Tax Season Can Provide Financial Stress Relief

Joanne Thomas and Evelyn Jacks

Real Wealth Management is the accumulation, growth, preservation and transition of wealth after taxation, inflation and fees.  Seldom has an economic environment been more conducive to this approach with the threat of tariffs, significant tax change and numerous interest/inflation fluctuations.    Fortunately, tax season, which official begins for filing of T1s on February 24, can provide some cash flow relief.  Here are some things to consider.

How Inflation Affects Your Money.  Inflation is the gradual increase in the prices of goods and services throughout the economy. It is measured by calculating the percentage change in a price index over a period of time, typically over the prior 12 months.  Fortunately interest rates have been falling and this is true of the interest rates on money owed to the CRA.  The prescribed rate is currently at  8% for overdue taxes, Canada Pension Plan contributions, and employment insurance premiums.  This will likely decrease further.  However, it’s still a high rate and because it compounds daily.  Taxpayers can increase cash flow over the long term by paying down tax debt promptly.

How Tariffs Can Affect Your Budget. If there is an increase in tariffs across the border then there will be an increase in prices for a variety of goods.  These goods will be items such as groceries, gas, toiletries, etc.  This puts a squeeze on discretionary income and a squeeze on regular monthly expenditures.

When Cash Flow is Squeezed.  When inflation is high or if tariffs are implemented, you may find that your income doesn’t go as far as it used to. Financial stress can definitely be overwhelming, but taking proactive steps can make a big difference. Let's break down some of the key points:

1. Create a Spending Plan: Having a clear understanding of your monthly expenses can help you identify areas where you can cut back.  It is a budget in all sense of the word, but a spending plan doesn’t sound as ominous and is something we all do.
2. Shop Smarter: Comparing prices and buying in bulk can lead to significant savings.
3. Reduce Your Debt: Consolidating debts can lower your monthly payments and save on interest.
4. Read Your TD1 Form for 2025: Taking advantage of deductions can increase your take-home pay.  This takes some tax planning to ensure that you don’t end up paying at tax time, but it is worth it to take home more instead of letting the government use your money throughout the year.

As an example:If your paycheck is normally $5000/month and you did the basic TD1 you would take home $3945, if you included the caregiver amount, then you would take home $4122.That gives you an extra $177/month.

1. Move Money to a High-Yield Savings Account: Protect your savings from inflation by using a high-yield account.
2. Automate Savings: Set up automatic transfers to your savings account. This ensures you're consistently saving without having to think about it.
3. Make your RRSP contribution:  This will reduce net family income which can have the effect of increasing monthly or quarterly cash flow with Canada Child Benefits and GST/HST Credit amounts payable.
4. Seek Professional Advice: A financial advisor can help you create a personalized financial plan and offer guidance on investments and savings.
5. Cut Unnecessary Subscriptions: Review your monthly subscriptions and cancel any that you don't use regularly.
6. Invest in Education: Consider furthering your education or acquiring new skills to increase your earning potential.  Make sure you set up RESPs for children as well.  A better job can come with benefits as well:  group health plans and employer sponsored pensions.  All of this contributes to financial peace of mind.
7. Insurance Coverage: Ensure you have adequate insurance coverage to protect against significant financial losses due to unexpected events.
8. TFSA Emergency Funds:  The TFSA is a great place to save for emergencies.  It provides for tax exempt earnings that accrue while the money is in the plan.  Don’t miss this opportunity to save for both long term and short term emergencies.

Bottom Line:  Smart financial choices can help mitigate the effects of taxes, inflation and tariffs, allowing you to retain more of your hard-earned money.  But focused planning and use of tax provisions that are available to households can help to build wealth at the same time.  That makes an investment in a relationship with a professional tax and financial advisor a great investment.

Find out more about Real Wealth Management as the upcoming Meeting of the Minds: Real Wealth Management Trigger tour featuring a live panel discussion with practicing members of the Society of Real Wealth Managers™. This live-virtual event is a dynamic journey of collaboration, innovation, and actionable strategies designed to empower financial professionals with a holistic practice management approach to building and preserving client’s sustainable inter-generational wealth, after taxes, fees and inflation.

Please join us to hear about the current Real Wealth Management Triggers that may be impacting your client’s holistic real wealth management plan today and why a Real Wealth Manager (RWM) is best able to balance these priorities while maximizing their client’s capital and after-tax income.