Thursday, December 6, 2012

Financial Goals for the New Year for Income

Do you have any financial goals for the new year?

One of mine has to do with where my income is coming from.

An approximation of my income from 2012 is:
  • 79% from primary job.
  • 12% from secondary job.
  • 5% from self-employment.
  • 4% from EI (I was on maternity leave for the month of January)
This is gross income from jobs, not including benefits and gross EI payments. Self employment is income after expenses (but not including cell phone, and before out of home expenses)...otherwise it would currently be registering at 0% because my cell phone and out of home expense deductions would wipe it all down to 0 taxable income!
I'd like to be able to have that first amount of income from primary job drop to about 70%.  My hope is that I can increase the self-employment amount from 5% of my income to about 15%.  Self-employment including cell phone expenses would be even better!

Sunday, December 2, 2012

Tax Withheld on RRSP Withdrawals

If you are in Canada, and are at a point where you need or want to withdraw money from your RRSP, please ensure that you are familiar with the rules of withdrawing it.

I've had a few income tax clients over the last couple of years who have been surprised to owe money on their income tax.  The primary reason these particular clients owed money was because they withdrew money from their RRSP's but the bank/financial institution did not withhold enough tax on the withdrawal for their financial situation.

Minimum Tax Withheld on Withdrawals

The minimum tax that is withheld is dictated by Canada Revenue Agency.
If you take $5000 or less out, they withhold 10% in taxes.
If you take between $5000.01 and $15000 out, they withhold 20% in taxes.
If you take more than $15000 out, they withhold 30% in taxes.

(Note: These are the numbers for all of Canada, except Quebec, which withholds slightly more.)

Add to Income

The amount that is withdrawn gets added to your income tax as income.  If you have other income from other sources (employment, investments, etc.), it is quite possible you are will need to have more money withheld for taxes! Or, alternatively, ensure that you are saving the money that you will owe on taxes in something that is earning you a bit of interest in the meantime.

Be Aware. Know Your Circumstances.

As long as you are aware of your circumstances, there will be no problem! You will make sure that either the bank or yourself withholds enough taxes so that you are not surprised come income tax filing time.

The problem is if you are not aware, and all of a sudden you realize that you owe a bunch of money as a result of withdrawing money from your RRSP's and you weren't aware that this would happen.

No one likes finding out that they owe money to the government.

Have you been surprised to owe money when filing your taxes?