Thursday, November 20, 2008

How much should I save for emergencies?

What if your car breaks down, the roof leaks, or the TV dies? Can you get enough cash, quickly, to handle emergencies? Or, to take advantage when a great opportunity comes along – like a special deal on a new computer, a great clothing sale, or that sell-off vacation you always dreamed of?
The usual rule is you need to save enough to pay today’s bills plus living expenses for three to six months. What’s right for you depends on whether you’re single or raising a family, how much you earn, and the other choices you have if you need money fast.

Where should I keep my emergency savings?
You may want to consider investments called "cash equivalents." These products are a lot like cash. You can usually get your money out within 90 days or less. Cash equivalents include:
· Chequing accounts
· Savings accounts
· Tax Free Savings accounts
· Money Market Funds
· Canada Savings Bonds
· Cashable Guaranteed Investment Certificates
With cash equivalent products, there is little risk of losing money and you often know how much you will make. Many are guaranteed to not loose capital. Just be sure you understand when you can get your money out – and if there are any special fees or penalties for early withdrawals.

For more information, check out my web site at or give me a call at 416-806-5478

Saturday, November 15, 2008

Tax-Free Savings Accounts (TFSA)

Effective January 1, 2009 Canadians will be able to save up to $5,000 per year in an account and have this money grow on a tax-free basis. Contribution room will be added each year for any contributions not made. As money is needed for purchase of a home, education, retirement, or any other lifestyle needs, funds can be withdrawn on a tax-free basis.

This withdrawal also creates "re-contribution room," allowing your total potential pool of tax-free savings to never be depleted. At death, the entire account can be paid out free of tax as well. That's the quick version — grow tax free, withdraw tax free, re-contribute withdrawals, and pay out at death tax free.

Should you put your money into an RRSP or a TFSA?

First you need to determine your tax rate now and your anticipated tax rate during the withdrawal phase. If the two tax rates are identical, the TFSA is better option because it is more flexible and withdrawals do not affect income-tested benefits.

I suspect that most of you will fall in the category where your tax rates in the accumulation phase are higher because you are in your peak earning years and are paying the highest tax rates of your working life. Presumably, when you are retired you will be paying much lower taxes. Since your contribution tax rate is much higher than the withdrawal tax rate, a RRSP contribution is likely to be the better option. For the few Canadians who pay a higher rate in their withdrawal years than in their contribution years, a TFSA is probably the superior option.

However, a TFSA is a great vehicle to use to put 3 to 6 months of savings in to use for unexpected expenses. A TFSA can hold any investment vehicle that you can hold in an RRSP.

Thursday, November 6, 2008

Tax Tips for 2008

If you're like many people, you're probably waiting until April to start thinking about your taxes. However, by the time taxes are due, it's usually too late to realize tax-saving opportunities.

Now is the time to determine if there are any tax breaks you can take advantage of by acting before the end of the year. With this in mind, there are a number of tax-related questions and issues that we may need to discuss soon in order for you to get the most out of this tax year. For example:

Are you giving to charity? Two years ago, the Conservative government eliminated tax on "in-kind" donations of securities, mutual funds and segregated funds to registered charities. If you're planning to give cash, property or securities, it is important to make sure that all donations are made by December 31 in order to realize the tax benefits on your 2008 return.

Do you have any non-registered mutual fund purchases planned? Many mutual funds distribute their earnings at the end of the year, meaning that investors who purchase them in December will be liable for taxes on those earnings as if they had been invested for the entire year. We can get an estimate of what this year's distributions will be to determine if it might be worthwhile to postpone non-registered mutual fund purchases until January.

Did you open a tax-free savings account? While you can't add cash into this new TFSA until January 1, it's a good idea to open the account before December 31 so you can start saving as soon as the banks re-open after New Years. In 2009 you can save up to $5,000 in a variety of investment options and, if you need those dollars at any point, you can pull them out tax-free.

Can you benefit from tax-loss selling? Losses on certain assets mainly stocks can be offset against capital gains that have been realized during the previous three years. Now is the time for us to review your portfolio to determine if there are any equities for which you want to lock in the losses before year-end.

In addition, final payments must be made before December 31 in order to claim a tax deduction in 2008 for various items including alimony payments, child-care expenses, interest expenses on money borrowed to earn investment income and investment counselling fees.

If you would like to book an appointment to discuss these or other potential tax-saving strategies, please don't hesitate to contact me directly at 416-806-5478