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As an employer, you may be thinking about offering your employees a pension plan. If so, you have two main options: a defined benefit pension plan and a defined contribution pension plan. A defined benefit pension plan offers your employees a set amount of money when they retire, whereas a defined contribution pension plan does not. We walk you through the differences between the two types of pension plans.

The Key Differences Between a Defined Benefit and Defined Contribution Pension Plan

As an employer, you may be thinking about offering your employees a pension plan. If so, you have two main options: a defined benefit pension plan and a defined contribution pension plan. A defined benefit pension plan offers your employees a set amount of money when they retire, whereas a defined contribution pension plan does not.

There are four key areas you should be aware of for pension plans:

  • Contributions

  • Investment Management

  • Costs

  • Employee Retention

We will walk you through each of these to help give you a better understanding of the differences between the two types of pension plans.

Contributions

In a defined benefit pension plan, both you, the employer, and the employee will contribute to the pension plan. The amount that you will have to contribute each year will depend on what kind of expenses the pension plan has, and the amount of funding it will require that year.

In a defined contribution pension plan, employees contribute a set amount each year into their pension. As an employer, you can choose to match or “top up” their contributions to a set amount that you define in advance.

For both types of plans, contributions are tax-deductible for the employee.

Investment Management

As an employer, you or your pension plan administrator will be responsible for managing the funds in a defined benefit pension plan. This applies whether the employee is actively contributing to the fund or has retired and is receiving funds from it.

With a defined contribution pension plan, you can let your employees choose how they want to invest their funds. This provides your employees with more flexibility and choice and takes the responsibility off you as the employer to manage pension funds. You will still need to arrange to have a selection of funds for your employees to select from.

Costs

In a defined benefit pension plan, an actuary will work with you (approximately every three years) to calculate how much money you will need to cover the pension expenses. The actuary must consider everything from cost of living adjustments to how many employees will be retiring.

In a defined contribution plan, the costs will be lower as less active management is required. Employees will receive whatever amount their investments are worth when they retire.

Employee Retention

Both types of pension plans will help attract and retain employees. Since a defined benefit plan builds in value each year, it is more likely to attract employees interested in staying with your company for a long time. A defined contribution plan will still attract employees – but the pension will be less appealing than a defined benefit plan would be.

The Takeaway

A defined benefit plan will cost you more to set up, maintain, and administer, but offers your employees more stability in their retirement. A defined contribution plan will give you and your employees more flexibility and cost you less to run.

Either type of plan will help you attract and retain employees.

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On April 19, 2021, the Federal Government released their 2021 budget. Our article contains highlights of the various financial measures in this budget, divided into three different sections: • Business Highlights, including an extension to COVID-19 Emergency Business Supports, new programs to support job creation, and a change in interest deductibility limits. • Individual Highlights, including details on the tax treatment and repayment of personal COVID-19 benefits (such as CERB), eligibility changes to the Disability Tax Credit, an increase in OAS for those 75 and up, and support for job skills retraining. • Additional Highlights, including a proposed federal minimum wage of $15, changes to the GST New Housing Rebate conditions, and new or increased taxes in areas such as luxury goods, tobacco, and Canadian housing owned by non-resident foreign owners.

On April 19, 2021, the Federal Government released their 2021 budget. We have broken down the highlights of the financial measures in this budget into three different sections:

  • Business Owners

  • Personal Tax Changes

  • Supplementary Highlights

Business Owners

Extending Covid -19 Emergency Business Supports

All of the following COVID-19 Emergency Business Supports will be extended from June 5, 2021, to September 25, 2021, with the subsidy rates gradually decreasing:

  • Canada Emergency Wage Subsidy (CEWS) – The maximum wage subsidy is currently 75%. It will decrease down to 60% for July, 40% for August, and 20% for September.

  • Canada Emergency Rent Subsidy (CERS) – The maximum rent subsidy is currently 65%. It will decrease down to 60% for July, 40% for August, and 20% for September.

  • Lockdown Support Program – The Lockdown Support Program rate of 25% will be extended from June 4, 2021, to September 25, 2021.

Only organizations with a decline in revenues of more than 10% will be eligible for these programs as of July 4, 2021. The budget also includes legislation to give the federal government authority to extend these programs to November 20, 2021, should either the economy or the public health situation make it necessary.

Canada Recovery Hiring Program

The federal budget introduced a new program called the Canada Recovery Hiring Program. The goal of this program is to help qualifying employers offset costs taken on as they reopen. An eligible employer can claim either the CEWS or the new subsidy, but not both.

The proposed subsidy will be available from June 6, 2021, to November 20, 2021, with a subsidy of 50% available from June to August. The Canada Recovery Hiring Program subsidy will decrease down to 40% for September, 30% for October, and 20% for November.

Interest Deductibility Limits

The federal budget for 2021 introduces new interest deductibility limits. This rule limits the amount of net interest expense that a corporation can deduct when determining its taxable income. The amount will be limited to a fixed ratio of its earnings before interest, taxes, depreciation, and amortization (sometimes referred to as EBITDA).

The fixed ratio will apply to both existing and new borrowings and will be phased in at 40% as of January 1, 2023, and 30% for January 1, 2024.

Support for small and medium-size business innovation

The federal budget also includes 4 billion dollars to help small and medium-sized businesses innovate by digitizing and taking advantage of e-commerce opportunities. Also, the budget provides additional funding for venture capital start-ups via the Venture Capital Catalyst Program and research that will support up to 2,500 innovative small and medium-sized firms.

Personal Tax Changes

Tax treatment and Repayment of Covid-19 Benefit Amounts

The federal budget includes information on both the tax treatment and repayment of the following COVID-19 benefits:

  • Canada Emergency Response Benefits or Employment Insurance Emergency Response Benefits

  • Canada Emergency Student Benefits

  • Canada Recovery Benefits, Canada Recovery Sickness Benefits, and Canada Recovery Caregiving Benefits

Individuals who must repay a COVID-19 benefit amount can claim a deduction for that repayment in the year they received the benefit (by requesting an adjustment to their tax return), not the year they repaid it. Anyone considered a non-resident for income tax purposes will have their COVID-19 benefits included in their taxable income.

Disability Tax Credit

Eligibility changes have been made to the Disability Tax Credit. The criteria have been modified to increase the list of mental functions considered necessary for everyday life, expand the list of what can be considered when calculating time spent on therapy, and reduce the requirement that therapy is administered at least three times each week to two times a week (with the 14 hours per week requirement remaining the same).

Old Age Security

The budget enhances Old Age Security (OAS) benefits for recipients who will be 75 or older as of June 2022. A one-time, lump-sum payment of $500 will be sent out to qualifying pensioners in August 2021, with a 10% increase to ongoing OAS payments starting on July 1, 2022.

Waiving Canada Student Loan Interest

The budget also notes that the government plans to introduce legislation that will extend waiving of any interest accrued on either Canada Student Loans or Canada Apprentice Loans until March 31, 2023.

Support for Workforce Transition

Support to help Canadians transition to growing industries was also included in the budget. The support is as follows:

  • $250 million over three years to Innovation, Science and Economic Development Canada to help workers upskill and redeploy to growing industries.

  • $298 million over three years for the Skills for Success Program to provide training in skills for the knowledge economy.

  • $960 million over three years for the Sectoral Workforce Solutions Program to help design and deliver training relevant to the needs of small and medium businesses.

Supplementary Highlights

Federal Minimum Wage

The federal budget also introduces a proposed federal minimum wage of $15 per hour that would rise with inflation.

New Housing Rebate

The GST New Housing Rebate conditions will be changed. Previously, if two or more individuals were buying a house together, all of them must be acquiring the home as their primary residence (or that of a relation) to qualify for the GST New Housing Rebate. Now, the GST New Housing Rebate will be available as long as one of the purchasers (or a relation of theirs) acquires the home as their primary place of residence. This will apply to all agreements of purchase and sale entered into after April 19, 2021.

Unproductive use of Canadian Housing by Foreign Non-Resident Owners

A new tax was introduced in the budget on unproductive use of Canadian housing by non-resident foreign owners. This tax will be a 1% tax on the value of non-resident, non-Canadian owned residential real estate considered vacant or underused. This tax will be levied annually starting in 2022.

All residential property owners in Canada (other than Canadian citizens or permanent residents of Canada) must also file an annual declaration for the prior calendar year with the CRA for each Canadian residential property they own, starting in 2023. Filing the annual declaration may qualify owners to claim an exemption from the tax on their property if they can prove the property is leased to qualified tenants for a minimum period in a calendar year.

Excise Duty on Vaping and Tobacco

The budget also includes a new proposal on excise duties on vaping products and tobacco. The proposed framework would consist of:

  • A single flat rate duty on every 10 millilitres of vaping liquid as of 2022

  • An increase in tobacco excise duties by $4 per carton of 200 cigarettes and increases to the excise duty rates for other tobacco products such as tobacco sticks and cigars as of April 20, 2021.

Luxury Goods Tax

Finally, the federal budget proposed introducing a tax on certain luxury goods for personal use as of January 1, 2022.

  • For luxury cars and personal aircraft, the new tax is equal to the lesser of 10% of the vehicle’s total value or the aircraft, or 20% of the value above $100,000.

  • For boats over $250,000, the new tax is equal to the lesser of 10% of the full value of the boat or 20% of the value above $250,000.

If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!

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Tax season is upon us once again. But since 2020 was a year like no other, the 2021 tax-filing season will also be different. Due to all the changes in both where and how Canadians worked, the Canadian government has introduced some new tax credits and deductions to keep pace with these changes. Our article covers all of the following: • How to claim home office expenses • The new Canada Training Credit • Pandemic emergency funds • New digital news subscription tax credit

Tax season is upon us once again. But since 2020 was a year like no other, the 2021 tax-filing season will also be different. Both how we worked and where we worked changed for a lot of us in 2020.

Some Canadians got to work from home for the first time but saw no other disruption to their jobs. There was a much bigger disruption for other Canadians – they faced temporary or permanent job losses and had to supplement their incomes wide side gigs and emergency government programs.

The Canadian government has introduced some new tax credits and deductions in response to these changes. We’ve covered some of the highlights below.

Claiming home office expenses

With a sudden shutdown happening across the country in March 2020, many Canadians stopped commuting to the office and started working from home. As a response to this, the Canada Revenue Agency (CRA) has offered a new way to claim home office expenses. If you:

  • Worked from home due to COVID-19 – for a minimum of 50 percent of the time for at least four consecutive weeks AND

  • Your employer did not reimburse you for your home office expenses.

You can claim $2 for each day – to a maximum of $400 for the year.

If you have more complicated or higher home office expenses, then your employer must provide you with a T2200 form, with a list of deductions included.

New Canada Training Credit

Suppose you are between the ages of 25 and 65 and taking courses to upgrade your skills from a college, university, or other qualifying institution. In that case, you can claim this new, refundable tax credit.

You can automatically accumulate $250 annually – and the new Canada Training Credit has a lifetime maximum of $5,000. You can claim this credit when you file your taxes.

Pandemic emergency funds

The emergency support programs helped a lot of Canadians avoid financial disaster. If you were one of the Canadians who received pandemic emergency funds, you must be aware of the tax implications.

If you received the Canada Emergency Response Benefit (CERB) or the Canada Emergency Student Benefit (CESB), no taxes were withheld at source, so you will be taxed on the full amount. If you received the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), or Canada Recovery Caregiver Benefit (CRCB), the CRA withheld a 10% tax at source, so you may not owe additional taxes on this income.

New digital news subscription tax credit

This is a new, non-refundable tax credit that is calculated at 15 percent – and is eligible for up to a maximum of $500 in qualifying subscription expenses. To qualify for this credit, you must subscribe to one or more qualified Canadian journalism organizations – and you could save up to $75 a year thanks to this credit.

I’m here to help you understand where you owe taxes and how you can lower your tax bill. Give me a call today!

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The CLHIA stated that receiving a COVID-19 vaccine will have NO effect on the ability to obtain coverage or benefits from life insurance or supplementary health insurance.

The CLHIA made a statement clarifying whether the COVID-19 vaccination will affect your insurance coverage.

From the CLHIA website:

Contrary to misinformation being shared on-line, receiving a COVID-19 vaccine will have no effect on the ability to obtain coverage or benefits from life insurance or supplementary health insurance.

The CLHIA is aware of misinformation that is being spread through social media claiming that individuals who get the vaccine will not be able to get life insurance or may be denied their life insurance benefits. These claims are incorrect and have no basis in fact whatsoever.

Canada’s life and health insurers stress that vaccination is one of the most effective ways to protect yourself and others from serious illness and death from COVID-19. Receiving the vaccine will not affect your individual or workplace life or health insurance policies, or ability to apply for future coverage.

As with any medication approved for use in Canada, the COVID-19 vaccines have been found safe and effective through Health Canada’s independent scientific and medical assessment process.

Individuals who have questions about their coverage are encouraged to consult their policy and contact their insurer directly.

Quote:

“Getting the vaccine will not affect your insurance coverage. No one should be afraid and choose to not protect themselves from COVID-19 because they are worried about it affecting their benefits. All of Canada’s life and health insurers are supportive of Canadians receiving government approved vaccinations to protect themselves from serious illness and death.”

See the original news release at https://www.clhia.ca/web/CLHIA_LP4W_LND_Webstation.nsf/page/CFFB22AA8524D58385258692004DDFFC!OpenDocument

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While it’s great to have group coverage from your employer or association, in most cases, people don’t understand the that there are important differences when it comes to group life insurance vs. self owned life insurance.

Group Insurance vs Individual Life Insurance

“I already have life insurance from work, so why do I need to get it personally?” or “Work has got me covered, I don’t need it.”

While it’s great to have group coverage from your employer or association, in most cases, people don’t understand that there are important differences when it comes to group life insurance vs. self owned life insurance.

Before counting on insurance from your group benefits plan, please take the time to understand the difference between group owned life insurance and personally owned life insurance. The key differences are ownership, premium, coverage, beneficiary and portability.

Ownership:

  • Self: You own and control the policy.

  • Group: The group owns and controls the policy.

Premium:

  • Self: Your premiums are guaranteed at policy issue and discounts are available based on your health.

  • Group: Premiums are not guaranteed and there are no discounts available based on your health. The rates provided are blended depending on your group.

Coverage:

  • Self: You choose based on your needs.

  • Group: In a group plan, the coverage is typically a multiple of your salary. If your coverage is through an association, then it’s usually a flat basic amount.

Beneficiary:

  • Self: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.

  • Group: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.

Portability:

  • Self: Your policy stays with you.

  • Group: Your policy is tied to your group and if you leave your employer or your association, you may need to reapply for insurance.

Talk to us, we can help you figure out what’s best for your situation.

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On Friday, February 19, 2021, Prime Minister Justin Trudeau announced an extension to: - Canada Recovery Benefit - Canada Recovery Caregiving Benefit - Canada Recovery Sickness Benefit - Employment Insurance

On Friday, February 19, 2021, Prime Minister Justin Trudeau announced an extension to several of the COVD-19 federal emergency benefits.  The goal of this extension is to support Canadians who are still being financially impacted by the COVID-19 pandemic.

The following benefits are impacted:

  • Canada Recovery Benefit 

  • Canada Recovery Caregiving Benefit

  • Canada Recovery Sickness Benefit 

  • Employment Insurance

Canada Recovery Benefit

The Canada Recovery Benefit (CRB) provides income support to anyone who is:

  • Employed or self-employed, but not entitled to Employment Insurance (EI) benefits.

  • Has had their income reduced by at least 50 percent due to COVID-19. 

You can receive up to $1,000 ($900 after taxes withheld) a week every two weeks for the CRB. The recent changes now allow you to apply for this benefit for a total of 38 weeks – previously the maximum was 26 weeks.  

Canada Recovery Caregiving Benefit

The Canada Recovery Caregiving Benefit (CRCB) helps support people who cannot work because they must supervise a child under 12 or other family members due to COVID-19. For example, a school is closed due to COVID-19 or your child must self-isolate because they have COVID-19.  

You can receive $500 ($450 after taxes withheld) for each 1-week period you claim the CRCB. The recent extension made now allows you to apply for this benefit for a total of 38 weeks instead of the previous 26 weeks. 

Canada Recovery Sickness Benefit

The $500 a week ($450 after taxes) Canada Recovery Sickness Benefit (CRSB) is also getting a boost. If you cannot work because you are sick or need to self-isolate due to COVID-19, you can now apply for this benefit for a total of four weeks. Previously, this benefit would only cover up to two missed weeks of work. 

Employment Insurance 

Finally, the government will also be increasing the amount of time you can claim Employment Insurance (EI) benefits. You will now be able to claim EI for a maximum of 50 weeks – this is an increase of 24 weeks from the previous eligibility maximum.

For full details, go to https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-benefits-credits-support-payments.html

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Great news for some ineligible self-employed Canadians who received the Canada Emergency Response Benefit (CERB)

Great news for some ineligible self-employed Canadians who received the Canada Emergency Response Benefit (CERB). As per canada.ca:

“Today, the Government of Canada announced that self-employed individuals who applied for the Canada Emergency Response Benefit (CERB) and would have qualified based on their gross income will not be required to repay the benefit, provided they also met all other eligibility requirements. The same approach will apply whether the individual applied through the Canada Revenue Agency or Service Canada.

This means that, self-employed individuals whose net self-employment income was less than $5,000 and who applied for the CERB will not be required to repay the CERB, as long as their gross self-employment income was at least $5,000 and they met all other eligibility criteria.

Some self-employed individuals whose net self-employment income was less than $5,000 may have already voluntarily repaid the CERB. The CRA and Service Canada will return any repaid amounts to these individuals. Additional details will be available in the coming weeks.”

For full details, see full news release at https://www.canada.ca/en/revenue-agency/news/2021/02/government-of-canada-announces-targeted-interest-relief-on-2020-income-tax-debt-for-low–and-middle-income-canadians.html

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For the 2020 tax year, the Government of Canada introduced a temporary flat rate method to allow Canadians working from home this year due to Covid-19 to claim expenses of up to $400.

For the 2020 tax year, the Government of Canada introduced a temporary flat rate method to allow Canadians working from home this year due to Covid-19 to claim expenses of up to $400. Taxpayers will still be able to claim under the existing rules if they choose using the detailed method.

Eligibility

From the canada.ca website:

Each employee working from home who meets the eligibility criteria can use the temporary flat rate method to calculate their deduction for home office expenses.

To use this method to claim the home office expenses you paid, you must meet all of the following conditions:

  • You worked from home in 2020 due to the COVID-19 pandemic

  • You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020

  • You are only claiming home office expenses and are not claiming any other employment expenses

  • Your employer did not reimburse you for all of your home office expensesWhat if your employer has reimbursed you for some of your home office expenses

You need to meet all of the above conditions to be eligible to use the Temporary flat rate method.

New eligible expenses

For the detailed method, the CRA has expanded the list of eligible expenses that can be claimed as work-space-in-the-home expenses to include reasonable home internet access fees. A comprehensive list of eligible home office expenses has also been created.

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