CRA Snapshot Shows How Canadians Are Investing
Gerry Cameron - Apr 10, 2019
Unlike surveys taken over the phone that rely on a sample of the population and can record misstatements or exaggerations, the CRA reports are based on all tax returns.
I recently read an article that said the Canadian Revenue Agency (CRA) processes all the information from income-tax returns for a given year and then reports its findings, in group form, two or three years later. This is interesting because it gives you the opportunity to see what fellow Canadians are doing with their savings. And more importantly, it's the accuracy of the findings. Unlike surveys taken over the phone that rely on a sample of the population and can record misstatements or exaggerations, the CRA reports are based on all tax returns. The T1 Final Statistics 2017 report for the 2015 tax year summarized data from 27,772,460 returns (figures rounded up to tens).
First, it showed that most Canadians are on the right path when it comes to financial planning. And that’s a good thing. Regarding RRSPs and PRPPs (Pooled Registered Pension Plans), 349,000 taxpayers, age 65 and older, claimed $10,789, on average, to their plans. What’s interesting is that 7,790 taxpayers were age 75 to 79, and 5,920 taxpayers were 80+ years old. It’s worth noting because the rules state you cannot make a contribution to your own registered account like an RRSP after the year you turn 71. However, it’s known that if you do have a spouse under the age of 71, you can make a spousal contribution if they have the room to do so.
Regarding dividend income, almost 1.5-million people, again age 65 and over, declared an average amount of $16,397 on their taxes, but only 1.3-million people claimed the dividend tax credit. Therefore, the numbers suggest that 200,000 retirees could have missed out on a worthwhile tax break. And If this is the case, it’s an example of why people should in most situations seek professional tax advice.
When it came to taxable capital gains, an average of $11,196 was declared by 1,144,000 people in the 65+ age group. However, if you keep in mind that only one half of your capital gains are taxable, then capital gains were actually $22,400 per person. In plain English, the stock markets were in a good mood for people who invested their savings in stocks that year.
And finally, as far as declaring interest income, only 2.6-million Canadians placed a number in that section on their returns. Considering there are 3.4-million retirees in the group, the writer of the article was surprised about the low showing because interest-bearing investments have always been considered as the base for retirement plans due to their safety and steady source of income. Also, many of these investments are backed by the government through the Canada Deposit Insurance Corp. (CDIC), guaranteeing no loss up to a certain amount. But again, there’s more to the numbers than meets the eye. First, placing interest-bearing investments inside registered accounts such as RRSPs and TFSAs to protect your stream of income is a strategy many people use. Second, rates on GICs (Guarantee Investment Certificates), as an example, were roughly 2 percent for a five-year term at that time, which is hardly a number that excites investors. For this reason, probably more people decided to invest in the markets and rely on capital gains and dividend income for higher returns - where favorable reductions can be made.
When I look at interest-bearing investments like GICs and bonds, I consider them to be like stabilizers on a fishing boat. Stabilizers don’t increase the speed of your boat to get you faster out to sea, and they do not help you increase the size of your catch. But when the weather turns nasty and your boat starts to pitch and roll, you are more than glad to have your stabilizers functioning, steadying your ship and getting you safely to shore. In the same manner, today’s GICs and bonds don’t offer great returns, but when the markets are facing uncertainty, and stocks become volatile like a ship at sea, it’s the interest-bearing investments that will provide stability to a portfolio - stability to help investors get through stock-market storms.
This article was recently published in Edmonton Prime Times (www.edmontonprimetimes.com).