Man holding credit card while online shopping

How To Use Your Tax Refund

You were a good citizen. You were organized, gathered all of your tax forms, receipts and filed your taxes promptly.

As a result, you are now the recipient of a nice chunk of change from Justin and the Premiers in the form of your tax refund!

Your tax refund might feel like free money, but it is not. In actuality, this is the repayment of an interest-free loan that you gave the government without even knowing it. Throughout the year, you either make periodic remittances if you are self-employed (or otherwise required) or you have tax taken off each paycheque by your employer. Your tax refund is the return of overpayments that you made relative to the income tax that you actually owed at the end of the year. Hence, this is why it is called a refund. Your tax refund was indeed your money all along.

But now, the big question is, “How should I use my tax refund?”

Before you buy that new iPad or fly to Jamaica, here are a handful of recommendations.

How You Should Use Your Tax Refund

1. Pay Down Consumer Debt

Consumer debt is debt related to consumption, instead of debt that is tied to an asset that can appreciate.

This is priority #1. This would likely be priority #1 on any list for that matter.  Paying down your consumer debt is so important that it should likely be #1, #2 and #3 on this list.

This prolonged low-interest rate environment that we have lived in seems to have lulled many Canadians into a false sense of security around carrying consumer debt. According to the 2018 BDO Affordability Index, 46% of Canadian households don’t earn enough income to live debt free.

But not all debt is created equal. The largest area of concern is high-interest debt.  High-interest debt generally comes in the form of credit cards (up to 20% APR), payday loans (>100% APR and upward), and high-interest lines of credit (10% APR or more).  Rates mentioned are illustrative and not a minimum threshold for concern.

If you are carrying high-interest debt, paying it down will almost always be the best use of your funds. You should focus on paying down your debt with the highest interest rate first.

In essence, consumer debt is what you owe for the material things or that you already have or the experiences that you have already had. To put it another way, instead of using your tax refund to buy an iPad, you still need to pay for the iPad that you purchased years ago.

2. Open An RESP For a Family Member

Education costs are continually on the rise.  A year of post-secondary education at a Canadian university can cost up to $20,000. Starting to save early in a child’s life is prudent given the rising costs.

RESPs are an excellent way to save for a child’s education for a few reasons.

  • Free Money!

The Government of Canada matches 20% of your contributions, up to a maximum of $500 per year. This is called the Canada Education Savings Grant (CESG).

There is also lifetime maximum for CESG contributions that the government will make of $7,200.

  • Tax-deferred investment growth

Money held within an RESP grows tax-deferred. Similar to an RRSP, all of the growth of the funds within the RESP has the benefit of tax-deferred compounding. Tax-deferred investment growth has been proven to be a winning wealth builder.

  • Taxed in the hands of the beneficiary

Unlike an RRSP, contributions made by yourself into the RESP are not deductible from your income. As such, you will be contributing after-tax dollars into the account, similar to a TFSA.

However, the CESG amounts and the investment income are then taxed in the hands of the beneficiary (i.e. your child or niece/nephew) upon withdrawal. This can provide significant tax savings. Students are typically in a low-income period of their lives during schooling, and they should generally be in a lower tax bracket than the contributor during this time.

These advantages should be capitalized on early and often in the life of the beneficiary to maximize the CESG and tax deferral. Use your tax refund to start an RESP and take the free money!

3. Contribute to your RRSP/TFSA

If you don’t require the free CESG money for a family member, you can shift your attention to your personal savings.

Whether you contribute to your TFSA or your RRSP will vary based on your individual situation. I prepared a rundown on things to consider when answering the question, “Is an RRSP contribution right for me?

When making your determination of where to put the money, the primary question that you should ask is “When will I need the money?”

Funds in your RRSP are intended for your retirement, but they could also be withdrawn to buy a home using the Home Buyers Plan or to go back to school via the Lifelong Learning Plan.

Another perk of an RRSP contribution is that it can increase your tax refund for next year if you deduct it against your 2019 income.

If you need this money for the near term (other than for purchasing a home or for going back to school), TFSAs provide added flexibility around withdrawals. This is an ideal place to keep your emergency fund. If you do not have an emergency fund in place, then bump this up ahead of the RESP plan in terms of priority.

If you have questions around what option is best for you, you should speak with a financial planner.

4. Mortgage Paydown

The market is sending mixed messages about where interest rates are going in the intermediate term. However, we know that we have been experiencing a prolonged low-interest-rate environment.

The party should come to an end sooner-or-later, and rates could rise.

There are a few key benefits to paying down your mortgage:

  • Defence against rising rates

As rates rise, so will your mortgage payments on a variable mortgage. Even if you have a fixed rate mortgage, it will come up for renewal inevitably, and all else being equal, your payments will increase along with the interest rate.

  • Guaranteed rate of return

Let’s assume that you have a mortgage rate of 3.5%. By paying down a portion of your mortgage, you have just achieved a guaranteed after-tax return on your investment of 3.5%! I challenge you to find a guaranteed investment that will pay you that rate of return after-tax.
This guarantee, however, doesn’t contemplate foreclosure risk, or any of the other risks associated with homeownership. That said, paying down your mortgage is an excellent way to achieve your long-term financial goals.

  • Lower monthly payments

As you lower your outstanding balance, your monthly payments become lower.  Some mortgages implement these changes immediately, while others will update the payments a set interval.  In either case, when you have less to pay back, you can pay less each month.

  • Mortgage renewal flexibility

A lot of digital ink has been used lately discussing the challenge that some are facing renewing their mortgages.

The Government of Canada introduced rules to stress-test an individual’s ability to afford their mortgage payments when rates rise. As interest rates rise, so does the benchmark rate for the stress-test.

By paying down your mortgage, your outstanding balance and future payments will be reduced, and this will ease the challenge of meeting the stress test.

When deciding whether or not to use your tax refund to pay down your mortgage, you should investigate the repayment terms before making your decision. Some are flexible, while some are stringent and may come with fees or penalties. Speak with a professional to understand the implications of making a pre-payment against your mortgage.

5. Get a Fee-Only Financial Plan

Naturally, this is a self-serving recommendation, but I wouldn’t be doing my job if I didn’t mention it.

A financial plan is an investment in your overall financial well-being.  Having a solid financial footing sets you up for success in all other aspects of your life.

A good financial plan can help you better understand your spending, ensure that your investment mix matches your risk tolerance, identify if your current savings will allow you to reach your goals, assess your risk management, or map out how to make your savings last through retirement. And let’s face it, if you are reading this article, then you probably have questions about how to optimize your financial situation.

A financial plan can also help you assess each of the above options for the use of your tax refund based on your individual situation.

An additional benefit is that many of Novel’s clients have been able to achieve significant savings on their investments by executing a Novel Fee-Only Financial Plan. This ultimately means that, depending on your current investment products, the cost of a fee-only financial plan can pay for itself, even in the first year!  Investment options that can pay for themselves tend to be few and far between in this day and age.  Taking steps to secure your financial well-being is an excellent use of your tax refund.

The Brass Tacks On Using Your Tax Refund

Don’t be so quick to spend that tax refund. After all, it was your money to begin with, not the government’s. There are several things that you can do to put that money to work for you.  Each of the options have pros and cons, and they may not all be appropriate for your situation. Resist the urge to spend it frivolously and instead use your tax refund wisely. Then again, sometimes you just need to go to Jamaica.

If you would like to schedule a free consultation to discuss your options for maximizing the use of your tax refund, please contact us.


Why You Need A Will

Why You Need A Will

Do you have a will?

Talking about death is something that we all look forward to, no doubt…  But the reality is that contemplating our own mortality is less about the impact that it has on ourselves, but rather the effect that it has on those around us.  Estate planning is not just for the uber-rich, but rather a critical aspect of financial planning for all Canadians.

According to a recent study by the Angus Reid Institute, 49% of Canadians surveyed either don’t have a will in place, or their will is outdated.  This number skyrockets to 85% for those in the 18-34 age bracket.  With so many Canadians leaving themselves exposed, it is probably a good idea to go over what happens if you die without a will.

NOTE: This post should not be considered legal advice.  If you have any estate planning questions, please consult with a professional to assess your individual situation.

Why You Need A Will

In Ontario, the Succession Law Reform Act governs what happens when someone passes away without a will in place, known as dying “intestate”.  In this case, your affairs will be handled in a prescribed manner.

Personal Representative

A key reason why you need a will is that you can name the executor of your estate.  The executor is responsible for the administration and distribution of your estate along with the wishes that you have expressed in your will.  When you pass away intestate, you have no executor named.  As such, your closest relative will likely be appointed as your personal representative.  In many cases, this may not be an issue.  However, in some cases, you may not want the individual named to be acting on your estate’s behalf.

The added benefit of naming an executor is that they can be adequately prepared for the responsibility.  Before appointing someone as your executor, you should have a conversation with them to ensure that they are up to the task and related responsibilities.  The role of executor tends to be time-consuming, and you should be mindful of this when naming someone to the position.

Child Care Without a Will

If you have children, it is non-negotiable that you have a will.  If you die intestate, you will have lost the opportunity to dictate who should be responsible for your children.  In this scenario, the courts will determine who is the most suitable to become your children’s guardian.

An added piece of importance is in the situation where you have a dependent child.  Without leaving instructions for their care, or setting aside specific funds, your dependent child may not receive the long-term care that you had intended.

Division of Estate Property

Your property is distributed based on the following:

1) You have a spouse, but no children

Your entire estate goes to your spouse. However, this only applies to legally married spouses. Common-law spouses are not automatically entitled to receive anything if you die intestate.

2) You have a spouse and children

Your spouse is entitled to a preferential share of your estate, up-to-the first $200,000. What remains is now referred to as the residue. If anything is left over, the residue will be divided between your spouse and your children.

3) You have children, but no spouse

The children each inherit an equal portion of your estate. If any of your children have passed away, then their share would pass on to their children (i.e. your grandchildren).

4) You have no spouse and no children

Your parents inherit your estate.

5) You have no spouse, no children, and no parents

Your brothers and sisters (or their children if a sibling has passed away) receive an equal share of your estate.

6) You also have no brothers and sisters

Your nieces and nephews each inherit an equal portion of your estate.

7) You have no nieces and nephews

All other next of kin inherit an equal portion of your estate.  The determination of next of kin is performed using the table of Consanguinity (courtesy of Wikipedia).

8) You have no living next of kin:

Your estate goes to the Ontario government.  Not who you had in mind for a charitable donation to as part of your estate plan was it?

Here is a helpful infographic on the topic.

How your property is distributed in Ontario if you die without a will

Pet Care Without a Will

Unlike your children, the courts will not make a separate determination of whom the best caregiver will be.  Pets under Ontario law are considered Property.  As such, they will be subject to the division of property rules above.

Tax Efficiency

When you pass away, your representatives must file a final income tax return on your behalf.  This return comes with very particular tax planning opportunities, which are lost when you don’t leave a will behind.

When it comes time to validate your will, it goes through a process called probate. Probate is also required for those that die without a will.  According to the Ministry of the Attorney General, the probate process exists to:

  • give a person the authority to act as the estate trustee of an estate; or
  • confirm the authority of a person named as the estate trustee in the deceased’s will
  • formally approve that the deceased’s will is their valid last will.

Part of the process involves the Estate Administration Tax (EAT), or what is more commonly referred to as the ‘Probate Tax’.  EAT is charged on your residual estate (i.e. everything that is left over after filing your final tax return).  Between your final income tax return and the EAT, significant taxes could end up being paid that could have been avoided if you do not have a legal will in place.

Funeral and Burial Arrangements

Without a legal will in place, the arrangements will be left solely up to the discretion of your personal representative.  As mentioned above, this individual will be court appointed and may not know your wishes.

So, What’s Keeping Canadians From Getting A Will?

As per the Angus Reid study, there are a few key reasons that our estates are not adequately planned for.

“Of course, 18-34-year-olds without a will are significantly more likely than other Canadians to say they are too young to worry about having one written – nearly half (46%) indicate as much. As they get older, Canadians are more likely to cite a lack of assets as the reason they do not have a will in place.”

Surprisingly, only 8% of respondents listed “not wanting to think about death” as their primary reason for not having a legal will in place.  So, it appears the morbidity of the topic is not the deterrent that we may have thought it was.

The 3rd most frequent answer provided as their deterrent was cost.  18% of respondents indicated that ‘It’s too expensive to get a will written’.  As with many industries, estate planning has seen its share of ‘disruption’.  No longer do you have to travel to a stuffy lawyer’s office and be gouged for their expertise. Not requiring a lawyer is especially true for the average Canadian whose estates are not very complicated.  This is likely the case for the 48% of respondents who thought that they were either too young or didn’t have any assets to consider.

For those with simple estates, who live in Alberta or Ontario, Novel recommends Willful as a great option to obtain a legal will in as little as 30 minutes. Their premium package includes a will as well as a power of attorney for property and a living will for $150 plus tax.  Also, we have negotiated a 10% discount with them if you use the promotional code ‘Novel10’ at checkout (read more about our affiliate policy).

The best part of using Willful’s service is that your will can be updated as many times as you would like, for free, forever!
Yes, free.
Yes, forever!

That means that there won’t be any legal costs incurred to update your estate when you move to a new home, purchase a new car, or welcome a newborn for example.  Just remember, when you do make updates to your will, all previous copies should be destroyed.

Do I Need A Lawyer To Write My Will?

No!

Similar to Willful, there are a number of options out there that can provide you with templates or documents that you can work with.  That said, you should never draft your own documents and any templates that you use should have been reviewed by a lawyer.  And rest assured, Willful has had a many lawyers aid in the drafting of their documents.

Once you have a will drafted using one of the various methods out there, you need to have the documents witnessed/signed by two parties who are not named in the will.  For example, your executor cannot serve as the witness.

Once signed, the hard copy location needs to be shared with your executor.  This will ensure that your executor can quickly access it and begin the process.  Unfortunately, at present, digital wills are not acceptable.  Hard copies with signatures must be kept as the official document for your will and power of attorneys.

That’s it.  You now have a legal will!

The Brass Tacks On Why You Need A Will

In 2019, far too many Canadians still either don’t have a will or their will is out of date.  Don’t leave your loved ones in a precarious position, by not having a will.  Not having an up to date legal will can create many complications for your estate, and your wishes may not be addressed appropriately.  Many tools are available for you to create your will and keep it up to date.

If you would like to discuss your estate planning or discuss it as part of a Fee-Only Financial Plan, please contact us to set up a consultation.

Did you find this article helpful?  Did we miss anything?  Please let us know in the comments.


RRSP Contributions should be planned to maxmize your nest egg

Beware of RRSP Season

By any chance, have you been off the grid for the last month or so?  No?  Then I am certain that you have seen an advertisement for RRSPs during that time.

This is a big season for the average bank, fund provider, asset manager and just about anyone else involved in the investment or financial services industry.

The reason that this is such an important RRSP sales time is simple.  RRSPs stay invested – for a long time.

Let’s use a simple example.  In this example, you invest $10,000 in an average mutual fund within your RRSP.  You are 30 years old when you contribute and plan to retire at the age of 65.  Let’s say this mutual fund has a 2% Management Expense Ratio (MER) and grows at a rate of 5% a year.   By the time you reach retirement, the mutual fund will have earned $10,326 in fees over that 35-year period.  $10,000 of income, from a single contribution!  In addition, you will keep your funds invested throughout your retirement as you withdraw from your RRSP as a source of income.  This example doesn’t contemplate admin fees, transaction fees, or management fees paid to your advisors.  These fees would be over and above the MER for the mutual fund.

As you can see, RRSPs are BIG business for the industry.

The problem with the sales cycle that we experience during the early part of the year is that it doesn’t contemplate the most important factor.  YOU!

Blindly contributing to your RRSP is not a winning financial strategy.  When deciding whether you should contribute to your RRSP, you should take into consideration your individual financial situation. 

Isn’t Saving For Retirement A Good Thing?

Absolutely!  Start saving.  Right now.

According to a study by BDO, nearly two-thirds of Canadians say that they don’t have much, or anything, saved for retirement.  A key statistic from the report is that 47% of millennials have no retirement savings.

Saving for retirement helps to solidify your financial future.  Of the people surveyed in the study, 75% of those who haven’t retired yet expect to work longer than their parents did. 

Saving for your retirement is critical and I encourage you to do so, but blindly contributing to an RRSP is not the only way to achieve either your retirement or your broader financial goals.

Is An RRSP Contribution Right For Me During RRSP Season?

There are several considerations to take into account when determining your tax and retirement strategy.  RRSPs are an integral component of both.  Here are a few of the key items that you should keep in mind.

  1. Am I carrying credit card debt?

Not only is it RRSP season, but it is also the time of year that we have to pay off our credit cards from the December spending spree.  Paying down high-interest credit card and other types of debt should be prioritized over contributing to your RRSP.

  1. Do I have an emergency fund?

Retirement is a long way away for some.  You need to get there first.

An often-overlooked area for most, an emergency fund is requisite to weather the ups and downs of life.  Identity theft, cracked foundations, leaky roofs, unexpected medical expenses, job loss, serious injury, elderly parents in need of care, vehicle breakdown or a surprise baby on the way.  These are just a sampling of the reasons that you should ensure that you have an adequate emergency fund at the ready.

  1. Can I lock these funds in until retirement?

An RRSP isn’t a typical savings account.  When you put money into one, the expectation is that you will keep the money there until it is time to fund your retirement.  As such, you won’t have access to the funds without penalty.  Funds that are withdrawn early experience 2 major consequences.

First, the funds withdrawn have a withholding tax applied against them.  The Federal withholding tax rate is 30% for amounts over $15,000.  This means, that if you will need access to $10,000, you need to withdraw roughly $14,285 in order to be left with the cash that you need after federal withholding tax.  When you file your tax return for the year of withdrawal, the $14,285 would be included in your income.  If you have a marginal rate below the 30%, you should receive a refund for the difference, but you have just given the government an interest-free loan for the period between your withdrawal date and when your tax refund gets paid out.

Second, you lose the RRSP contribution room forever.  Unlike a TFSA, when you make a withdrawal from an RRSP, you do not get to put the withdrawal back in.  With a TFSA, you can re-contribute the amount that you withdrew in the following year.

  1. What is my marginal tax rate, and what will my tax rate in retirement be?

This is the money maker when it comes to using RRSPs.  The best use of an RRSP is when you contribute money at a higher marginal tax rate than your planned marginal tax rate in retirement.  In a simple example, if you contribute at a 30% tax rate, but withdraw at a 35% tax rate, you will be paying more tax than you would have saved on the contribution.

That being said, the tax-deferred treatment of the investments within an RRSP can still result in a positive outcome despite the above tax rate scenario.  This will depend heavily on investment performance and the length of time the funds are invested.  Whether or not this will make sense for you will depend on several factors, however.

  1. How much tax do I have to pay this year?

One of the main benefits of an RRSP is that it reduces your tax payable in the current year.  If you contribute too much in the wrong year, you may be wasting some of the taxation magic that an RRSP contribution can provide. 

  1. How much contribution room do I have?

Unfortunately, the benefits of an RRSP are not unlimited.  You accrue 18% of your employment income as RRSP contribution room every year.  If you have a limited amount of contribution room, you may be better served by using it in a later year when your marginal tax rate is higher.

  1. Do I already have enough in my RRSP?

There is also the possibility that you don’t need to make any contributions.  If you have a workplace defined benefit pension, this may satisfy your retirement income needs by itself.  This is not a typical scenario, however.  In another scenario, if you have ample RRSP savings already, with additional contributions you could put yourself in a position where when you convert the RRSP to an RRIF you will end up in too high a tax bracket.  If this is the case, TFSA, non-registered accounts or Spousal RRSP contributions are more appropriate for your situation.

Buyer Beware: RRSP Loans

Another tactic that the financial industry likes to use is the offering of RRSP loans.

The general idea is that you take out a loan to contribute to your RRSPs, and then pay off as much of the loan as you can with your tax refund.

The major problem with this approach is that when you borrow money to invest in an RRSP, the interest that you pay on the loan is not tax deductible.  In addition, as with most loans, there is an inherent risk.  The risk here is that unforeseen events could arise, or you simply get invited to go on a great spring break trip, and you may not pay the loan off in full.  All the while, you can’t deduct the interest because it was used to fund your RRSP.  Not a winning play.

Your Bonus & RRSP Season

Another item to consider is that this also happens to be when many employee bonuses are paid out.  If your employer offers a savings program, such as a Group RRSP, then typically your employer will provide you with the option of having your bonus paid straight into your workplace RRSP plan.  In addition to the items mentioned above, there are additional considerations to keep in mind around this option.

  1. What is the timing of the bonus payment?

This is critical from an RRSP perspective.  If the bonus will not be paid until after March 1, 2019, then it won’t be eligible for your 2018 tax year filing.  If this is paid prior to March 1, and you elect to contribute it to your Group RRSP, then you would have the option to apply it to either the 2018 or 2019 tax year. 

A word of caution here – your bonus will be taxed as income in 2019.  If you contribute it and elect to use the RRSP deduction for the 2018 year, you would have to pay the income tax on it in 2019, as you wouldn’t have the deduction available following its use for 2018.  As such, this would not be a generally recommended approach. 

  1. What are the fees associated with my Group RRSP?

This is one that you will have to do some research around.  Mind you, this is research that I would recommend you perform no matter what.  Gaining an understanding of the investment products that are offered as part of your employer-based savings plans, and their fees will help piece together the overall cost of your portfolio.  While the fees associated with the products offered can vary, there may be an offsetting benefit to utilizing the savings plan, such as an employer savings match.  For example, if you contribute 5% of your savings each month into the plan, they may offer to match this 5%.  A 100% match of your money will offset the increased fees that they may offer. 

However, when it comes to your bonus, there won’t be an accompanying match on your contribution.  High fees may make this option an unattractive one.

  1. Do I need the cash from the bonus payment for another purpose?

If you do not contribute your bonus to the savings plan, this will be paid out just like your normal paycheque.  However, there will be one key difference.  When the bonus gets paid out, there will typically be a withholding tax at a fairly high marginal rate, along with CPP and EI deductions.  Similar to the early RRSP withdrawal example above, this means that some of your money may be tied up until you file your tax return in 2020, for the 2019 tax year, and get your refund.

The Brass Tacks

RRSPs are powerful financial tools. 

The financial industry is full of intimidating salespeople.

This can result in some unwise decisions being made.

In order to determine whether contributing to your RRSP is the right thing for you, there are a number of important factors to consider.  You shouldn’t simply blindly contribute to your RRSP like the salespeople would like you to.

To discuss your tax and RRSP strategy for the coming year as part of a Fee-Only Financial Plan please contact us.

Did you find this blog post helpful?  Anything else you think that we should include?

Please let us know in the comments below.


TAX underlined on a bankbook

You Can File Your Own Taxes!

Andy Williams said it best, “It’s the most wonderful time of the year!”

Okay, maybe not.

Taxes can be scary. 

Uncomfortable for some.  Frightening for many.

Tax preparers have been making a lucrative living off of the general public for decades.  Similar to the average asset manager or financial advisor, they profit from your fear.  But you really shouldn’t be afraid.  Tax filing for most people and families is very straightforward.  In many cases, filing on your own consists of a very minimal number of steps.  Below I will outline the key things you should be doing and checking off your list to file your own taxes. 

PLEASE NOTE:  This should not be considered a complete guide for personal tax filing and is merely provided to assist with filing your own taxes.  Should you have a more complex tax situation or simply need assistance with filing your taxes, consult a tax professional.

Planning

I know, I get it.

Planning is the step that we typically like to do the least.  It’s the same reason that we don’t check the directions to our destination before we jump in the car and plug it into our GPS or Google Maps or Waze.  Societally, we are being trained to do things on demand.  However, planning is the single most important part of your tax filing.

Since 2018 has come to a close, the majority of the opportunities available for strategic planning have come and gone.  However, as you work through the process for the 2018 filing, this should be able to give you a sense of the opportunities available to you for the 2019 tax year.

In general, if you have any simple questions, the CRA website is a great resource and is generally well laid out and makes things easy to find.  When in doubt, the search function should get you to the information that you are looking for.  The site typically includes many simple examples laid out for a layperson to understand.

An excellent idea to aid in your tax planning and preparation is to enroll in the CRA e-service My Account for Individuals.  This tool gives you access to your notices of assessment, previous tax returns, RRSP/TFSA contribution room balances, as well as managing your personal information, such as direct deposit information and mailing address.

In addition to planning for your tax preparation, tax-planning is a critical component of the Novel Financial Fee-Only Financial Planning Process.  Our mantra is that every taxpayer should pay every single dollar of tax that they owe, but we want to help make sure that you don’t have to pay $1 more than is absolutely necessary through a well devised Fee-Only Financial Plan.

Document Collection

The most important part of a tax filing may not be the filing that you are thinking of.  Having a good document filing system makes the tax process exponentially easier.  Gathering your documents is a task that is best done throughout the year, and not right at the end.  Find a safe place for you to gather these documents together and make a habit of regularly storing them there.

Given that most of what we do is online today, many of these will be digital files.  Create a folder in your email, create a cloud storage account (such as Dropbox, iCloud Drive or Google Drive, OneDrive, Box, etc.), attach a USB drive to your key-chain or use your computer hard drive (with proper backups for physical storage!).  Novel recommends using a cloud drive, as it ensures that the most up-to-date security practices are used, and that you do not need to worry about backups/losing your data.  An excellent review of available cloud drive options is available here.  We also recommend that if you do receive hard-copy documents, take a picture and store it digitally.  At the end of the day, find a method that works for you and ensure that you stick to your document storage plan.

Try to store your documents in folders that are grouped based on document type to make things easier come tax time.

Examples of items to gather throughout the year, and that you should group separately:

  • Medical expenses
  • Union or professional dues
  • Charitable donations (official receipts)
  • Childcare costs
  • Moving expenses, if you moved for a new job or for education
  • Licensing examination fees (i.e. Tradesperson or Professional exams)
  • Support payment documentation (i.e. spousal support)

Items to gather at year-end:

NOTE: Not all of the above items listed will be relevant for your situation.

The CRA website offers a full list of deduction and credit opportunities.

Use Tax Software

Save some trees.  The option to paper file is available, but effectively no one does so.

If you haven’t tried using some of the various software out there, you may be surprised at just how easy they are to use.  There are many offerings available, and pricing varies by your needs.  In fact, some options offer a “pay as much as you’d like” option or offer free return filing for simple tax returns.

Here is a full list of NETFILE certified software options.  

As well, here is a review of some of the more prominent tax filing options available.

Tax Filing Time

Now that you are feeling comfortable to tackle the not-so-scary beast that is filing your own taxes, here is a helpful checklist to follow throughout your process.

  • Enroll in a CRA My Account for Individuals
  • Choose a NETFILE certified software provider
  • Start by taking the interview in the tax software or use the search function to find the document types that you have collected.
    • This may also help you identify what
  • Ensure that all of your T slips get entered somewhere in the software
  • Address all of your deduction and credit opportunities available to you
    • A good rule of thumb is that if you have a document saved, ask yourself, how did you use this on your tax return?
  • Be strategic with your RRSPs
    • Ensure that for your 2018 taxes, you have included the Mar – Dec 2018 and the Jan-Feb 2019 RRSP slips
    • Determine if you want to deduct in the current year or defer to 2019. You should potentially consider a deferral if your 2019 income will be much greater than in 2018, or will be in a higher tax bracket.
    • The software packages tend to focus on maximizing your refund in the current year, which may not be appropriate for your situation.
  • Review the errors and warnings in the software
    • The software out there typically provides warnings or suggestions at the end of the process. Determine if these apply to your situation and amend as required.
  • Ask for help
    • The average tax software has either a help or forum function available to help you through the process.
    • Some can even connect you with professional tax preparers to have your questions answered.
  • File your return using NETFILE, via the software that you have chosen
  • Save a copy of your NETFILE confirmation
  • Save a copy of your electronic tax return from the software
    • Select the option for the T1 and all supporting schedules, etc.
  • If provided with a Notice of Assessment at time of filing, save a copy as well
    • This will be your first official 2019 tax planning document!
    • This will also be available via CRA My Account once your return is processed, if not available immediately via the software.

And… ta-dah! You have officially filed your own taxes.  Was it truly that daunting?  I believe that you will have found that filing your own taxes isn’t as difficult as you might have thought.  Another benefit of doing this for yourself is that you now understand the process and typical items that could be potential tax planning/saving opportunities.  Novel would be happy to discuss potential tax planning opportunities for 2019 with you as part of your Fee-Only Financial Plan.  Contact us to discuss tax planning strategies as well as to discuss how to best utilize your tax refund!

Conversely, if you are still uncomfortable filing on your own or have questions, Novel can support you through the planning process and will refer you to qualified tax preparers.

Questions, comments, anything to add?  Please reply in the comments section.  We would love to hear from you.