing this year’s tax returns for the 2016 calendar year.

There is quite a difference between the key tax documents when you’re a full-time employee and the ones you receive when you’re fully retired. And in semi-retirement, it’s an interesting combination of both. Instead of T-4 slips from full-time employers, and RRSP receipts that help you minimize the high tax rates of employment, the semi-retiree now may be receiving T4A slips that tell you (and the Government) how much pension income you received in the prior calendar year and how much (if any) tax was withheld at source.

And the mirror image of the RRSP receipt in retirement or semi-retirement is the T4RSP slip, which tells you how much money you withdrew from your RRSP and how much (if any) tax was withheld at source.

The article also links to an earlier Retired Money column on “Topping up to Bracket,” which describes how you really want if at all possible to tap into the roughly $20,000 “Tax-free” zone made up of the Basic Personal Amount ($11,474 in 2016, which rises to $11,635 in 2017), another $2,000 for the Pension Credit and for those who are 65, the $7,125 Age Credit.

Age Credit escapes the axe … for now

As I noted in my Budget blog last night and this morning, despite fears that the Age Credit might be the victim of the Liberal zeal to jettison costly tax credits, evidently the fear of offending the 5.2 million seniors affected stayed the hand of Finance Minister Bill Morneau. While it is income-tested, for modest-income seniors I view the Age Credit as essentially making Old Age Security (OAS) benefits tax-free, assuming they are commenced also at the magical age 65. Continue Reading…

Budget 2017: No capital gains tax hike for investors, Age Credit for seniors remains intact

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Seniors and affluent investors who were bracing for a hike in capital gains taxes or other attacks on investment income can breathe easy, at least for a few months as Ottawa monitors developments south of the border.  And homeowners will be relieved to know that there was no move to end the capital gains exemption for principal residences.

Bye bye CSBs, hello electronic T-4s

Budget 2017 hikes a few sin taxes, imposes a sales tax on Uber and did eliminate some tax credits. Oh, and they killed Canada Savings Bonds!  For full report, read this Globe & Mail summary. Or these 10 things you need to know. And Rob Carrick reviews ten ways the budget may affect our personal finances. (You may not be able to access the link if you’re not a G&M subscriber.) Among the points: the first-time donor’s super credit expires as planned in 2017, and Ottawa will review the use of private corporations by high earners to minimize taxes.Oh, and a 3-year pilot program that starts in 2018-2019 will make it easier for adults to qualify for Canada Student Loans and grants.

Continue Reading…

Latest crop of fixed-income ETFs keeps pressure up on fees

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My latest MoneySense blog on ETFs looks in more depth at the four new fixed-income ETFs Vanguard Canada debuted in February, and how they sit versus existing funds in the category. Click on the highlighted text to retrieve the full article: Latest crop of Vanguard ETFs keeps up pressure on fees. 

The Hub noted the arrival of these new fixed-income ETFs when they were announced — here — but since then the 2017 edition of the MoneySense ETF All-stars has come out. For this article, we were interested in what some of the six panelists responsible for selecting the All-Star ETFs had to say about the new Vanguard funds.

The chart below, prepared by Forstrong Global Asset Management Inc. from industry sources, shows the four fixed-income categories the new products cover: Canadian Broad Government bonds; Canadian Broad Corporate; Canadian Short Government; and Canadian Long Aggregate.  As the chart shows, before these new arrivals, there was one iShares fixed-income ETF in three of those categories, except for the well-served Canadian Short Government bond segment, which had one iShares offering, two BMO products and one from First Asset. Actual product names and tickers are shown below, along with data on Duration, MERs, credit quality and the mix of government and corporate issues:

Canadian Broad Government
Ticker Name MER1 Duration1 AAA2 AA2 A2 BBB2 Federal/ Agencies2 Provincial/Municipal2 Corporate2
VGV Vanguard Canadian Government Bond Index ETF 0.25%3 8.0 54% 42% G4% 0% 51% 49% 0%
XGB iShares Canadian Government Bond Index ETF 0.39% 7.9 55% 28% 16% 0% 51% 49% 0%
Canadian Broad Corporate
Ticker Name MER1 Duration1 AAA2 AA2 A2 BBB2 Federal/ Agencies2 Provincial/Municipal2 Corporate2
VCB Vanguard Canadian Corporate Bond Index ETF 0.23%3 5.5 7% 30% 24% 40% 0% 0% 100%
XCB iShares Canadian Corporate Bond Index ETF 0.44% 6.1 4% 25% 34% 38% 0% 0% 100%
Canadian Short Government
Ticker Name MER1 Duration1 AAA2 AA2 A2 BBB2 Federal/ Agencies2 Provincial/Municipal2 Corporate2
VSG Vanguard Canadian Short-Term Government Bond Index ETF 0.18%3 2.7 77% 18% 4% 0% 74% 26% 0%
FGB First Asset Short Term Government Bond Index Class ETF 0.25%3 2.9 72% 17% 12% 0% 71% 29% 0%
ZFS/L4 BMO Short Federal Bond Index ETF 0.23% 2.6 100% 0% 0% 0% 100% 0% 0%
ZPS/L4 BMO Short Provincial Bond Index ETF 0.28% 3.0 9% 55% 36% 0% 0% 100% 0%
CLF iShares 1-5 Year Laddered Government Bond Index ETF 0.17% 2.5 61% 21% 18% 0% 49% 51% 0%
Canadian Long Aggregate
Ticker Name MER1 Duration1 AAA2 AA2 A2 BBB2 Federal/ Agencies2 Provincial/Municipal2 Corporate2
VLB Vanguard Canadian Long-Term Bond Index ETF 0.17% 14.8 32% 54% 8% 6% 26% 64% 10%
XLB iShares Core Canadian Long Term Bond Index ETF 0.18% 14.4 29% 30% 33% 9% 24% 54% 22%
1. MER and duration data as of February 28, 2017
2. Credit quality and issuer breakdowns are approximate and based on the most recent publicly available data from the ETF issuers
3. Represents management fee only, as an audited MER is not yet available.
4. ETF offered in both distributing units and accumulating units (L)
Sources: BMO Capital Markets, National Bank Financial, ETF Issuer Websites