Tip of the week

January 2020

Tax Free Savings Account (TFSA) Limit for 2020 in Canada

January 28/20

The 2020 TFSA limit is unchanged at $6,000. If you were 18 years of age and older in 2009, then your life time limit is now $69,500 if you have not made any contributions yet. There is no time limit for when the TFSA contributions have to be made because there is no deduction for the contribution. 

The TFSA works the same way as the RRSP, in that you do not pay tax on any increase in value for your contribution while it is in the plan. You can invest in anything inside your TFSA that you could have invested if it was an RRSP. An RRSP creates a tax deduction when the contribution is made and when the RRSP is withdrawn it is taxable. 

The TFSA is not taxable – no deduction going in and no tax liability coming out. For people who can forgo the immediate gratification of the tax deduction, the TFSA is the better bet and now that 2020 is here you can put another $6,000 in your TFSA.


Borrowing Money to Pay Your Credit Card Debt

January 21/20

January is a month that is often characterized by people having trouble paying all credit card debt. The holiday shopping now has to be paid for. If you are having trouble making the payments on a credit card, it can be to your advantage to borrow the money to pay the credit card.  The credit card should be paid off each month; you are paying interest that is being compounded each month, if you are unable to pay the entire balance. 

Take a look at the credit card statement and see how long it will take you to pay the balance off if you make the minimum payment each month. If you borrow money on a long term basis then you will have a lower interest rate and a lower payment. We call this terming out a loan. You take the amount that you owe to your credit card company and change it to a loan that you repay over 2 or 3 years, this drops the payment to a more manageable amount than the payment on the credit card. You will save on the interest, protect your credit rating and pay off the debt quicker. 


Automobile Deduction Limits for Passenger Vehicles (2020)

January 14/20

The 2020 automotive limits have been released. There is no change to the amount that you can depreciate for tax purposes. The vehicle ceiling remains at $30,000 for internal combustion passenger vehicles and $55,000 for zero emission passenger vehicles. You can pay as much as you want for a vehicle, but you can only depreciate based on the ceiling. 

The exempt mileage amount is 59 cents for the first 5000 km and 53 cents for every kilometer after that in 2020. This is the amount that an employer can pay an employee without the employee declaring it as income. 

Interest deduction for a vehicle cannot be more than $300 a month and the maximum lease payment that is deductible for a passenger vehicle remains at $800 per month. These ceilings have been in place for years. The mileage allowance goes up every year, but the ceilings do not. 


2019 Source Deductions are Due on January 15th, 2020

January 7/20

If you are an employer, you are required to take deductions from your employees’ pay cheques and send the money to Canada Revenue Agency. You do this every month during the year. Now the time has come to prepare your T4 slips and see if you have deducted the correct amounts for each employee. 

Ideally you will prepare your T4 forms before January 15th so that you can see if there is a shortfall in your payments. This is important because sometimes mistakes are made in calculating these deductions. I am talking about Employment Insurance (EI), Canada Pension Plan (CPP) and Income Tax (no acronym) that you have deducted from your employees’ paycheques. 

If you do the T4’s before January 15th then you will know how much you need to send to CRA on January 15th in order to have paid the correct amounts. The last chance that you have to pay your 2019 source deductions on time, is January 15, 2020.