Yvonne has little difficulty making ends meet. The 31-year-old single woman in Greater Toronto is mainly employed as a nurse, earning $65,000 a year but also works as a college instructor during her downtime. That extra work will provide her with another $30,000 for this year.
Yvonne lives under her means but struggles with her tax commitment. Even though she is not self-employed, Yvonne finds herself owing several thousand in taxes each year. Besides reducing her tax burden — ideally by half — she wants to increase her retirement savings. She currently has a small mortgage on a condo valued at $200,000. She keeps $15,000 as emergency savings in her Tax-Free Savings Account, and has a five-digit portfolio invested in mostly fixed income.
“I don’t know how to grow my money and save for retirement and at the same time reduce my income tax repayments,” Yvonne says. “I contribute to RRSPs, mutual funds and Canada Savings Bonds but I still feel as though I am not using my money efficiently and would like some help.”
The Star asked Shannon Lee Simmons, a fee-only financial advisor at Simmons Financial Planning, to work with Yvonne.
The issue is Yvonne is only paying income tax on the amount she’s earning at each employer, Simmons says. For example, if one employer only pays her $10,000, that employer will take off enough tax for someone just earning $10,000 a year, which is a very low tax bracket.
“Because she works for four separate employers, this effect is compounded,” Simmons says. “Her gross income is quite high, but she hasn’t had enough income tax taken off per year.”
About $22,000 of Yvonne’s income goes towards Canada Pension Plan, employment insurance and income taxes. This means that she may owe approximately $4,500 at tax time, Simmons calculates. Last year, Yvonne owed just under $5,200.
So, the first step is for Yvonne to have more tax deducted from her part-time jobs. Simmons says employees like Yvonne can choose to have more tax deducted when they file a new Federal Form TD1 (http://www.onpayroll.ca/2015-federal-and-provincial-td1-basic-exemptions ). A filled out form will alert payroll with how much tax she would like deducted for the CRA.
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