What you should know about RSP, TFSA, and charitable donations before 2019 comes to an end.
Tax season is coming up, which means now’s the time to make any final 2019 contributions and donations that could improve your bottom line. Here’s what to look out for:
Keep an eye on the RRSP deadline for 2020: As of writing, all RSP contributions have to be made by March 2, 2020, to be eligible for 2019 deduction. Most years, the deadline is March 1, but as 2020 is a leap year, that date becomes February 29. However, February 29 falls on a Saturday, so it seems that Monday, March 2 will be the last date to make a contribution and deduct that from your 2019 tax return.
Get your TFSA contributions in: The holidays are just around the corner and before taking a well-deserved break, it’s a good idea to see if you have made your 2019 contribution to your Tax Free Savings Account.
The TFSA has a number of advantages that make it worth reviewing. Among these:
- You can give your partner money to invest in a TFSA without the income from the investment being attributed back to you for taxation. This is not the case with a non-registered investment account.
- The TFSA is always tax-free, and should you have assets in a TFSA when you pass, there is no tax payable on the TFSA by your estate or beneficiaries, unlike the RRSP/RRIF or unregistered account.
- You can withdraw growth from your TFSA without income tax, and recontribute the full amount after January 1 of the next year. Here is a real-life case: my client has always contributed the maximum to her TFSA (total of $63,500 up to 2019), and through growth in her investments, the market value of her TFSA is currently over $92,000. If she decided to withdraw all of that money for urgent cash flow needs this month, she would be able to recontribute all $92,000+ anytime after January 1, 2020.
One more thing to note is to be careful with the timing of withdrawals and deposits to the TFSA. As most people know, you can put back into your TFSA amounts you take out. However, when you make a withdrawal in one year, you must wait until the next calendar year to recontribute that amount.
Remember that charitable donations are the gift that keeps on giving: Contributions can be made to many worthwhile causes and non-profit organizations, but only donations to registered charities qualify for an income tax credit. Although they are often called “tax deductible,” donations qualify for a non-refundable tax credit, not a deduction.
When filing your federal income tax, you can claim eligible donations up to 75% of your yearly net income. The federal charitable tax-credit rate for 2019 is 15% for the first $200 donated. You can claim 29% on larger sums and a special 33% rate can apply to your donations beyond the first $200 if your 2019 taxable income exceeds $214,368.
Your donation also qualifies for a provincial tax credit. In Ontario, for example, a 5.05% rate applies to donations up to $200, and 11.16% for larger sums.
The receipt should have the charity’s name and registration number, date, serial number, amount donated, donor’s name, and be signed on behalf of the organization as well as show the website address of the Canada Revenue Agency www.cra-arc.gc.ca/charities.
Lastly, be sure to save your receipts: if paper filing your income tax return, include them. If electronically filing, save them in case CRA asks for them later.
Have any questions about any of these? Contact me for more on these and other tax tips.
Wishing you a happy and peaceful holiday season,