Puja Tayal has been writing for Motley Fool Canada since 2020. Her love for writing inspired her to start a college newsletter. With a Bachelors's degree in Finance and Accounting and CFA Level 1, Puja strives to transform stock discussions into breakfast table chats through her articles. A movie buff and a finance geek, Puja weaves superheroes, cartoons, and novels to tell you a story touching different aspects of investing, from portfolio and tax planning to retirement savings. Follow her on Twitter for more stories.
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|More on: REI.UNXIT
Canada offers many benefits to its citizens and the immigrants who live and work in Canada. In the COVID-19 crisis, the Canada Revenue Agency (CRA) opened up the $2,000/month Canada Recovery Benefit (CRB) to immigrants as well. The CRA offers more benefits to those who regularly file their income tax returns. If you are above 18 years of age and working in Canada, you can get a tax credit of around $2,000.
Claim the $2,000 basic personal amount tax credit in 2020
If you are filing returns in Canada, you pay federal tax and provincial tax. Every year, the CRA calculates a basic personal amount (BPA) after adjusting for inflation. For the 2020 tax year, theBPA is $13,229— a $931 increase from last year. You can claim this enhanced BPA if your 2020 net income is less than or equal to $150,473.
How does the BPA work? The CRA exempts the minimum federal tax rate on the BPA. For 2020, the minimum federal tax is 15%. Hence, you can reduce your tax bill by $1,984, which is just $16 short of $2,000.
And if you are above 65 years of age, you also get a $1,145 in an age tax credit, which has a similar calculation as the BPA tax credit. You can monetize this tax credit by investing the money in the stock market.
The changing phase of the stock market
The Toronto Stock Exchange has some good stocks that even Warren Buffett likes. While some of the best tech stocks trade on the NASDAQ, some of the best energy stocks trade on the TSX. In this past decade, Canadian software stocks have picked up momentum. The 2030 decade will see the rise of stocks that facilitate the move to digitization.
The tech stocks like ShopifyandLightspeed POSare making shopping and dining digital. Then there isConstellation SoftwareandEnghouse, which are acquiring software companies that serve the niche verticals. The first two stocks have been the winners of 2020, surging 145% and 77%, respectively. But their exorbitant rally has now made them a little risky. The latter two stocks surged modestly around 27-29%.
The market is currently unstable, as it is in the middle of a turnaround, where a COVID-19 vaccine can bring the pandemic-driven rally to a standstill. If you are still bullish on the tech stocks, rather than risking buying one overvalued stock, diversify your risk with a technology ETF.
iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT) gives you exposure to the price movement of Shopify and Constellation Software at $41. If you go to buy these stocks individually, you need at least $3,000. But the ETF has almost 50% of its holdings in these two stocks, which increases its upside. At the same time, it has invested the other half of its holdings in 17 tech stocks. This has reduced its downside.
In the second week of November, the vaccine news pulled down stock prices of Shopify and Constellation by 11% and 4.5%, respectively. But the ETF fell only 4%. In the week before that, the two stocks surged 11% and 12.4%, respectively, and the ETF rose 9%.
Enhance the $2,000 BPA tax credit with the power of compounding
You can divide the $2,000 BPA tax credit between the XIT ETF and the post-pandemic stocks that will surge with the economic recovery. One post-pandemic stock isRioCan REIT (TSX:REI.UN). The stock fell 33% to the 2009 level, as the pandemic forced non-essential retailers to close their stores temporarily. Some retailers couldn’t bear the losses from the lockdown and closed their stores or reduced their store chains permanently.
As the economy recovers, the closed stores will reopen with new tenants and higher rent. This will increase RioCan’s stock price by 50% in the next two years. The stock has already started to recover, surging 23% this month.
A $1,000 in XIT ETF and a $1,000 in RioCan will balance your risk, and you will stand to gain in whichever way the stock market moves.
The federal non- refundable pension income tax credit is on the first $2,000 of eligible pension income, which translates into maximum federal annual tax savings of $300. The amount of additional provincial/territorial tax savings varies depending on where you reside.
Basically, you are allowed earn up to $15,000 tax free in the tax year if 90% or more of your total income was sourced in Canada. If you earned more than 10% outside Canada, you won't be eligible to earn any tax free income up to a total amount of $15,000.
If you have earned at least 90% of your net income in the tax year in Canada you will be entitled to claim non-refundable tax credits, allowing you to earn up to $15,705 tax free income in Canada. If more than 10% of your net income was earned outside Canada you will not be able to claim the full tax credits.
According to the program, retired seniors will receive an increase in payment of $1,200 per month in 2024 when the government of Canada offers Seniors Benefit in Canada. As per CRA, it will give $1,200 OAS Increase 2024 to every seniors who meets $1,200/ Month Retired Seniors Benefit 2024 Eligibility.
The Retirement Savings Contributions Credit, also known as the Saver's Credit, helps offset part of the first $2,000 workers voluntarily contribute to Individual Retirement Arrangements (IRAs), 401(k) plans and similar workplace retirement programs.
Factors such as the number of family members or the cost of living where a family lives adjust the cut-off point. A family of six earning $70,000 a year could be considered low-income, while a single person earning $30,000 may not.
If you are looking for tax to be refunded the following will apply to you – Boxes 22, 16 and 18. Usually, if you earned under the tax-free allowance for the tax year ($15,705 in 2024 or $15,000 in 2023) then you will be entitled to be refunded the majority if not all of your income tax.
lottery winnings of any amount, unless the prize can be considered income from employment, a business or property, or a prize for achievement. most gifts and inheritances. amounts paid by Canada or an allied country (if the amount is not taxable in that country) for disability or death of a war veteran due to war ...
If you sojourned in Canada for 183 days or more (the 183-day rule) in the tax year, do not have significant residential ties with Canada, and are not considered a resident of another country under the terms of a tax treaty between Canada and that country, see Deemed residents of Canada for the rules that apply to you.
There are no restrictions on the amount of money you can bring into or take out of Canada, nor is it illegal to do so. However, any time you cross the border, you must declare any currency or monetary instruments you have in your possession that are valued at CAN$10,000 or more.
The Canada Emergency Response Benefit (CERB) provided financial support to employed and self-employed Canadians who were directly affected by COVID-19. Applicants received $2,000 for a 4-week period (the same as $500 a week), between March 15 and September 26, 2020.
The $1,000 (before taxes) includes royalties earned for work you did during those weeks you were applying for the CERB, but not for work you did in other weeks. You must have met all eligibility criteria to be eligible. You are a Canadian worker who normally lives in Canada.
OAS Pension: Additional $800 + $800 Payment by CRA in May 2024 – Eligibility and Details. In May 2024, the Canada Revenue Agency (CRA) is set to enhance the financial well-being of seniors by introducing an additional one-time payment through the Old Age Security (OAS) Pension program.
In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as 5 percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate).
There are two types of pension credits: Benefit Service Credits and Past Service Credits. These are added together to give the total number of Pension Credits that are used to determine your benefit amount.
What is the saver's credit? The retirement savings contribution credit — the "saver's credit" for short — is a nonrefundable tax credit worth up to $1,000 ($2,000 if married filing jointly) for mid- and low-income taxpayers who contribute to a retirement account.
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