Now that this year’s deadline for making contributions to registered retirement savings plans (RRSP) has passed, many Canadians who managed to make contributions are looking forward to a tax refund in the spring. However, tax experts are quick to point out the advantages of having a long-term plan that keeps more of those tax dollars invested.
In fact, over a lifetime, investors can generate hundreds of thousands of dollars in extra retirement savings through “tax-free compounding.” The strategy allows tax savings to generate further tax savings while compounding in investments over time. It also means reinvesting that cherished RRSP refund that comes in the spring.
“It’s tough to try to get people to think about their long-term future selves rather than what’s going to happen in the next weeks or months,” says Doug Carroll, tax and estate specialist at Aviso Wealth Inc. in Toronto.
There are a few tax tools available to most Canadians that can be used together to maximize tax savings, which include an RRSP, a tax-free savings account (TFSA) and tax perks from investing in a non-registered account, he says.
The RRSP is traditionally the go-to investment vehicle for Canadians because contributions can be deducted from their taxable income. For example, if an investor’s marginal tax rate is 40 per cent, then that person’s tax refund will usually be 40 per cent of the contribution. Although that tax refund in the spring might seem like cash-in-hand, it’s merely the excess amount investors have had deducted from their paycheques over the course of the year on behalf of the Canada Revenue Agency.
For financial advisors, it’s important to remind clients that not only are there limits on RRSP contributions, but even keeping contributions well below those limits can be problematic as investments grow over time. That’s because if RRSP savings grow too much, the holder will eventually be forced to make withdrawals at a higher marginal tax rate and could lose out on government benefits such as Old Age Security.
“[Investors] may very well get to a point at which they have a sufficient amount in their RRSPs and as they project out in time, their income will be pushing up to a level that they will be facing clawbacks when they draw down on those assets,” Mr. Carroll says.
To maximize tax savings and avoid accumulating too much in an RRSP, he says advisors should recommend to clients that they contribute only when their annual income reaches a high tax bracket. In contrast, he says clients should channel other investment dollars into a TFSA when income and RRSP tax savings are smaller. (It’s worth reminding investors that while TFSA contributions cannot be deducted from income, withdrawals are never taxed.)
“[At an] early age, investors should lean toward a TFSA versus an RRSP and carry their RRSP contribution room forward. As they hit their stride in their working years and start going up into higher tax brackets, they can actually draw money out of their TFSA and contribute it to their RRSP,” he says.
In some cases, though, the overall tax advantage can be greater by holding some assets outside of both vehicles and in a non-registered account.
The biggest tax advantage in most non-registered trading accounts is the 50 per cent capital gains exemption, in which only half of the gains on stocks or other equity investments are taxed when sold.
The capital gains tax on TFSA holdings is zero, but Denise Batac, tax partner at Crowe Soberman LLP in Toronto, says investors who have contributed the maximum amount to their TFSAs should direct eligible equity investments and investments not permitted in registered accounts to their non-registered accounts.
“If investors have tax-efficient investments, they should probably hold those [in a non-registered account]. If they have non-tax-efficient investments – meaning those that are earning more income – they should probably be held in their RRSP or TFSA,” she says.
Dividend tax credits are also available on eligible equities only in non-registered accounts, but one often overlooked tax perk is the ability to benefit from market losses through “tax-loss selling,” Ms. Batac says. That allows investors to use half of the equity losses to recoup capital gains taxes paid going back three years or apply them against future capital gains.
“If investors are realizing losses, they can use those losses against any other capital gains incurred,” she says. “We are not able to use those losses [in an RRSP or TFSA] because nothing is being taxed at the end of the day.”
Ms. Batac says another often-overlooked tax advantage is income splitting between spouses. High-income spouses can split up to half of their income with a lower-income spouse once they turn 65, but the higher-income spouse can keep their RRSP contributions low and still deduct them from their income beforehand by contributing to a spousal RRSP.
“[An investor] makes a contribution based on their RRSP contribution limit. It goes into a spousal RRSP and, eventually, when they retire, it’s withdrawn and taxed in the hands of the lower-income spouse versus the higher-income spouse,” she says.
There are many misunderstandings about spousal RRSPs, Ms. Batac adds. Some people mistakenly contribute directly to the RRSP of the lower-income spouse without setting up a separate spousal RRSP, or they often don’t realize the contribution to a spousal RRSP reduces the higher-income contributor’s limit instead of the lower-income spouse’s.
She cautions that investors who get in over their heads on any tax matter could regret not getting help from a professional.
“They’ve now incurred penalties, have to go through and file all the respective forms, and when it’s all added up, they’ve probably negated a lot of the benefits that they would’ve otherwise realized from doing tax-planning strategies,” she says.
Source: – The Globe and Mail
Dogecoin dropped after Elon Musk calls it a ‘hustle’ on ‘SNL’ show
By Alden Bentley and Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The value of dogecoin dropped sharply in early U.S. hours on Sunday, after Tesla chief and cryptocurrency supporter Elon Musk called it a ‘hustle’ during his guest-host spot on the “Saturday Night Live” comedy sketch TV show.
Dogecoin was quoted as low as $0.47 on crypto exchange Binance, down 28% from levels around $0.65 before the show.
The billionaire Tesla Inc chief executive hosted the show at 11:30 p.m. EDT on Saturday (0330 GMT on Sunday).
Cryptocurrency enthusiasts had for days been eager to see what he would say, after his tweets this year turned the once-obscure digital currency into a speculator’s dream.
Asked ‘what is dogecoin’, Musk replied, “It’s the future of currency. It’s an unstoppable financial vehicle that’s going to take over the world.”
When a show cast member Michael Che countered, “So, it’s a hustle?”, Musk replied, “Yeah, it’s a hustle.” And laughed.
Musk is the rare business mogul to have been asked to host the venerable comedy TV show. The timing puts Musk back in the spotlight just as Tesla’s stock is losing steam following last year’s monster rally.
The unconventional CEO has posted numerous comments about cryptocurrencies on Twitter and criticized regular old cash for having negative real interest rates.
“Only a fool wouldn’t look elsewhere,” he said in February.
His cryptic tweets “Doge” and “Dogecoin is the people’s crypto” that month kicked off a rally in dogecoin – created as a parody on the more mainstream bitcoin and ethereum.
On Thursday, Musk tweeted: “Cryptocurrency is promising, but please invest with caution!” with a video clip attached in which he said, “it should be considered speculation at this point. And so, you know, don’t don’t go too far in the crypto speculation …”
But he also said, in the video, that cryptocurrency has a “good chance” of becoming what he called “the future currency of the Earth.”
On crypto data tracker CoinGecko.com, dogecoin has jumped more than 800% over the last month and is now the fourth-largest digital currency, with a market capitalization of $73 billion. It hit a record high Thursday above $0.73.
It has overtaken more widely used cryptocurrencies such as litecoin and tether.
Tesla said in February it bought $1.5 billion worth of bitcoin and would soon accept it as a form of payment for its electric cars, a large stride toward mainstream acceptance that sent bitcoin soaring to a record high of nearly $62,000.
Tesla shares closed 1.3% higher at $672.37 on Friday.
(Reporting by Gertrude Chavez-Dreyfuss and Alden Bentley in New York, and Noel Randewich and Hyunjoo Jin in San Francisco Additional reporting by Joe White and Vidya RanganathanEditing by Matthew Lewis & Simon Cameron-Moore)
Wealthsimple hits $4 billion valuation on funding from Ryan Reynolds, Drake
(Reuters) -Wealthsimple said on Monday it has raised C$750 million ($610.40 million) in its latest funding round, which more than doubled the Canadian fintech company‘s valuation to C$5 billion.
The latest funding round included participation from celebrities Drake, Michael Fox and Ryan Reynolds, according to the company.
The Toronto-based company that has helped make stock trading, peer-to-peer money transfers and tax filing easily accessible, said it will use the amount raised to further expand its market position, product suite and team.
The latest funding round, led by venture capital firms Meritech and Greylock, also includes investments from iNovia, Sagard, TSV and Redpoint.
The funding consists of C$250 million primary fundraising by Wealthsimple and a C$500 million secondary offering by holding company Power Corp of Canada, its largest shareholder.
Wealthsimple said it has seen rapid growth in the past 14 months as Canadians took an interest in stock trading during the COVID-19 pandemic.
Earlier this year, the company said it plans to grow revenue by adding premium features for its clients.
($1 = 1.2288 Canadian dollars)
(Reporting by Eva Mathews and Tiyashi Datta in Bengaluru; Editing by Shailesh Kuber and Shounak Dasgupta)
Ethereum breaks past $3,000 to quadruple in value in 2021
SINGAPORE (Reuters) –Cryptocurrency ether broke past $3,000 on Monday to set a new record high in a dazzling rally that has outshone the bigger bitcoin, as investors bet that ether will be of ever greater use in a decentralised future financial system.
Ether, the token transacted on the ethereum blockchain, rose 3% on the Bitstamp exchange to $3,051.99 by lunchtime in Asia. It is up more than 300% for the year so far, easily outpacing a 95% rise in the more popular bitcoin.
In part, the big rally is a catch-up to late 2020 gains in bitcoin, said James Quinn, managing director at Q9 Capital, a Hong Kong cryptocurrency private wealth manager.
It also reflects improvements to the ethereum blockchain, he said, and a growing shift towards “DeFi”, or decentralised finance, which refers to transactions outside traditional banking for which the ethereum blockchain is a crucial platform.
“At first, the rally was really led by bitcoin because as a lot of the institutional investors came into the space, that would be their natural first port of call,” Quinn said.
“But as the rally has matured over the last six months, you have DeFi and a lot of DeFi is built on ethereum.”
The launch of ether exchange-traded funds in Canada and surging demand for ether wallets to transact non-fungible tokens such as digital art have also pushed up the price.
The ether/bitcoin cross rate has soared more than 100% this year and hit a 2.5-year high on Sunday, pointing to a degree of rotation into the second-biggest cryptocurrency as investors diversify their exposure.
“Surging DeFi volumes continue to push ethereum prices higher as investors gain confidence in crypto and see ethereum as a safe second-place asset,” said Jehan Chu, managing partner at Hong Kong blockchain venture capital firm Kenetic Capital.
Illustrating the momentum for such new transactions, Bloomberg reported last week that the European Investment Bank plans on issuing a digital bond over the Ethereum blockchain, while JP Morgan plans a managed bitcoin fund.
Bitcoin, the world’s biggest crypto asset with more than $1 trillion in market capitalisation, regained the $50,000 mark last week and hovered around $58,000 on Monday, up about 3% but well below its record high at $64,895.22.
The U.S. dollar was broadly steady. [FRX/]
(Reporting by Tom Westbrook and Vidya Ranganathan; Editing by Himani Sarkar & Shri Navaratnam)
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