Spoiler alert, plan ahead of time.

It may seem like common sense, but as accountants, there’s usually nothing we can do after something has already happened. After things have happened, usually all we can do is sort things out and try to mitigate how much you owe.

Below, we’ll outline some of the most common situations, and discuss how your Financial Planner is also vital to your overall tax planning strategy.

RRSPs

When people think about tax planning, the first thought is usually around RRSP contributions. We often get clients seeking our advice about “How to pay no tax using RRSPs”. In truth, this isn’t realistic. If you’re an employee who receives a T4, the taxes are taken off of your paycheck.  

This means you’ve already paid taxes – usually more than what you owe. You can then use RRSPs to reduce the taxes payable when compared to your taxes paid, which can result in less owing or a bigger refund when all is said and done.

You should start RRSP planning when you have your final pay stub and investment statements. The information on these will help you understand any taxes that you may owe over and above what has been taken from your paycheck.

Remember to speak to your accountant about this as early as possible in the year as the deadline is February 28, 2025, for your 2024 RRSP contributions.

The Long Game

RRSPs aren’t the best path to a tax-efficient financial future for everyone. Although they create fantastic tax-deferral opportunities, when you retire, there are rules about when you need to start drawing down these funds – and at this point, they are taxable. 

Depending on your income, you may have to repay some or all of your social benefits, such as OAS (Old Age Security). 

In addition to that, since most retirees don’t have sufficient taxes deducted at the source, they often end up facing a bigger bill than most other Canadians when they file. Having your retirement savings forced into your income takes away some tax planning opportunities.

For some, the use of other registered programs can be more beneficial in the long run. For instance, the new First Time Home Savings Account (FHSA), offers the best of both worlds, and allows you to get your first home in a very tax-advantaged way. 

You get to take the contribution off your income, like an RRSP, but you never pay tax on it if you use the funds to buy your first home!  If you don’t, you can transfer the balance to your RRSP and defer the taxes.

The TFSA is a program that we often strongly advocate for. Earnings in this registered program are tax-free (assuming you aren’t trying to hide day-trading or something in your TFSA) and withdrawals and contributions are very flexible. 

This is a great place to store your rainy-day fund. If you invest in this account and your investments grow, they can contribute to your retirement lifestyle without contributing to your tax bill.

Business Owners

If you own an incorporated business, there are even more tax planning opportunities available to you. How you take your income and when you take such income can have a big impact on your overall taxes payable. It’s important to use your business as a vehicle for your financial success in a measured and planned out way.

Your Corporation is Not Your Piggy Bank

Unfortunately, we’ve seen this a lot. Individuals who own the corporation who continually use the funds from the corporation for personal means. We do not do business with people who try to hide personal expenses in corporations (So if that’s you, please don’t call us). 

However, sometimes life happens, and the money you’ve “borrowed” from the business just keeps increasing. Eventually, this will catch up with you. If you aren’t repaying those funds or declaring them as income, the CRA can come back and force them into your personal income while disallowing any potential tax deduction in the corporation.

This results in the dreaded situation of double taxation. Don’t fall into this trap. You lose your planning opportunities.

Beyond Tax Planning

Holistic financial planning requires far more than an accountant to help navigate future tax liabilities. You’ll also need a Financial Planner, an Estate Planner (if you care about leaving property to loved ones when you pass), Lawyers (for wills, Powers of Attorney, and more), Mortgage Brokers, and other financial professionals.

To have truly holistic tax planning, you need to know what you want. You need to set goals.  Why are you accruing assets? What do you want to happen with those assets? What do you want to do in life? What do you want to do with your retirement? And, unfortunately, how do you want to spend your twilight years?

There is no one-size-fits-all solution for financial planning. Holistic plans usually involve financial instruments (think investments), insurance, income, registered savings plans (RRSP, TFSA, FHSA), and regular updating. 

For business owners, landlords, and other situations where real estate is involved, this can become more complicated, especially if you plan on leaving your successors well-positioned.

Where to Start

Dream

This is where most great things begin – dreaming about the future. Make sure you (and your spouse if you have one), know what you want. Knowing where you want to go is the first step in setting out on a journey.

Where are you Now

The next step is to understand where you’re starting from. This means you’ll need to take stock of everything going on in your life, and everything you want to do. You’ll need to gather all the information about your financial position (think assets and liabilities), and all the information about your financial commitments and goals. This will help you understand your starting point.

Budget

This is where your plan begins…

It’s amazing how little time it takes to create a budget, but how afraid of sitting down and doing so most of us are. The best motivator for planning is your idea of the future, so make sure you go back to dreaming to know where you want to go.

We Can Help

As a registered CPA firm, we have a pretty good understanding of tax. We can help, along with the rest of your financial team, to mitigate the taxes you’ll pay over time.

We can help you get started with understanding what you need to do to budget. We can help you have a successful financial future – but the action and motivation are on you.

Start dreaming.