Rip-off artists abound (and not just governments 😊) and are still using the Canada Revenue Agency (CRA) scam. The latest permutation involves Interac E Transfers. Many people send and receive money via E-Transfers, so it is not surprizing that the fraud artists are now using this. The old scams, including the jail threatening phone calls, the emails promising a refund, are still being used. So, a refresher:
The CRA will NEVER:
- Send you a refund by E-mail or E-Transfer
- Call you and threaten you with imprisonment
- Ask that you pay by gift card, prepaid VISA card
- or E-transfer
- Installment Payments
At the James Bay New Horizons Friday Forum, one question dealt with the tax implications of going from employment to retirement. When you are employed, your employer is required to deduct income tax, Canada Pension Plan (CPP) and Employment Insurance premiums. Once you retire and start receiving pensions, Old Age Security (OAS), CPP payments, income from Registered Retirement Income Funds (RIF), Registered Retirement Savings Plans (RRSP) and your investments, it is up to you to decide, within the confines of the Income Tax Act, how you would like to pay your taxes.
At age 65, in addition to the Basic Personal Amount, the Age Amount Non-Refundable Credit (maximum of $7,225 – it decreases by 15% of the amount your income exceeds $36,430) becomes available. Also, the Pension Income Amount ($2,000) can be applied against qualifying pension income – OAS and CPP do not qualify. So, if you have at least $2,000 in qualifying pension income, you will have non-refundable credits of more than $20,800. This will be the amount of your taxable income that NO tax will be payable on.
The CRA requires you to make Installment Payments, which are made quarterly on March 15, June 15, Sept 15 and December 15, if, in two out of the last three years you had to pay $3,000 or more when you filed your tax return. If you have to make Installments, the CRA will send you a notice, in August, stating the amounts required on each date. If you fail to make the Installments the CRA requires you may be charged interest on the un-made payments.
How to avoid having to make Installment Payments: an example – Say you have $4,000 in tax owing. By asking your payors, OAS, CPP, Pensions, for example, to deduct $100 per month from what they pay you. This would reduce to $2,800 the amount that you would have owing on your tax return; putting you underneath the $3,000 threshold for making Installment Payments.
Taxation of RRSP and RIF Withdrawals
Income received from a RRSP or a RIF is taxable (there is a tax deduction when the contributions were made). When withdrawals from an RRSP are made under the Home Buyer’s Plan or Lifelong Learning Plan, the income is not taxable if it is used for the stated purpose. It is then repaid over a 15-year period.
When you take money out of an RRSP it is subject to a withholding tax. The rate is 10% on withdrawal up to $5,000; 20% on withdrawals between $5,001 and $15,000; and 30% on amounts over $15,000. The same withholding tax applies to the EXCESS AMOUNT withdrawn from a RIF. If you need to withdraw $10,000, by making two separate withdrawals of $5,000, the tax withheld would be $1,000, instead of the $2,000 it would be if $10,000 was taken in one withdrawal. Note: this will not lower the tax payable when you file your tax return; but it WILL increase the cash you receive when you make the withdrawal.
I referred above to EXCESS AMOUNT from a RIF. The year you turn 72, you are required to windup your RRSP. There are three options: take a cash payment (which is fully taxable), put the money in an annuity, or, transfer the money to a RIF. Most people transfer the money to a RIF. Starting the year after you open a RIF, there is a minimum annual percentage, of the previous year end amount, that must be withdrawn. This percentage is determined by your age; at age 73 it is 5.53%, at 77 it is 6.17%, at 85 it is 8.51%, and from 95 onward it is 20%. Any amount above the minimum annual withdrawal is the EXCESS AMOUNT; it is subject to the withholding tax outlined above.
Next issue I will look at tax planning ideas. As always my dear readers, I look at tax through my lens of Helping You to Keep More of YOUR Money.