Our Investment Strategy Featured in the Globe and Mail Me And My Money Column

Our investment strategy was featured in the column called Me and My Money in the Business section of the Globe and Mail. You can read the article here:

Globe and Mail Me and My Money Article

This strategy is described in greater detail in our book "Retired at 48 - One Couple's Journey to a Pensionless Retirement" and is serving us well in retirement.  Because our non-registered income is all in the form of Canadian eligible stock dividends, the tax burden of this income is significantly less than other forms of income such as bonds, GICs, foreign stock, registered income from our RRSPs, or employment income when we were still working.  We really noticed this with our 2013 tax returns, which marked the first full year where we had no employment income.

Using a Tax Estimator that is also described in the book, you can see the difference in tax resulting from the same amount of dividend income versus the other forms of income described above.  The dividend income is grossed up to produce a higher taxable income, but then the amounts of federal and provincial tax owed are each reduced by a generous dividend tax credit that more than offsets the increase.  Note that the tax advantages of dividend income start to decrease as the amount of dividend income increases.  This is because the gross-up eventually pushes you into a higher tax bracket so that there is more tax that needs to be offset, while the percentage of the dividend tax credit remains the same regardless of income level.

StudioTax 2013 Integrates NetFile to CRA

Last year I wrote about how I used the free online tax software StudioTax to prepare my income tax return.  My previous blog article describing how to use StudioTax can be found here.  Since it was my first time, I also prepared my tax return manually (as I did in all the previous years) just to compare the results with the software.  The two returns came out identically.  So this year, with total confidence, I relied solely on StudioTax 2013 to create my tax return, which saved me so much time. 

The 2013 version has been enhanced to integrate the step of net-filing to the Canada Revenue Agency (CRA) within the software.  After completing data entry on the tax return and pressing the "Netfile" button to generate the .TAX file, you previously had to go to the CRA website to manually submit this file.  Now you are given an option to use StudioTax to submit to CRA.  Note that if you owe money, you are expected to make a payment within the next five days.

After successfully generating the .TAX file, you are asked to click on the link to read the NETFILE Terms and Conditions and Privacy Notice.  I did not realize initially that unless you click on this link and select the check-box, the Next button is not enabled and you cannot proceed.  On the last screen, you press the Transmit button and your tax return is automatically submitted and you are returned a confirmation number.  This seamless integration of tax return generation and submission made this task so convenient.

The ability to pay my income tax bill from my computer as the final step made the hassle-free experience complete.  This was accomplished by going to my online banking interface, entering for "CRA" as the search criteria, selecting the option for "2013 Tax Owing" (the wording may differ slightly depending on the bank) and entering my social insurance number as the "account number" of the bill.  After adding this CRA payee as a new bill, I was able to pay my tax bill on the spot.

Since we retired in May 2012, 2013 was the first full year that my husband Rich and I earned no employment income and relied completely on our retirement income.  Without the complicated tax elements that came from his commission-based job, this year we were able to use StudioTax for his return as well. StudioTax makes it very easy to create joint spousal tax returns.   On the T3 (income trust) and T5 (investments income) forms, there is a field to indicate the split of the income between spouses and a button to copy the information from one spouse's return to the other's.  You only need to enter the information in the form for one spouse and StudioTax will automatically distribute the values between the two returns at the specified percentage split.  For us, we are simulating income splitting by sharing all income equally, and so we enter 50% for each of us.  StudioTax even has an Optimizer option that makes sure that income and deductions are properly allocated between the spouses to minimize the joint tax burden of the couple.

StudioTax also makes it easy to play around with different scenarios since it quickly recalculates the entire tax form when you change a value in any field.  To take advantage of this, we played around our RRSP contributions (we each had room for one final contribution from our 2012 income) and donations to see if we needed to claim the entire values to minimize our tax, or if we could carry any of it over to the following year(s).  In my case, I needed all of my RRSP contribution plus all of the donations that we each made in order to reduce my taxable income. But we were able to carry forward some of Rich's RRSP deduction to next year since applying all of it did not further reduce his tax burden. It was a matter of repeatedly running the "Wizard" option, fiddling with the RRSP deduction number and then checking the recalculated tax owed until we could not bring down the tax owed any further.

StudioTax is a great tool that is free to everyone regardless of income and relies on donations to keep going.  You can make a donation here in order to help fund future versions of the program.  They accept credit cards, pay pal or cheque.  We will definitely make a contribution to thank them for making our lives so much easier.