13 Jun Celebrate Tax Freedom Day 2019
If the average Canadian family paid their annual taxes (from all levels of government) up front each year, it would take them from January 1 until the beginning of June. From this perspective, Tax Freedom Day serves as a symbolic indicator to mark when you are finally able to keep the remainder of your earnings for yourself.
Acknowledging Tax Freedom Day can be a helpful way to organize our finances to make smart decisions. This could include setting some money aside for a vacation fund, or investing in your future. Let’s take a look at a few ways you can treat yourself while also organizing your money wisely.
Want to go on a vacation? Perhaps you have a bucket list of places in the world you want to travel to, but you never seem to have enough money saved up. Why not start a vacation fund for yourself?
If you already have various accounts set up at a financial institution (i.e. chequing and savings accounts, TFSA, or RRSP), some banks will let you set up a new account specifically for saving for things like vacations or dream purchases without paying extra bank fees. Commit to throwing a small portion of every pay cheque into your vacation fund, and you’ll soon see your vacation fund take flight.
There are a lot of apps out there that you can use to budget and monitor your funds. Seeing your vacation fund grow may even inspire you to budget your money differently so you can go on your dream vacation sooner than later.
Put some money aside for yourself, while investing in your future – with no penalties should you need to withdraw these funds at any time. As of January 1, 2019, you can contribute up to $6,000 to your Tax-Free Savings Account (TFSA) each calendar year. If you’ve never contributed to a TFSA, your lifetime contribution is up to $63,500.
With a TFSA, you can invest in financial products ranging from Guaranteed Investment Certificates (GIC), stocks, mutual funds, index funds, and foreign currencies. Contributions to TFSAs are not tax deductible and the contribution room can be carried forward indefinitely. Unlike RRSPs, your TFSA contribution room is not lost when you make a withdrawal. Any investment income and capital gains earned in your TFSA are tax free.
Don’t forget about RRSPs when you are thinking of setting money aside for the future. This is a tax-sheltered investment account designed to help you build your retirement savings. The sooner you start this, the better.
Like TFSAs, you can contribute to your RRSP account to invest in a range of financial products. Your contribution limit can be found on your previous year’s Notice of Assessment.
All contributions are tax-deductible, which is why it is beneficial to maximize your contribution limit. Consider having monthly contributions automatically withdrawn from your bank account into your RRSPs – your future self will thank you.
Upgrade your skills
Another way to invest your money, is to invest in yourself. It is always a good time to upgrade your skills. You may be able to claim your tuition amounts, even if the courses you take aren’t post-secondary level courses.
Under the Life Long Learning Plan, you may also borrow up to $20,000 (up to $10,000 per year) from your RRSPs for full-time training or post-secondary education. The funds you borrow must be paid back in equal instalments within 10 years (without any interest).
Your earnings are yours. Think about how you would like to invest, and if you need expert advice, consider consulting a CPA or visiting CPABC’s RRSP & Tax Tips page.
Originally published by CPABC’s Industry Update.
Photo credit: stockstudioX/iStock/Getty Image Plus