I’m looking forward to New Year’s Eve and the change to a new decade. We’ll be watching the countdown on television as they drop the ball at midnight. I was speaking to some of my close friends over the past few days, and most of them feel like they personally dropped the ball in 2019 – as far as their tax planning is concerned.
So, let’s take a look at 2019 in review to see what key tax changes took place and, more important, how you might make the best of these changes to pay less tax in 2020 and beyond.
RRSP contribution limits. You can make your 2019 registered retirement savings plan contribution on or before March 2, 2020, and still claim a deduction on your 2019 tax return. Your deductible contribution for 2019 is 18 per cent of your earned income in 2018 (check your 2018 Notice of Assessment for the figure), to a maximum of $26,500. The maximum limit in 2020 is increasing to $27,230, so take advantage of the ability to sock-away increasing amounts for your retirement if you can.
TFSA contribution limits. If you haven’t contributed to a tax-free savings account before, you can contribute up to $63,500 in 2019: $5,000 for each year from 2009 to 2012; $5,500 for each of 2013 and 2014; $10,000 for 2015; $5,500 for each of 2016, 2017 and 2018; and $6,000 for 2019. You can add another $6,000 on Jan. 1, 2020, for total contributions of $69,500. Are you wondering whether an RRSP or TFSA make the most sense for you? Check out my article from Jan. 31, 2019.
Canada Training Credit. Here’s how this credit works: Starting Jan. 1, 2020, eligible workers aged 25 to 65 will accumulate a credit balance of $250 a year, up to a $5,000 maximum lifetime limit. Your credit balance can be claimed for up to one-half of the costs of taking courses or enrolling in a training program. For example, a $500 course in 2020 will entitle you to claim the $250 credit balance that you’ll be granted in 2020. Your remaining credit balance will be included in the information the taxman sends you each year. So, consider taking a course or training in 2020 to begin using up your available credit balance.
Digital subscriptions. If you’re thinking of paying for a digital subscription with a qualified Canadian journalism organization, the 2019 federal budget introduced a non-refundable tax credit equal to 15 per cent of your subscription cost, for subscriptions purchased in 2020 through 2024 inclusive. So, wait until Jan. 1, 2020, to pay for your subscription and you’ll get some tax relief. Each journalism organization must apply on its own for the status “qualified Canadian journalism organization,” so you can check with the organization if you’re wondering whether you can claim a tax credit for your subscription.
Medical expense tax credit. If you purchase cannabis products for medical purposes then you can, for costs incurred after Oct. 16, 2018, claim a medical expense tax credit (METC). You have to be registered with an organization that holds a licence to sell cannabis for medical purposes in order to claim an METC. And by the way, costs related to producing your own cannabis for medical purposes are not generally eligible for the METC.
Registered disability savings plans. If you or a family member have been able to claim the disability tax credit (DTC) in the past, there has been a problem in continuing to make use of a registered disability savings plan (RDSP) if the disabled person ceased to be eligible for the DTC. In the 2019 federal budget, the rules became more flexible so that, after 2020, there will no longer be a requirement to close an RDSP (or obtain a letter from a medical practitioner that you’re likely to be eligible for the DTC again later) if you are no longer eligible for the DTC today. As a transition rule, you don’t have to close the RDSP before the end of 2020 if you’ve ceased to be eligible for the DTC since the 2019 federal budget.
Employee stock options. The government changed the rules around stock options in 2019 to limit the ability to claim the stock option deduction (which shelters one-half of stock option benefits from tax). Specifically, there is now a $200,000 annual limit on employee stock option grants that will be entitled to the deduction, for options granted after 2019. If you’re affected by this change, you’ll benefit from options granted on or before Dec. 31, 2019, but will face higher taxes on options granted after that date.
While the points above relate to tax changes in 2019, there are plenty more ideas if you’re thinking of saving taxes as a New Year’s resolution. I’ll share more ideas next time.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at firstname.lastname@example.org.