Early Retirement and Taxes

Well dear Canadians, please tell me you have finished your income tax submission and submitted them (and if you owe paid up)? If not just a reminder that they are due tomorrow on April 30, 2019.

I fully admit I ended up procrastinating on doing my income tax this year as I really don’t like the pain of having to gather and calculate everything for two home based businesses and investments.  It typically ends up taking me like four or five hours to do all of it.  But I eventually got it completed and it went partly as expected and partly had a few surprises for me.

First off I more or less expected that all the money I paid in withholding tax on my RRSP withdrawal last year ended up be refunded.  This occurred since my taxable income was under the basic deduction therefore I pay zero income tax on the withdrawal (at least eventually…as you can’t get around the withholding tax when you initially take the money out).  Also, as per normal, my wife actually didn’t pay income tax but she did owe money for her Canada Pension Plan (CPP) contribution (~$300) on her business income  (I didn’t owe any CPP as I actually had a loss in my business for 2018).  Thus we did achieve one objective I had from my early retirement plan to keep our income tax bill as low as possible (in 2018 it was actually zero).

Newer readers might be a bit confused on how it is possible to have taxable income of around $19K but actually spend about $35K per year so let me explain.  Any withdrawals from our TFSA accounts are tax free thus don’t increase our taxable income.  Also any dividends my wife receives in her taxable account also end up being not added to our taxable income as the tax credit gets is greater than the taxes owing on that income.  So that ends adding $10K a year to our income but it doesn’t show up as taxable income.  Then finally we used some savings and last year’s tax refund to bridge the rest of the spending.

Then of course as I previously had touched on our Child Tax Benefit is going to go up considerably as of mid 2019 since our taxable income in 2018 was so low.  In the end it ends up being close to $933 per month starting in July, which should give our investments some time to grow for the next couple of years while we qualify for that benefit.  An important note about this additional income it is a tax free benefit.

Finally, there were a few surprises for me while filing our taxes.  First up was the fact we would qualify for a GST Credit benefit as I haven’t gotten that credit in likely close to two decades as I earned too much to qualify for it.  So that will give us a quarterly payment of just over two hundred dollars which will be a nice bonus.  The second surprise was the Working Income Tax benefit, which I basically forgot even existed since I was never closed to qualifying for it until now.  It is benefit meant to encourage low income people to work and you need a family income of at least $3000 and it should give us a few hundred dollars of extra income per quarter.

While I’m still waiting for my assessment to be completed and sent back I am projected to get around $2600 of a refund back.  So overall it is a bit higher than I expected but not huge amount like last year when I was using up as much RRSP contribution room as possible prior to leaving work in 2017.

So how did you taxes go this year?  Did you learn anything new?

6 thoughts on “Early Retirement and Taxes”

  1. 1. Learned that CCB was not taxable .. I was freaking out looking for that statement for the taxes until I googled it

    2. Cannot start taxes until Apr 20. Mentally cannot handle it.

    3. I took my income in capital gains this year and only paying half was a very nice treat.

  2. Hey Tim,

    I’m in a very similar situation to you guys, but will be pulling the trigger this spring likely. I’ve struggled with the idea that we’ll be collecting so much CCB/other government benefits. My thinking is that I could totally be working more if I wanted to and am deciding on my own to opt out, yet these benefits (I believe) were intended for people who are down on their luck, or weren’t as fortunate as me in getting good work, etc. I sincerely have struggled with this diminishing the satisfaction I’ll be getting from our financial independence. How do you think about this? Looking for views that might challenge mine in the hopes that I can feel better. Thanks,

    Dave

  3. It was nice that my tax software (UFile) automatically put in for the new federal carbon tax credit (Ontario). I’m thankful that the software automatically handles figuring out who should claim what.

    I have filed and received my refund. Now I wait for the letter(s) requesting documentation. It seems every year they need me to provide the documentation for something, even though every year I dutifully provide it and everything is fine. I don’t let myself spend the refund until 6-8 months have passed.

  4. It’s great to hear that you didn’t pay through the nose during your early “retirement”. I also liked your note about TFSAs. Since I really want to “retire” early, or at least become financially independent enough to quit my 9-5 gig, I am looking forward to growing my TFSA which I can withdraw without the fear of the taxes I already paid on it…:) I’m still trying to scrape up enough to fill my minimum $1k Questrade account but looking forward to investing even more over the next year once debts are paid.

    I learned that my carbon tax on gasoline will be pretty much offset by the climate change rebate thing which I applied for and received. Hurray! Hope you are having fun at your library job…it’s my dream to get a job like this where it’s low pressure, interesting, part time, and enjoyable.

  5. @Sherry – Re#1 – I also spent like 15 minutes doing the exact same thing until I remembered it was not taxable.

    @Neil – Yes that extra cash back is a nice bonus and it sucks that you have to keep providing documentation. I’ve only had that happen so far once or twice.

    @David – Good luck on the leave date in the spring! The issue more than anything is typically low income is an indicator that people need help. So it is entirely reasonable to the government to setup programs based on that metric. People in FIRE are a weird exception and thus we end up getting money we don’t particularly need. As far as I know there isn’t a way to opt out of some things like GST and Child Tax Benefit while others you can choose not to apply for such as the Working Income Tax Benefit. So any way you slice it you will end up with some extra income from the government. I personally don’t have much of an issue collecting it as I tend to look at all the taxes I paid previously and by far I will be a net contributor during my lifetime. I setup all my accounts and investing for a decade to get to this point so I don’t get worked up about collecting it as my plan really didn’t even consider it until just a year or two prior to leaving work. It is a bonus in my mind and in my case it won’t last for long. So while you might feel odd taking the money, you can’t change that you will get it. So the real issue is what do you want to do with that money? If you don’t need it or want it you can donate all of it to shelter or setup a scholarship for low income kids. Do good with the money if don’t want to keep it. Money is just a tool so just figure out how you want to use it. Hope that helps.

    @T on Fire – Keep saving and investing. It take a long while to get to FIRE but it is worth it.

  6. Hi Tim, I like your answer to David’s question re: CCB. I think the same applies to things like OAS for the riches. Those people don’t need the money but they will get it as long as they’ve lived in Canada for x number of years. I agree with you that there’s no need to feel bad about receiving it but when you spend it just make it count.

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