By now, most of you should have already received your Notice of Assessment from the Canada Revenue Agency.
Since this NOA is attached to their refund cheque, most people get all twitchy and excitedly rip open the envelope and tear off of the bottom cheque portion.
The top piece is generally discarded without any further conscious thought.
My most invaluable retirement tip for the summer is that you should retrieve that crumpled paper ball out of the recycling, smooth it out and carefully check the very valuable information that is on it.
Here’s what you should look for and a few ideas on what to do with it.
1) The refund or balance owing: Your NOA lets you know if you are getting a refund or if you have a balance owing.
You will also see if any corrections have been made to your return by the CRA.
Do you agree with their corrections? If you got a refund, what did you do with this ‘found money?’ Did you spend it on shoes? Did you use it to pay off a credit card? Is it sitting in a savings account?
Just for fun some time, take a simple calculator, and see for yourself the power of compounding within an RSP or the benefit of paying down a loan or mortgage with an additional lump sum payment.
2) Total Income: This form shows your total income on line 150.
Take the time to review how much of that income is fully taxable interest income (line 121), lower taxed dividend income (line 120) and capital gains (line 127).
Should you consider sheltering less tax efficient investments in tax sheltered plans such as a TFSA or RRSP?
3) RRSP Deduction Limit: This limit represents the maximum amount that you can contribute to your RSP and deduct from your taxable income in any given year.
There are two lines in particular to focus on in the RRSP deduction limit section of the notice of assessment.
RRSP Deduction Limit: If you don’t contribute the maximum for a given year, the amount not used accumulates and is added to the contribution room for future use.
For unused RSP contributions, you may also contribute the maximum or any part thereof but elect not to apply the deduction to your tax return.
You may elect to defer the deduction from your tax return until a future year when you anticipate higher earnings and more taxes are payable.
Meantime, the contribution will benefit you immediately in the RSP from tax sheltered growth.
Any capital loss realized in a year must first be used to reduce capital gains realized in the same year. If the capital losses exceed the capital gains available for offset, these will be shown as an unused capital loss on the NOA.
These unused capital losses can be carried back three years and applied against previous capital gains so it would be worthwhile to check your previous tax returns for capital gains.