TAX PLANNING FROM THE KNOWLEDGE BUREAU
By Evelyn Jacks
Are you a high-income earner – perhaps an executive, or a seasonal
construction or oil rig worker – who may suffer a loss of employment? If
the Canada Revenue Agency catches you with income above the base amount for
Employment Insurance (EI) repayment, you’ll likely be unpleasantly
surprised when you file your 2017 return. But there’s a way to avoid the
clawback by using your RRSP deduction opportunities.
Taxpayers who receive regular EI benefits more than once in any 10-year
period are required to repay them via the the lesser of 30% of the benefits
received and income in excess of the base amount.
For the 2017 tax year, the base amount for EI repayment is $64,125. The
amount is indexed year over year. You will experience a marginal tax rate
of 62% on income over this clawback threshold, as a portion of EI benefits
received would have to be repaid.
However, with an RRSP contribution, this might be avoided. Here’s an
Andre, who lives in Ontario, was laid off late in the year and received
$3,000 in regular EI benefits. His T4E slip shows he is required to repay
his benefits at a rate of 30% because he previously made a claim for
regular benefits when his former employer became insolvent. On his T1,
Andre’s net income before adjustments is $67,000. He will need to repay the
lesser of 30% x $3,000 = $900 and 30% x ($67,000 – $64,125) = $862.50
As Andre lives in Ontario, his marginal tax rate is 29.65% (that is, he’d
pay $29.65 more taxes if he earned $100 more in taxable income).
A $100 RRSP deduction would reduce his tax bill by $59.65 when the EI
clawback is taken into account. Taxpayers in this situation can obviously
benefit handsomely from an RRSP contribution!
The moral of this story: Use your RRSP contribution room and deduction
opportunities wisely to decrease the net income upon which the clawbacks
are determined. It’s too late in the year now for this strategy – the
contribution deadline for 2017 has already passed – but if you have any
undeducted contributions from prior years, be sure to use them to offset
the clawback on your 2017 return.
Evelyn Jacks is the founder and President of Knowledge Bureau, which
brings continuing financial education in the multiple areas of
specialization to advisors and their clients. She is the author of 52
books on tax and wealth planning. This article
originally appeared in the
Knowledge Bureau Report, © 2018 The Knowledge Bureau, Inc. Reprinted with permission. All
rights reserved. Follow Evelyn Jacks on Twitter
@EvelynJacks. Visit her blog at www.evelynjacks.com.
Evelyn Jacks’ latest book,
NEW ESSENTIAL TAX FACTS: How to Make the Right Tax Moves and Be
Audit-Proof, Too is available for pre-order now.
Notes and Disclaimer
©2018 by Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. No guarantee of investment performance is made or implied.
It is not intended to provide specific personalized advice including,
without limitation, investment, financial, legal, accounting or tax advice.