Doing your tax chores quickly pays off
Maximize returns and minimize stress by getting prepared early
Take a deep breath. The vast majority of Canadians are still expected to receive a refund after filing their taxes, despite the taxable pandemic benefits.
If those last three words caught you off guard, sorry for the letdown. All the government benefits that were dished out in 2020 are taxable, for individuals and businesses. Getting organized early will actually reduce stress, ensure you don’t miss any valuable credits and deductions, and help you see whether you owe money or not (and both from a financial and mental wellness perspective, knowing is better than not knowing).
Use a digital or physical filing system for your paperwork
Check your email inbox, physical mailbox, intranet HR portal at work and document portals from your financial institution(s). In the next few weeks you should see an influx of your tax documents; specifically your T-slips like T4s or T5s, RRSP receipts and more. If you received CERB or EI income, you’ll receive a T4A and/or T4E tax slip, respectively — but don’t stop your search for documents here.
If you made charitable contributions, moved, took courses, had expenses related to an investment property, paid student-loan interest or union dues, had professional expenses to maintain your licence(s), own a home-based business, spent money on child care, incurred medical costs or made improvements to your work-from-home setup, gather up these receipts, too. All of these may yield deductible expenses on your return; you can check out the criteria on the Canada Revenue Agency website. (It’s also a good idea to check your province’s website about any unique provincial credits that may be applicable.)
Next, organize the paperwork in either a physical file or a secure digital cloud. As more forms arrive, file them away so that you don’t end up with a massive stack that your cute new
was a blip or the start of a new trend. If the numbers of those out of work continues to rise, expect a much longer road to economic recovery.
> Inflation. This is not a concern at this time. The annual rate of inflation is still very low — Statistics Canada reported last week it was just 0.7 per cent in December. Almost nonexistent.
But massive government spending programs are pouring billions of dollars into the pockets of individuals and corporations. That’s not going to end anytime soon; U.S. President Joe Biden is asking Congress to pass a $1.9-trillion (U.S.) COVID relief package that would bail out cashstrapped companies and send $1,400 cheques to most Americans. In Canada, the federal Liberals have pledged to spend up to $100 billion (Canadian) over the next three years to help rebuild the economy. Finance Minister Chrystia Freeland has called it “the largest economic relief package for our country since the Second World War.”
Meanwhile, central banks are buying massive amounts of government bonds, effectively printing new money to do so. Bloomberg reported recently that the major central banks have poured $5.6 trillion (U.S.) into the global economy since last March.
At some point, all this freeflowing cash has to send the inflation numbers higher, which in turn will force the Bank of Canada and the Federal Reserve Board to decide whether to let it ride or raise rates and risk compromising growth. So far, they have said they will tolerate inflation beyond the previous two to three per cent target. It’s highly doubtful we’ll see that level this year — but 2022 could be a different story.
I’m going to watch this number closely. If it starts to rise significantly, it’s going to present major problems for the central bankers.
> China. Only one major country in the world reported economic growth in 2020. China announced this month that its GDP expanded by 2.3 per cent during the year, despite having suffered a disastrous first quarter decline of 6.8 per cent and massive tariffs imposed by the Trump administration.
There are two lessons to be drawn from this. The first is that, if the official numbers are correct, it is possible to achieve economic expansion even in the midst of a pandemic. The second is that, given the 2020 numbers, China will likely again lead the world in terms of growth in 2021. That would suggest investing in a highquality ETF like the iShares Large Cap China ETF, which trades in New York under the symbol FXI. It been rising steadily for the past month and it up about 12 per cent in that time.
> MSCI USA All Cap Index.
If you want to know how the overall U.S. stock market is doing, ignore the major indexes. The Dow is mainly composed of old-economy companies, the Nasdaq is overly exposed to high tech, and the S&P 500 is limited to large caps.
Rather, look at the performance of the little-known MSCI USA All Cap Index. Launched in 2010, it includes 3,443 stocks across large, mid, small and micro capitalizations, representing about 99 per cent of the U.S. equity universe. It was ahead by 21.14 per cent in 2020. That was well ahead of the Dow and the S&P 500, but trailed Nasdaq, which was up 43.6 per cent for the year.
You can invest in this index through the Invesco PureBeta MSCI USA ETF, which trades under the symbol PBUS. It was up 21.71 per cent in 2020 and shows a three-year average annual rate of return of 14.98 per cent.
It’s going to be a difficult year for investors to navigate. But watching these trends closely should help improve your returns.
Gordon Pape, a contributing columnist for the Star's Business section, is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. He may have personal holdings in the investments he writes about. Follow him on Twitter: @GPupdates