Tax relief in 2020

BY FAZAAD BACCHUS

As soon as the New Year comes along, one of the things foremost on our minds is filing our tax return. By now everyone is aware that one of the most important financial instruments helping you to reduce your tax burden while saving some money for the future is the Registered Retirement Savings Plan. Apart from this facility and some trillium benefits there may not be too much left.

For low income earners, finding money to set aside in your RRSP may also prove to be a difficult task as this money might be needed for day to day bills. Low income earners and as a matter of fact, everyone in the past benefited from the basic personal allowance (BPA). This an amount of earned income on which you pay no tax. In 2019 the amount was $12,069 but based on an election promise, that figure will rise to $13,229. It is also proposed that this BPA will increase over the years until 2023 where the BPA reaches an amount of $15,000.

This is very good news for low income earners and retirees especially those who qualify for Guaranteed Income Supplement which is a tax free benefit or income. For high income earners it is not as attractive. There is a claw back on this BPA for high income earners which starts on a sliding scale at $150,473 and where the BPA is totally wiped out at an income level of $214,368. In addition for high income earners the Canada Pension Plan contribution rate has just increased from 5.1% to 5.25%. If you are self employed, you are required to pay the 10.5% of your entire income to a maximum of $5,796.

In relation to relief, the Home Buyers Plan now allows for a maximum of $35,000 which you can borrow from your RRSP usually only as a first time home buyer. Now in addition to this rule, if you are experiencing a breakdown in your marriage or common law partnership, you can qualify to make this withdrawal, even if you are not a first time home buyer. The repayment period remains the same fifteen years until further notice.

One of the most fundamental things to keep in mind is the government’s social economic program, specifically the Guaranteed Income Supplement. This benefit is a gift for low income seniors and is not a right of the senior. The budget makes an allocation for it and it is funded from the treasury, which means that it is only payable as long as the government can afford to. Should the budget deficit continue to grow and should the economic situation get tight, we might be in for an adjustment. Therefore the only guarantee that you have is your Canada Pension Plan as this is based on your contributions and continues to be funded by those currently in the work place.

For 2020 consider what you will save in your RRSP to reduce your overall tax bill and start early with monthly contributions.