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Figuring out when you can afford to retire (December 2024)

While almost everyone looks forward to retirement and an end to the day-to-day demands of working life, there’s also no question but that the decision to give up a regular paycheque is a stressful one. Particularly when the cost of life’s necessities – especially food and housing – seem to be continually increasing, individuals wanting to retire have to wonder whether they can actually afford to do so, or whether it would be foolhardy, in the current economic realities, to walk away from a reliable regular paycheque.

While retirement planning is about a lot more than just finances, it’s nonetheless the case that finances loom very large in any discussion about whether retirement in the near future is possible. The first financial task faced by anyone seeking an answer to that question is to determine what financial resources they will have to live on, and whether those resources are sufficient to meet their needs, now and in the future. And, while no one can accurately predict where inflation or interest rates are going, it is nonetheless possible to formulate both “best case” and “worst case” scenarios, and to test one’s current retirement income and expense expectations against both.

For most Canadians, income in retirement will come from three sources. The first two sources – a Canada Pension Plan (CPP) retirement benefit and Old Age Security (OAS) payments – will be received by nearly all retirees. The fortunate minority who are members of an employer-sponsored registered pension plan will also receive a monthly benefit from that plan. For the majority of Canadian retirees who will not receive a pension from their employer, the balance of their income in retirement (after CPP and OAS) will come from private retirement savings accumulated in registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and tax-free savings accounts (TFSAs). The real question for most Canadians is how to determine the amount of annual after-tax income which all those sources of income will generate during their retirement years, and that’s not a simple calculation.

Money can be withdrawn from an RRSP, an RRIF, or a TFSA at any age, a CPP retirement pension can start anytime from age 60 to age 70, and Old Age Security benefits can be received as early as age 65 or as late as age 70. For both CPP and OAS, benefits will rise with each month that receipt of such benefits is deferred. As well, income from the different types of retirement income may be subject to different tax treatment, meaning that the after-tax amount received on $100 of income may vary widely, depending on the nature and source of that income.

The number of factors to consider and, especially, the complexity which results from the interaction of those factors could reasonably lead the average Canadian to conclude that it’s just not possible to make an accurate determination of the best way to structure their income in retirement, in order to ensure a reasonable income throughout their retirement years. But help is available – and it’s free!

That help is in the form of two online retirement planners which are available on the Government of Canada website. The first of these are webpages which can be found at https://www.canada.ca/en/services/retirement.html and https://www.canada.ca/en/services/retirement/learn.html. While these webpages, entitled Learn and Plan for Your Retirement, do include financial calculations, they provide much more broad-based information on transitioning to and living in retirement. In particular, the website outlines a number of “rules-of-thumb” with respect to the decision on when to begin receiving CPP or OAS benefits, and explains the specific rules which must be considered by lower-income seniors who may be eligible for the Guaranteed Income Supplement or those who are already receiving provincial disability benefits.

For purely financial calculations, the federal government provides a Retirement Income Calculator. That Calculator is included in the “Learn and Plan for your Retirement” webpages, but can also be found in a stand-alone version at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

Using the Retirement Income Calculator, individual Canadian taxpayers can enter their personal data, including their date of birth, gender, and planned age of retirement, without the need to provide any personal identifying information. The user is then asked to provide information on income amounts which will be received from various sources, including any employer pension and Canada Pension Plan amounts and the age at which the user plans to begin receiving such income. Information is requested on the user’s period of residency in Canada, in order to determine whether they will be eligible to receive Old Age Security benefits and the amount of OAS benefits which will be provided at different ages. The calculator also allows the user to input the total amount of savings accumulated to date. Finally, information is requested on any other sources of income which will be available during retirement.

Using that data, the calculator estimates the amount of income which will be available to the individual from each source during each year of their retirement and generates a bar graph and a table showing those income amounts.

The real benefit of the calculator, however, lies in the individual’s ability to vary the inputs – to create “what-if” scenarios in order to determine the effect any changes made will have on retirement income at various ages. Users can change the age at which they choose to receive government-sponsored retirement benefits like CPP and OAS, or can specify a different rate of return (pre- or post-retirement) earned on retirement savings. They can also change the period of time over which retirement income will be spread (i.e., life expectancy). That way, the user can obtain answers to frequently asked questions like the following:

How much more will I receive if I accelerate – or delay – receipt of Canada Pension Plan or Old Age Security benefits, or both, for one, two, or more years?
What if I work an additional year or two after age 65 before starting RRSP withdrawals?
What if I earn income from part-time employment during retirement?
What if I choose to begin receiving CPP and OAS as soon as I am eligible, but defer making RRSP withdrawals?
What if I live longer than the average life expectancy?

For each of these what-if fact scenarios, the calculator will determine the effect that particular change will have on the amount of income receivable from each different retirement income source, and will provide a summary of income for each year of retirement from all such sources under each fact scenario created by the user.

There are, of course, some factors which can’t be incorporated into any calculator because they cannot be predicted or planned for. No one can predict how long their retirement will last (although the Calculator does project retirement income based on average life expectancy for individuals of the age and gender of the user). Similarly, it’s never possible to know what investment returns will be earned on retirement savings during retirement, or what the rate of inflation will be. The calculator’s ability to estimate future income data based on a number of different fact patterns does, however, allow users to create retirement income projections under both “best-case” and “worst-case” retirement income scenarios. And, based on those income projections, an individual can determine whether retirement in the near future is financially feasible.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Tax consequences of holiday gifts and celebrations (December 2024)

It seems incongruous, in the season of holiday gifts and celebrations, to consider the possible tax implications and consequences of those traditions. But, in some circumstances, the unwelcome spectre of an income tax bill arising from such activities does intrude.

Fortunately, there are never any tax consequences to the exchange of gifts and holiday celebrations with family and friends. However, where gifts are given and/or holiday celebrations held where the gift giver or person or company sponsoring the holiday celebration is the employer of the recipient, unwanted tax consequences can arise.

It’s traditional for employers to provide employees with something a little “extra” at this time of year. Sometimes it’s a salary or wage bonus, or a gift, or a holiday celebration sponsored and hosted by the employer – and sometimes it’s all three. What employers certainly don’t want to do is to create a tax headache for their employees. Unfortunately, it’s also the case that a failure to properly structure such gifts or holiday parties can result in a tax cost to those employees.

Trying to formulate and administer the tax rules around holiday gifts and celebrations is something of a no-win situation for the CRA. On an individual or even a company level, the amounts involved are usually small, or even nominal, and the range of situations which must be addressed by the related tax rules are virtually limitless. As a result, the cost of drafting and administering those rules can outweigh the revenue generated by the enforcement of such rules, to say nothing of the potential ill-will generated by imposing a tax cost on holiday gifts or parties. Nonetheless, the potential exists for employers to provide what would otherwise be taxable remuneration in the guise of holiday gifts, and it’s the responsibility of the tax authorities to ensure that such situations don’t slip through the tax net.

The starting point for the Canada Revenue Agency’s rules is that any gift (cash or non-cash) received by an employee from their employer at any time of the year is considered to constitute a taxable benefit, to be included in the employee’s income for that year.

The CRA does, however, make some administrative concessions in this area, allowing non-cash gifts (within a specified annual dollar limit) to be received tax-free by employees, as long as such gifts are given on significant dates or events, like religious holidays such as Christmas or Hanukkah, or on the occasion of a birthday, a marriage, or the birth of a child.

In sum, the CRA’s administrative policy is simply that such non-cash gifts to an arm’s length employee, regardless of the number of such gifts, will not be taxable if the total fair market value of all such gifts (including goods and services tax or harmonized sales tax) to that employee is $500 or less annually. The total value over $500 annually will be a taxable benefit to the employee and must be included on the employee’s T4 for the year, and on which income tax must be paid.

It’s important to remember the “non-cash” criterion imposed by the CRA, as the $500 per year administrative concession does not apply to what the CRA terms “cash or near-cash” gifts, and all such gifts are considered to be a taxable benefit and included in income for tax purposes, regardless of amount. For this purpose, the CRA considers both currency and cheques to be cash. As well, in situations in which an employee selects and purchases something, submits a receipt to the employer, and receives reimbursement for that purchase, that employee is considered to have received a cash gift in the amount of the purchase/reimbursement.

Other instances of gifts made to employees are not so clear cut, as even a gift or award which cannot be converted to cash can be considered by the CRA to be a near-cash gift. Drawing a firm line between cash/near-cash gifts and non-cash gifts can be difficult, and the CRA provides the following information to help clarify that difference.

Examples of a near-cash gift or award

Something easily converted to cash, such as bonds, securities or precious metals;
Gift cards (with the exception outlined below);
A prepaid card issued by a financial institution that can be used to pay for purchases; and
Digital currency which is electronic money (e.g. cryptocurrencies not issued by a government or central bank).

At one time, the CRA considered all gift cards to be near-cash gifts and fully taxable to the employee who received one, but the Agency now provides an exception to that policy. Under current rules, a gift card that meets all of the following criteria will be treated as a non-cash gift, and subject to the usual rules governing such non-cash gifts:

the card comes with money already on it and can only be used to purchase goods or services from a single retailer or group of retailers identified on the card;
the terms and conditions of the gift card clearly state that amounts loaded on the card cannot be converted into cash; and
the employer keeps a log to record details of the gift card information including the date, the employee’s name, and the reason for providing the gift card, as well as the type and amount of the gift card and the name of the retailer.

It may seem nearly impossible to plan for employee holiday gifts without running afoul of one or more of the detailed rules and administrative policies surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if the following rules are kept in mind.

Cash or near-cash gifts should be avoided, as they will, no matter how large or small the amount, almost always create a taxable benefit to the employee. The sole exception to that rule is the exception carved out by the CRA which now treats gift certificates as non-cash gifts, but only where such gift certificates meet the criteria listed above.

Where non-cash special occasion gifts are provided to employees, gifts with a value of up to $500 can be received free of tax. The employer must be mindful of the fact that the $500 limit is a per-year and not a per-occasion limit. Where the employee receives non-cash gifts with a total value of more than $500 in any one taxation year, the portion over $500 is a taxable benefit to the employee.

When it comes to holiday parties and celebrations, the policy followed by the CRA in determining whether such events constitute a taxable benefit for employees has a long and frequently amended history. The general and long-standing rule is that a holiday social event does not create a taxable benefit to employees where the event is open to all employees and the per person cost of the event is below a specified threshold.

For 2024, an employer-sponsored social event will not create a taxable benefit for employees if the per person cost is less than $150. Ancillary costs such as transportation home, taxi fare, and overnight accommodation for attendees are not included in the total cost limit for the event.

Finally, employers should note that where the per employee dollar limits outlined above for holiday social events are exceeded, the entire per employee cost of the event is treated as a taxable benefit – not just the amount by which the per employee cost exceeds those prescribed dollar limits. And, finally, in order to benefit from those prescribed limits, employers are restricted to holding six or fewer employer-paid social events each year.

The range and variety of social events and employee gifts which can be provided by an employer to its employees is almost limitless, and where the government seeks to draft rules to govern the tax treatment of such a range of possibilities, complexity is inevitable. The best advice to be given to employers in the circumstances is to consider carefully the kinds of gifts which are given and to be mindful of the dollar amount limits imposed on non-cash gifts and employer-paid social gatherings. After all, at the end of the day, a gift which increases the employee’s income tax bill for the year is unlikely to engender much holiday spirit or goodwill on the part of the employee who receives it.

Tax planning steps to take before December 31 (December 2024)

December 31 , 2024 marks not just the end of the calendar year, but the end of the 2024 tax year for every individual Canadian taxpayer. And while the thoughts of most Canadians during the holiday season are focused on anything but their 2024 income taxes, the reality is that December 31 can be a critical date when it comes to determining how much income tax one will pay for 2024.

In some cases, steps need to be taken by December 31 in order to obtain administrative relief from interest or penalty charges which have been imposed by the Canada Revenue Agency. In other cases, not taking certain actions prior to the end of the calendar year will mean losing out on deductions and credits which might otherwise have been claimed on the 2024 return, and which would have reduced tax payable for the year. And, in all cases, a failure to meet that December 31 deadline cannot be remedied: only actions taken prior to the end of the calendar year (with the exception of RRSP contributions) can reduce the tax bill for 2024.

While the remaining time frame in which most tax planning and tax saving strategies for 2024 can be implemented is only a few weeks, the good news is that the most readily available of those strategies don’t involve a lot of planning or complicated financial structures – in many cases, it’s just a question of considering the timing of steps which would have been taken in any event. What follows is a listing of some of the steps which should be considered by most Canadian taxpayers as the calendar and tax year-end approaches.

Taxpayer requests for penalty or interest relief

Taxpayers are entitled to request relief from the Canada Revenue Agency for interest or penalty charges which the Agency has levied, and those who want to do so must send their request within ten years from the end of the calendar year or fiscal period concerned.

The 2024 deadline applies to taxpayer relief requests for:

the 2014 tax year;
any reporting period that ended during the 2014 calendar year; and
any interest and penalties that accrued during the 2014 calendar year for any tax year or reporting period.

All such requests for relief must be submitted on or before December 31, 2024. More information on the circumstances in which relief may be provided, and how to make a request for such relief, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/cancel-waive-penalties-interest/who-can-apply.html.

Making a final RRSP contribution

Most Canadians are aware that an RRSP contribution can be made anytime up to 60 days after the end of the calendar/tax year, and claimed as a deduction on the return for that calendar/tax year. There is, however, an important exception to that rule, of which most Canadians are likely unaware.

Every Canadian who has an RRSP must collapse that plan by the end of the year in which they turn 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that they have sufficient contribution room. However, in such cases, the 60-day window for making a contribution after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during 2024 must be made by December 31, 2024. Once that deadline has passed, no further RRSP contributions are possible.

Reviewing tax instalments for 2024

Millions of Canadian taxpayers (particularly self-employed and retired Canadians) pay income taxes by quarterly instalments, with the amount of those instalments representing an estimate of the taxpayer’s total liability for the year.

The final quarterly instalment for this year will be due on December 15, 2024 (as that date falls on a Sunday this year, the actual due date for the instalment payment is Monday December 16). By mid-December, almost everyone will have a reasonably accurate idea of what their income and deductions will be for 2024 and so will be in a position to estimate what the final tax bill for the year will be, taking into account any tax planning strategies already put in place, as well as any RRSP contributions which will be made on or before March 1, 2025. While the tax return forms to be used for the 2024 year haven’t yet been released by the Canada Revenue Agency, it’s possible to arrive at an estimate by using the 2023 form. Increases in tax credit amounts and tax brackets from 2023 to 2024 will mean that using the 2023 form will likely result in a slight over-estimate of tax liability for 2024.

Once one’s tax bill for 2024 has been calculated, that figure should be compared to the total of tax instalments already made during 2024 (that figure can be obtained by checking one’s online tax account on the Canada Revenue Agency website, or by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281). Depending on the result, it may then be possible to reduce the amount of the tax instalment to be paid on December 15 – and thereby free up some additional funds for the inevitable holiday spending!

Medical expenses

The federal and all provincial and territorial governments provide a non-refundable tax credit for eligible medical expenses incurred. Most Canadians will incur such expenses: while we benefit from a publicly-funded health care system, there is nonetheless a long list of medical and para-medical expenses which must be paid for out-of-pocket.

Individual taxpayers are entitled to claim the medical expense tax credit for all qualifying medical expenses incurred during any 12-month period which ends during the taxation year. In other words, the taxpayer can choose the 12-month period for which medical expenses incurred create the highest tax credit amount. However, as with other such credits, any expense, in order to be claimed on the 2024 tax return, must be incurred before the end of 2024.

There is an additional criterion for claims for the medical expense tax credit: only medical expenses which exceed the lesser of $2,759 or 3% of the taxpayer’s net income for 2024 can be claimed. Put in more practical terms, the rule for 2024 is that any taxpayer whose net income for the year is $91,967 or less will be entitled to claim eligible medical expenses that are greater than 3% of his or her net income for the year. Those having income of more than $91,967 will be limited to claiming qualifying expenses which exceed the $2,759 threshold.

Finally, it’s possible to combine medical expenses incurred by both spouses and by their minor children, and to make that combined claim on a single return. In most cases, the best tax result can be obtained where that claim is made on the return of the lower-income spouse, as long as that spouse has tax payable of at least as much as the medical expense tax credit to be claimed.

It is unfortunate that, given the number of Canadians who are in a position to claim the medical expense tax credit, the computation of that credit can be confusing. More information on how to calculate and claim the medical expense tax credit for 2024 can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4065.html. While the most current version of the publication currently available on the CRA site is for the 2023 tax year, the same rules will apply for 2024, with the exception of the applicable net income threshold, as outlined above.

Make sure to file your 2023 tax return by year-end

While making sure that one’s tax returns are filed on time is always a good idea (and delaying filing is, in all cases, a bad one), there are additional reasons this year to ensure that one’s tax returns for all years up to and including 2023 are filed by December 31, 2024.

On November 21, the federal government announced a “Working Canadians Rebate” – a tax-free rebate of $250 which will be sent to eligible Canadians in the spring of 2025. The basic requirements for eligibility for the rebate are that the individual have net income of $150,000 or less in 2023 and have earned income from employment or self-employment that year. In addition, an individual must have filed an income tax return for the 2023 tax year by the end of 2024. Canadians who are otherwise eligible but who do not file their income tax return for 2023 on or before December 31, 2024 will not receive the rebate.

The need to file a 2023 return by the end of this year is particularly important for residents of Ontario. In October of this year, the Ontario government announced that eligible residents of the province would receive a tax-free rebate of $200 early in 2025. In order to receive the Ontario rebate, an individual must have been 18 years of age or older and a resident of the province at the end of 2023, and must have filed an income tax return for the 2023 tax year on or before December 31, 2024.

Some new tax breaks from the federal government (December 2024)

On November 21, the federal government announced two new measures intended to relieve some of the financial stress currently being experienced by most Canadian families and households. That financial stress arises, in large measure, from the steady increase in the cost of goods and service over the past two years – and, while inflation has decreased significantly over the past several months, price increases for non-discretionary expenditures like food and housing continue to outpace the general rate of inflation.

The two measures seek to relieve that financial stress in different ways. The first provides an exemption from the Goods and Services Tax/Harmonized Sales Tax (GST/HST) for a wide range of goods purchased by Canadians between December 14, 2024 and February 15, 2025.

The list of goods which will be GST/HST-exempt during that two-month period is as follows.

Prepared foods, including vegetable trays, pre-made meals and salads, and sandwiches.
Restaurant meals, whether dine-in, takeout, or delivery.
Snacks, including chips, candy, and granola bars.
Beer, wine, cider, and pre-mixed alcoholic beverages below 7% alcohol by volume.
Children’s clothing and footwear, car seats, and diapers.
Children’s toys, such as board games, dolls, and video game consoles.
Books, print newspapers, and puzzles for all ages.
Christmas trees.

Some of these categories, like snacks, toys, and clothing, obviously cover a huge range of potential goods. A detailed listing of the specific kinds of goods in each category which will be eligible for the temporary GST/HST exemption can be found in a Backgrounder which is available on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2024/11/more-money-in-your-pocket-a-tax-break-for-all-canadians.html.

The tax savings to be realized by the GST/HST holiday will be different in different provinces, because of the way sales tax is structured. In Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island, the provincial sales tax is combined with the federal goods and services tax (GST) to create a harmonized sales tax (HST), which is levied at the point of sale and collected by the federal government. The federal GST is levied at a rate of 5% in all provinces; when that GST is combined with provincial sales tax, it results in a combined HST tax rate of 13% in Ontario and 15% in each of the Maritime provinces. In each of these provinces, the tax holiday will exempt eligible purchases from the entire 13% or 15% HST levy.

In all of the other provinces, consumers pay both federal GST of 5% and provincial sales tax (PST) at rates ranging from 6% to 9.975% (except in Alberta, which has no PST), but those taxes are imposed separately. In those provinces, the 5% federal GST is collected by the federal government and the PST is levied and collected by the provincial government. Consequently, the two-month tax holiday will be available in British Columbia, Alberta, Saskatchewan, Manitoba, and Québec only with respect to the 5% federal GST.

Working Canadians Rebate

The second measure announced by the federal government is not specifically a tax break, but a rebate program – the “Working Canadians Rebate”, which will provide a tax-free payment of $250 to each individual Canadian who meets the eligibility criteria. Those criteria, as currently structured, mean that the rebate will be available to individual Canadians who earned up to $150,000 in employment or self-employment income, or received Employment Insurance (EI) or Québec Parental Insurance Plan (QPIP) benefits during 2023, and who have filed their income tax return for 2023 on or before December 31, 2024.

The detailed criteria for receipt of the Working Canadians Rebate by an individual are as follows.

Worked (as an employee or in self-employment) or received EI or QPIP benefits during 2023 and had $150,000 or less in net income for that year.
Filed their 2023 tax return by December 31, 2024, and:
- claimed the tax credit for Canada Pension Plan or Québec Pension Plan contributions on employment or self-employment earnings;
- claimed the tax credit for EI or QPIP premiums on employment or self-employment earnings; or,
- reported income from EI or QPIP benefits;
Is a resident of Canada on March 31, 2025;
Is not incarcerated for a period of at least 90 days immediately prior to April 1, 2025; and,
Is not deceased on April 1, 2025.

The rebate will be provided to eligible Canadians, by direct deposit or by cheque, in the early spring of 2025.

The News Release announcing the two new measures can be found on the federal government website at https://www.pm.gc.ca/en/news/news-releases/2024/11/21/more-money-your-pocket-tax-break-all-canadians-and-working-canadians.

New Quarterly Newsletters (Q3 2024)

Two quarterly newsletters have been added – one dealing with personal issues, and one dealing with corporate issues.