Wednesday, March 23, 2011
March 22, 2011 Federal Budget
At this time, no one knows whether the budget will come to fruition, or if Canada will have an election. There are several tax incentives of interest should the budget pass in its current form.
SENIORS
Enhancing the Guaranteed Income Supplement (GIS) for Low Income Seniors – The budget proposes a new GIS top-up effective July 1, 2011 for seniors with little or no income other than OAS and GIS will receive additional annual benefits of up to $600 for single seniors and $840 for couples.
FAMILIES
Children's Arts Tax Credit - This will allow parents to claim a 15 per cent non-refundable tax credit based on an amount of up to $500 in eligible expenses per child paid in a year for an eligible program of artistic, cultural, recreational or developmental activities. The program must be either a weekly program lasting a minimum of eight consecutive weeks or in the case of children's camps, a program lasting a minimum of five consecutive days
Family Caregiver Tax Credit - To provide new support to caregivers of dependents with a mental or physical infirmity, including spouses, common-law partners and minor children. This is an enhanced credit, proposed to begin in 2012.
Medical Expense Tax Credit (METC) - allows individuals with significant medical expenses to claim a credit in respect of eligible expenses incurred by himself or herself, his or her spouse or common-law partner, or his or her children under 18 years of age. Caregivers can also claim the METC in respect of a “dependent” relative. A "dependent" relative is a child who is 18 or older, a grandchild, parent, grandparent, brother, sister, uncle, aunt, niece or nephew, who is dependent on the taxpayer for support.
Under current rules, a caregiver may only claim the eligible expenses of a "dependent" relative that exceeds the lesser of 3 per cent of the dependant's net income and an indexed dollar threshold ($2,052 in 2011), to a maximum of $10,000. The 2011 Budget proposes to remove this $10,000 limit on eligible expenses that can be claimed under the METC in respect of a dependent relative. This is consistent with the normal METC rule, which has no maximum amount.
STUDENTS
Tuition Tax Credit - Currently, tuition fees are eligible for a federal non-refundable credit of 15 per cent of the amount paid. The 2011 budget proposes to amend the tuition tax credit to recognize exams fees paid to an educational institution, professional association, provincial ministry or other similar institution to take an exam that is required to obtain a federally or provincially recognized professional status.
Education Tax Measures – Study Abroad - The tuition tax credit is currently available to a Canadian student in full-time attendance at a university outside of Canada in a course leading to a degree only to the extent that the tuition fees are paid in respect of a course of at least 13 consecutive weeks,
The 2011 budget proposes to change this requirement by reducing the minimum course-duration requirement that a Canadian student at a foreign university must meet from 13 consecutive weeks to three consecutive weeks.
CHARITIES
Among various charity measures in the 2011 budget, the change that may have the most significant effect on individual donors is in the area of flow-through share donations,
Donation of Flow-through Shares - Over the past number of years, Canadians who wished to donate significant amounts to charity have been turning to flow-through shares as a means of funding their charitable giving at minimal cost. Flow-through shares are essentially shares issued by oil and gas, mining and renewable energy companies that renounce or "flow-through" their exploration, development and project start-up expenses to investors, who can deduct these expenses personally on their own tax returns. For tax purposes, flow-through shares are treated as having a tax cost or adjusted cost base (ACB) of zero when calculating any capital gain or loss from their ultimate disposition.
In a move that is expected to preserve $185 million of forgone tax revenue over the next five years, the government is changing the rules and is proposing to allow the exemption from capital gains tax on donations of flow-through shares only to the extent that a flow through investor's capital gain exceeds the amount paid for the shares, ignoring the deemed zero ACB of the flow-through shares.
So, following from the example above, if Jonathan were to buy $10,000 of flow-through shares issued today, his cost would still be $5,400, allowing for the flow-through deduction at 46%. Upon donation, his receipt would still be worth $4,600 (46% of $10,000), but his capital gains tax would be $2,300 (50% x 46% X $10,000) increasing the total cost of his donation from $800 to $3,100.
REGISTERED PLANS
RESPs – Asset Sharing Among Siblings - To provide subscribers of separate individual plans with the same flexibility to allocate assets among siblings as exists for subscribers of family plans, the 2011 Budget proposes to allow transfers between individual RESPs for siblings, without any tax penalties and without triggering the repayment of Canada Education Savings Grants (CESGs), provided that the beneficiary of an RESP receiving the transfer of assets was under 21 when the plan was opened.
Registered Disability Savings Plans (RDSP) – Shortened Life Expectancy - RDSPs were introduced in the 2007 budget. They allow parents and others the option to contribute up to $200,000 towards the long-term financial security of a child with a severe disability. Investment income in an RDSP grows tax-free and can be supplemented with generous government credits and bonds in the form of the Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs).
The 2011 federal budget proposes to allow RDSP beneficiaries who have shortened life expectancies to withdraw more of their RDSP savings by permitting annual withdrawals without triggering the ten-year repayment rule.
An election will be available to take advantage of this new rule. If the election is filed for a beneficiary with a shortened life expectancy, withdrawals made at any time following that election will not trigger the repayment of CDSGs and CDSBs provided that the total of the taxable portions of the withdrawals does not exceed $10,000 annually.
Once an election has been made, no further contributions to the plan will be allowed, and no new CDSGs or CDSBs will be paid into the plan. After the death of the beneficiary, any CDSGs and CDSBs remaining in the plan that were received by the plan within the preceding 10 years must be repaid.
RRSPs / RRIFs – Anti Avoidance Rules - Rules similar to the existing TFSA anti-avoidance rules are being applied.
SMALL BUSINESS
Individual Pension Plans - IPPs are defined benefit Registered Pension Plans (RPPs) established for small business owners and their spouse or other family member that are employed by the business.
The federal budget proposes two new tax measures that will apply specifically to IPPs.
• Minimum Withdrawals -The budget introduces a new rule that will require an IPP to pay out to a member, each year after the year in which he or she turns 71, the greater of the regular pension amount payable under the IPP terms and the minimum amount that would be required to be paid from the IPP to the member if the member's share of the IPP assets were held in a RRIF. According to the government, "This requirement will establish reasonable limits on deferrals of tax on IPP savings and generally ensure that such savings are received as income throughout the retirement period of the member, consistent with the basic purpose of RPPs" These rules will begin in 2012.
• Contributions for Past Service - The amount you can contribute to a defined benefit plan, including an IPP, is directly tied to the RRSP contribution limits. As a result, an IPP member's annual RRSP contribution limit is reduced by the estimated amount of annual saving in his or her IPP.
Employee Profit Sharing Plans - Finally, a heads up is warranted to business owners who use Employee Profit Sharing Plans (EPSPs). EPSPs allow business owners to share the profits of their business with their employees. While no changes have been formally announced in this budget, the government did indicate that it "will review the existing rules for EPSPs to determine whether technical improvements are required in this area."
Monday, February 28, 2011
Want to be Debt Free? Simple Steps to Get Your Plan on Track
When we think of financial goals, we often think in terms o how much we want to earn or how much we need to save for retirement. A financial goal that gets less attention, but that most of us share, is to be debt free. In fact, a recent Manulife Bank survey of 1000 homeowners1 found that 84% of them considered being debt-free to be a high financial priority (rating it 7, 8. 9 or 10 out of 10). One in three considered it to be their top financial priority.
With “being debt-free” pretty high up on most "to do" lists, you might think we'd be doing well, right? Unfortunately, the same survey also found that 27 per cent of homeowners actually increased their debt over the past year. A further 17 per cent had the same amount of debt as they did 12 months earlier. The remainder did manage to reduce their debt, but 19 per cent reduced it by less than they had expected. In other words, almost two-thirds of homeowners surveyed are not achieving one of their most important financial goals.
WHAT ARE WE DOING WRONG?
The results of the survey provide insights that suggest some fairly simple steps we can take to get our plans on track with our goals.
FINDING #1:
Sixty-five per cent did not shop around the last time their mortgage came up for renewal. Instead, they simply stayed with their current lender. Within this group, a third accepted the first offer that was presented to them
WHAT'S GOING ON?
Shopping around and negotiating require time and energy and, for some of us, take us outside our comfort zone. Consequently, many of us take the path of least resistance and keep doing what we've always done in the past. The problem is that with our debt, as in many areas of our life, the path of least resistance isn't necessarily the best or most cost-effective.
Our mortgage is typically one of our largest financial obligations. Failing to shop around may end up costing us a lot of extra money in interest payments and keep us in debt much longer than necessary.
WHAT YOU CAN DO
If you haven't shopped around recently, take some time to educate yourself about the different options available. Interest rates are important, but don't forget to look at product features too, since your ability to become debt-free may be determined as much by the flexibility your mortgage provides as by the rate you receive.
When your mortgage comes up for renewal, remember to look at all of your options and choose the one that's best for you.
FINDING #2:
Forty-three percent had credit card debt that they didn’t repay in full each month.
WHAT'S GOING ON?
Credit cards can provide tremendous convenience in our day-to-day lives — allowing us to make purchases without carrying around much cash and even to earn reward points. The obvious downside is that they make it easy to spend beyond our means. And, if we don't pay our balances in full each month, we're charged interest at relatively high rates - often 20 per cent or more!
Carrying a balance on your credit card can cost you a lot of money over the long term and may make it more difficult for you to become debt-free.
WHAT YOU CAN DO
Sit down and look at your credit card bills over the past few months and identify purchases that were "wants" rather than "needs." If you haven't done this before, you may be surprised at how many items fall into the "want" category and how quickly these can add up. Understanding where your money is going is the first step towards bringing your spending back within your budget. As for your existing credit card balance, make this your first priority when it comes to allocating extra cash because it's likely your most expensive debt.
FINDING #3:
Sixty-five percent had two or more debts outstanding
WHAT'S GOING ON?
With investments, we often hear that diversification is key and that we "shouldn't put all of our eggs in one basket." This is good advice for investments. However, when it comes to debts, the opposite is true. Generally, when we have more than one debt, those debts are charged different interest rates. Ideally, we want to have all of our debt at the lowest rate. Anything else will keep us in debt longer than we need to be.
WHAT YOU CAN DO
We sometimes associate the word "debt consolidation" with bankruptcy or someone in dire financial straits. In reality, it simply means combining all of your debts into one pool at the lowest possible rate — and it's one of the easiest ways to reduce the amount of interest you pay each month. There are a variety of products on the market that allow you to do this. Some of the most attractive products combine your debts with your mortgage and generally allow you to access very competitive interest rates.
Being debt-free is a goal that most of us share but many struggle to achieve. These are just three simple steps you can take to help you become debt-free sooner.
SPEAK WITH YOUR ADVISOR
One additional step is to talk to your advisor. Your debt is an important part of your overall financial health and your advisor can help you find the tools and strategies you need to manage your debt more effectively and become debt-free sooner.
1 Source: Survey of 1,000 Canadian homeowners aged 30-55, conducted by Research House on behalf of Manulife Bank, April 2010.
Adapted from Manulife Solutions for financial planning. Winter Edition 2010/2011
With “being debt-free” pretty high up on most "to do" lists, you might think we'd be doing well, right? Unfortunately, the same survey also found that 27 per cent of homeowners actually increased their debt over the past year. A further 17 per cent had the same amount of debt as they did 12 months earlier. The remainder did manage to reduce their debt, but 19 per cent reduced it by less than they had expected. In other words, almost two-thirds of homeowners surveyed are not achieving one of their most important financial goals.
WHAT ARE WE DOING WRONG?
The results of the survey provide insights that suggest some fairly simple steps we can take to get our plans on track with our goals.
FINDING #1:
Sixty-five per cent did not shop around the last time their mortgage came up for renewal. Instead, they simply stayed with their current lender. Within this group, a third accepted the first offer that was presented to them
WHAT'S GOING ON?
Shopping around and negotiating require time and energy and, for some of us, take us outside our comfort zone. Consequently, many of us take the path of least resistance and keep doing what we've always done in the past. The problem is that with our debt, as in many areas of our life, the path of least resistance isn't necessarily the best or most cost-effective.
Our mortgage is typically one of our largest financial obligations. Failing to shop around may end up costing us a lot of extra money in interest payments and keep us in debt much longer than necessary.
WHAT YOU CAN DO
If you haven't shopped around recently, take some time to educate yourself about the different options available. Interest rates are important, but don't forget to look at product features too, since your ability to become debt-free may be determined as much by the flexibility your mortgage provides as by the rate you receive.
When your mortgage comes up for renewal, remember to look at all of your options and choose the one that's best for you.
FINDING #2:
Forty-three percent had credit card debt that they didn’t repay in full each month.
WHAT'S GOING ON?
Credit cards can provide tremendous convenience in our day-to-day lives — allowing us to make purchases without carrying around much cash and even to earn reward points. The obvious downside is that they make it easy to spend beyond our means. And, if we don't pay our balances in full each month, we're charged interest at relatively high rates - often 20 per cent or more!
Carrying a balance on your credit card can cost you a lot of money over the long term and may make it more difficult for you to become debt-free.
WHAT YOU CAN DO
Sit down and look at your credit card bills over the past few months and identify purchases that were "wants" rather than "needs." If you haven't done this before, you may be surprised at how many items fall into the "want" category and how quickly these can add up. Understanding where your money is going is the first step towards bringing your spending back within your budget. As for your existing credit card balance, make this your first priority when it comes to allocating extra cash because it's likely your most expensive debt.
FINDING #3:
Sixty-five percent had two or more debts outstanding
WHAT'S GOING ON?
With investments, we often hear that diversification is key and that we "shouldn't put all of our eggs in one basket." This is good advice for investments. However, when it comes to debts, the opposite is true. Generally, when we have more than one debt, those debts are charged different interest rates. Ideally, we want to have all of our debt at the lowest rate. Anything else will keep us in debt longer than we need to be.
WHAT YOU CAN DO
We sometimes associate the word "debt consolidation" with bankruptcy or someone in dire financial straits. In reality, it simply means combining all of your debts into one pool at the lowest possible rate — and it's one of the easiest ways to reduce the amount of interest you pay each month. There are a variety of products on the market that allow you to do this. Some of the most attractive products combine your debts with your mortgage and generally allow you to access very competitive interest rates.
Being debt-free is a goal that most of us share but many struggle to achieve. These are just three simple steps you can take to help you become debt-free sooner.
SPEAK WITH YOUR ADVISOR
One additional step is to talk to your advisor. Your debt is an important part of your overall financial health and your advisor can help you find the tools and strategies you need to manage your debt more effectively and become debt-free sooner.
1 Source: Survey of 1,000 Canadian homeowners aged 30-55, conducted by Research House on behalf of Manulife Bank, April 2010.
Adapted from Manulife Solutions for financial planning. Winter Edition 2010/2011
Friday, January 28, 2011
RRSP versus TFSA versus Debt Management
It’s the time of year where we all make (and break) New Year’s Resolutions. Two top resolutions are weight loss and saving money and many of us have already broken their resolutions already. (In my case the diet – but I’m back on it.)
The question I am often asked is if I don’t have the cash flow to save as much as I should – where should I put my money? The answer is different for each of us, but the process to decide what is optimal remains the same. There are six basic steps:
1. Set Short and Long Term Goals and prioritize them
2. Know where you stand – put all of your personal insurance, group insurance, bank statements, savings statements, RRSP, pay slips, pension information, tax information, credit card statements and mortgage information in one place so that you can review them easily
3. Review this information with a financial planner – for both short and long term planning purposes
4. Develop a personalized plan – this may involve adjusting your spending and savings patterns – but you may learn that you are on track and don’t need to make any adjustments
5. Implement the plan
6. Monitor and Review the plan on a regular basis
I can help you to analyze your current situation, to develop a plan, to implement a plan, or simply to provide you with some tools that will enable you to do it yourself. (Be aware, that much like the DIY shows on TV that happen in a magical 30 minutes, financial planning is harder than it looks.)
Jonathan Chevreau once tweeted that a financial plan is Eliminate debt. Cut up plastic. Join pension. Buy home. Pay it off. Spend little. Save tons. Invest wisely. Be tax smart. Marry for life. Unfortunately, we don’t all live in a perfect place. However, we can all develop a perfect plan for our current situation.
Give me a call and we can set up an appointment.
The question I am often asked is if I don’t have the cash flow to save as much as I should – where should I put my money? The answer is different for each of us, but the process to decide what is optimal remains the same. There are six basic steps:
1. Set Short and Long Term Goals and prioritize them
2. Know where you stand – put all of your personal insurance, group insurance, bank statements, savings statements, RRSP, pay slips, pension information, tax information, credit card statements and mortgage information in one place so that you can review them easily
3. Review this information with a financial planner – for both short and long term planning purposes
4. Develop a personalized plan – this may involve adjusting your spending and savings patterns – but you may learn that you are on track and don’t need to make any adjustments
5. Implement the plan
6. Monitor and Review the plan on a regular basis
I can help you to analyze your current situation, to develop a plan, to implement a plan, or simply to provide you with some tools that will enable you to do it yourself. (Be aware, that much like the DIY shows on TV that happen in a magical 30 minutes, financial planning is harder than it looks.)
Jonathan Chevreau once tweeted that a financial plan is Eliminate debt. Cut up plastic. Join pension. Buy home. Pay it off. Spend little. Save tons. Invest wisely. Be tax smart. Marry for life. Unfortunately, we don’t all live in a perfect place. However, we can all develop a perfect plan for our current situation.
Give me a call and we can set up an appointment.
Sunday, July 4, 2010
Web Sites to assist in your vacation plans
July is here and finally, it’s summer and we all switch into “Vacation mode” or at least “I’d like to be in Vacation Mode”.
Here are some on line resources to help make your planning easier and to save you some money. I’ve divided them into categories and included some pre-travel tips at the end.
The Fine Print
This is just a list of sites. I have not used most of them and do not warranty or recommend the services that they provide. Note – the fine print on this list is upfront and in large print – just like the services I provide.
If you plan to stay in Ontario
Here are some web sites to get great bargains:
• www.AttractionsOntario.ca - this site includes discount coupons for a range of Toronto and Ontario attractions
• www.bargainmoose.ca/ - Bargain Moose finds you the best deals in Canada, and keeps you up-to-date with Canadian coupon codes, freebies and hot deals. You can even sign up to get their newsletter.
• www.groupon.com/toronto - Get 50 to 90 percent off the best stuff your city has to offer. This link is for Toronto, but many other cities are available.
• www.shoestringshopping.com/ - Find bargains and warehouse sales in the Greater Toronto Area
• www.menupalace.com/menupalace/ - Restaurants, MenuPalace.com is North America's ultimate Restaurant dining guide. It includes discount coupons.
If you’re looking for things to do, try these sites:
• www.seeTorontoNow.com – for a list of what’s on in the city.
• You can also try the event listing in Now magazine – www.NowToronto.com for what’s coming up in the next week
• if you’re looking to go to the Stratford or Shaw festivals – their websites are:
o www.StratfordFestival.ca
o www.ShawFest.com
• If you prefer to check out the smaller summer theatre festivals – a listing can be found at www.TheatreOntario.org
Looking to Travel
Looking for web sites that offer good deals? How about checking the following:
• www.Expedia.ca
• www.PriceLine.com
• www.Hotwire.com
Looking just for a rental car – www.Breezenet.com
How about specials on air fares - www.MoMondo.com – a Danish site with low air fares
Some sites with Cruise specials include:
• www.TravelZoo.ca
• www.CruisesOnly.com
• www.VacationsToGo.com
• www.OnlineVacationCenter.com
Looking for places to stay?
• www.CasaCasa.org – links travelers looking for places to stay with people who have rooms to spare. It bills itself as a budget B&B
• www.Digsville.com – a home-swapping site
• www.HomeExchange.com – is 18 years old and assists people looking to swap homes. They have 36,000 homes worldwide
• www.affordabletravelclub.net – you must be at least 40 years of age, have a permanent residence, and be able to provide clean, comfortable, and private sleeping quarters and either full or continental breakfast for two or more guests.
• www.HotelsCombined.com - A site that scans the other web sites to find the best deal in hotels
Looking for a bike tour - www.BikeToursDirect.com
Looking for a guide abroad?
• www.Viamigo.com
• www.RentaLocalFriend.com
General Tips
Do you have Travel Insurance if you’re traveling out of Ontario? Give me a call and I can point you in the right direction. Note – most group plans include Emergency Medical Travel Insurance as one of the benefits.
If you are going on an extended trip – let your credit card company know. You also need to have a trusted friend or neighbor check your house or your home insurance policy may not be valid should something go wrong.
Finally, don’t forget about potential Roaming charges on your cell phone if you travel out of the province. Check with your service provider for your options.
Do you know of additional web sites? Let me know and I will add them to this list.
Here are some on line resources to help make your planning easier and to save you some money. I’ve divided them into categories and included some pre-travel tips at the end.
The Fine Print
This is just a list of sites. I have not used most of them and do not warranty or recommend the services that they provide. Note – the fine print on this list is upfront and in large print – just like the services I provide.
If you plan to stay in Ontario
Here are some web sites to get great bargains:
• www.AttractionsOntario.ca - this site includes discount coupons for a range of Toronto and Ontario attractions
• www.bargainmoose.ca/ - Bargain Moose finds you the best deals in Canada, and keeps you up-to-date with Canadian coupon codes, freebies and hot deals. You can even sign up to get their newsletter.
• www.groupon.com/toronto - Get 50 to 90 percent off the best stuff your city has to offer. This link is for Toronto, but many other cities are available.
• www.shoestringshopping.com/ - Find bargains and warehouse sales in the Greater Toronto Area
• www.menupalace.com/menupalace/ - Restaurants, MenuPalace.com is North America's ultimate Restaurant dining guide. It includes discount coupons.
If you’re looking for things to do, try these sites:
• www.seeTorontoNow.com – for a list of what’s on in the city.
• You can also try the event listing in Now magazine – www.NowToronto.com for what’s coming up in the next week
• if you’re looking to go to the Stratford or Shaw festivals – their websites are:
o www.StratfordFestival.ca
o www.ShawFest.com
• If you prefer to check out the smaller summer theatre festivals – a listing can be found at www.TheatreOntario.org
Looking to Travel
Looking for web sites that offer good deals? How about checking the following:
• www.Expedia.ca
• www.PriceLine.com
• www.Hotwire.com
Looking just for a rental car – www.Breezenet.com
How about specials on air fares - www.MoMondo.com – a Danish site with low air fares
Some sites with Cruise specials include:
• www.TravelZoo.ca
• www.CruisesOnly.com
• www.VacationsToGo.com
• www.OnlineVacationCenter.com
Looking for places to stay?
• www.CasaCasa.org – links travelers looking for places to stay with people who have rooms to spare. It bills itself as a budget B&B
• www.Digsville.com – a home-swapping site
• www.HomeExchange.com – is 18 years old and assists people looking to swap homes. They have 36,000 homes worldwide
• www.affordabletravelclub.net – you must be at least 40 years of age, have a permanent residence, and be able to provide clean, comfortable, and private sleeping quarters and either full or continental breakfast for two or more guests.
• www.HotelsCombined.com - A site that scans the other web sites to find the best deal in hotels
Looking for a bike tour - www.BikeToursDirect.com
Looking for a guide abroad?
• www.Viamigo.com
• www.RentaLocalFriend.com
General Tips
Do you have Travel Insurance if you’re traveling out of Ontario? Give me a call and I can point you in the right direction. Note – most group plans include Emergency Medical Travel Insurance as one of the benefits.
If you are going on an extended trip – let your credit card company know. You also need to have a trusted friend or neighbor check your house or your home insurance policy may not be valid should something go wrong.
Finally, don’t forget about potential Roaming charges on your cell phone if you travel out of the province. Check with your service provider for your options.
Do you know of additional web sites? Let me know and I will add them to this list.
Sunday, June 13, 2010
Estate Planning 101
If you’re like most people, getting your personal financial plan started can be a challenge. And what about planning your estate? Well, that subject might really make you shudder. But why? Too dreary? Too complicated? Too intimidating? Or simply not on your list of priorities?
Estate planning should be a financial priority at almost any stage of life. In fact, an estate plan can be essential for organizing your financial affairs and providing for the well being of your family members.
Simply put, an estate plan is a road map for planning your estate and should be updated on an ongoing basis - particularly as your circumstances change throughout your life. Why is it important to have a plan? To ensure a simple, tax-efficient and organized transfer of your assets to loved ones.
When you start your plan, there's a lot to think about. You want to live your life to the fullest, and ensure that your heirs will get the most out of the assets you're setting aside for them. Here are a few of the things you'll need to know:
Your Will
The will is a legally enforceable declaration of how a person wishes his/her property to be distributed after death. A will can be quick and easy to produce and will generally cover the following:
• Naming the executor — the individual(s) or organization chosen to administer the estate. If you should die without a will (referred to as dying intestate), the province you reside in will step in to administer your estate. In this case, you've essentially forfeited your say on how things are divided and who will be in charge of the process.
• Naming beneficiaries of the estate (e.g. immediate or extended family, institutions, etc.)
• The distribution of assets within the estate (e.g. investments, real estate, possessions)
What is probate?
Probate is the process by which a provincial court confirms the validity of your will. Potentially, it can be quite time consuming, tying up your assets for months or longer.
Probate fees are essentially the taxes that must be paid to the provincial government before your executor can begin to administer your will. The fees vary from province to province and are based on the value of the assets in your estate. In most provinces, the fee structure is tiered.
In addition to probate fees, there are fees payable to the executor for administration services and fees payable for legal and accounting services. In the end, the cost of probate can be significant.
Reducing Taxes
We all know the old cliche that the only two certainties in life are death and taxes, but how much do we really know about taxes after death?
If you have a will, upon your death it is your executor's responsibility to file a tax return for you. The government will consider you to have sold all your assets immediately before your death and any capital gains/losses will be crystallized. That may lead to a big tax bill.
Depending on your individual needs, there are strategies you can employ within your estate plan to minimize the amount of taxes you have to pay and to avoid probate. Below are a few key examples:
• Maximize asset "roll-overs" - transfers to your spouse that defer capital gains
• Get advice on setting up a trust to ensure your beneficiaries are well looked after
• Give gifts of cash or possessions while you are still alive
• Consider charitable donations to create valuable tax benefits
• Buy life insurance that is paid out to a named beneficiary on a tax-free basis
• Restructure investments with insurance companies to avoid probate on death
The reassurance of having a strategy in place to preserve the value of your estate for loved ones is something to value. After all, why pay if you don't have to? Work with your financial advisor to determine what exactly is in your estate, and then devise your plan.
Estate planning should be a financial priority at almost any stage of life. In fact, an estate plan can be essential for organizing your financial affairs and providing for the well being of your family members.
Simply put, an estate plan is a road map for planning your estate and should be updated on an ongoing basis - particularly as your circumstances change throughout your life. Why is it important to have a plan? To ensure a simple, tax-efficient and organized transfer of your assets to loved ones.
When you start your plan, there's a lot to think about. You want to live your life to the fullest, and ensure that your heirs will get the most out of the assets you're setting aside for them. Here are a few of the things you'll need to know:
Your Will
The will is a legally enforceable declaration of how a person wishes his/her property to be distributed after death. A will can be quick and easy to produce and will generally cover the following:
• Naming the executor — the individual(s) or organization chosen to administer the estate. If you should die without a will (referred to as dying intestate), the province you reside in will step in to administer your estate. In this case, you've essentially forfeited your say on how things are divided and who will be in charge of the process.
• Naming beneficiaries of the estate (e.g. immediate or extended family, institutions, etc.)
• The distribution of assets within the estate (e.g. investments, real estate, possessions)
What is probate?
Probate is the process by which a provincial court confirms the validity of your will. Potentially, it can be quite time consuming, tying up your assets for months or longer.
Probate fees are essentially the taxes that must be paid to the provincial government before your executor can begin to administer your will. The fees vary from province to province and are based on the value of the assets in your estate. In most provinces, the fee structure is tiered.
In addition to probate fees, there are fees payable to the executor for administration services and fees payable for legal and accounting services. In the end, the cost of probate can be significant.
Reducing Taxes
We all know the old cliche that the only two certainties in life are death and taxes, but how much do we really know about taxes after death?
If you have a will, upon your death it is your executor's responsibility to file a tax return for you. The government will consider you to have sold all your assets immediately before your death and any capital gains/losses will be crystallized. That may lead to a big tax bill.
Depending on your individual needs, there are strategies you can employ within your estate plan to minimize the amount of taxes you have to pay and to avoid probate. Below are a few key examples:
• Maximize asset "roll-overs" - transfers to your spouse that defer capital gains
• Get advice on setting up a trust to ensure your beneficiaries are well looked after
• Give gifts of cash or possessions while you are still alive
• Consider charitable donations to create valuable tax benefits
• Buy life insurance that is paid out to a named beneficiary on a tax-free basis
• Restructure investments with insurance companies to avoid probate on death
The reassurance of having a strategy in place to preserve the value of your estate for loved ones is something to value. After all, why pay if you don't have to? Work with your financial advisor to determine what exactly is in your estate, and then devise your plan.
Wednesday, May 5, 2010
Five suggestions for what to do with your tax refund
Last year, the average Canadian got back approximately $1,400 on their 2008 income taxes.
Tina Di Vito, director, retirement strategies, BMO Financial Group, offers the following advice on how to make the most efficient use of your 2009 tax refund:
“Maximizing your 2010 income tax refund by contributing to your RRSP this year is always a good option,” says Di Vito.
“However, depending on your personal situation, there may be several ways to make the most efficient use of the money you get back. Meet with a financial planner to determine the best approach for you.”
Pay down RRSP loans
If you took out an investment loan to maximize your RRSP contribution and generated a larger refund, you should use your tax refunds to pay down the loan.
Pay down credit card debt
High interest on some credit cards can eat away at savings. Reduce the cost of credit by using your tax refund to reduce or pay down your credit card balances, targeting the highest rates first and transferring the balances to a lower rate credit card.
Lump sum mortgage payment
If you have a mortgage, it may be good idea to use your tax refund to make a lump sum payment. Applied directly to the principal, a lump some payment could save you thousands of dollars in interest costs over the life of the mortgage.
Top-up a TFSA
If you are not carrying any extra debt, contribute to a Tax-Free Savings Account (TFSA) to let you grow your money tax free. If you who maxed out your TFSA contribution in 2009 you have room for an additional $5,000 this year.
Save for education
Saving for a child’s education can be an expensive thing. Contributing to a Registered Education Savings Plan (RESP) can help alleviate some of the pressure that all parents feel when planning for their children’s future. If you have children, you should consider opening an RESP using their income tax refund. A $2,500 dollar contribution to an RESP can earn a $500 grant from the government. By maximizing contributions every year, you could earn up to $7,200 in grants for every child.
from BMO offers advice on how to maximize the return of tax refunds
Tina Di Vito, director, retirement strategies, BMO Financial Group, offers the following advice on how to make the most efficient use of your 2009 tax refund:
“Maximizing your 2010 income tax refund by contributing to your RRSP this year is always a good option,” says Di Vito.
“However, depending on your personal situation, there may be several ways to make the most efficient use of the money you get back. Meet with a financial planner to determine the best approach for you.”
Pay down RRSP loans
If you took out an investment loan to maximize your RRSP contribution and generated a larger refund, you should use your tax refunds to pay down the loan.
Pay down credit card debt
High interest on some credit cards can eat away at savings. Reduce the cost of credit by using your tax refund to reduce or pay down your credit card balances, targeting the highest rates first and transferring the balances to a lower rate credit card.
Lump sum mortgage payment
If you have a mortgage, it may be good idea to use your tax refund to make a lump sum payment. Applied directly to the principal, a lump some payment could save you thousands of dollars in interest costs over the life of the mortgage.
Top-up a TFSA
If you are not carrying any extra debt, contribute to a Tax-Free Savings Account (TFSA) to let you grow your money tax free. If you who maxed out your TFSA contribution in 2009 you have room for an additional $5,000 this year.
Save for education
Saving for a child’s education can be an expensive thing. Contributing to a Registered Education Savings Plan (RESP) can help alleviate some of the pressure that all parents feel when planning for their children’s future. If you have children, you should consider opening an RESP using their income tax refund. A $2,500 dollar contribution to an RESP can earn a $500 grant from the government. By maximizing contributions every year, you could earn up to $7,200 in grants for every child.
from BMO offers advice on how to maximize the return of tax refunds
Sunday, April 11, 2010
Tax Planning Strategies
Give me a call for more information about any of these points.
Newly announced changes to CPP, increases to small business deductions, and eco-friendly grants have ushered in fresh opportunities to maximize tax refunds.
Thanks to significant changes in 2008 and 2009, in addition to dependable, long-standing tax planning strategies you now have many approaches to defer taxes and save and for years to come.
Are you green?
EcoEnergy retrofit program
Are you going "green" at home? Cash grants are available to homeowners making eco-friendly renovations to their residences. The annual grant (up to $5,000 with a lifetime maximum of $500,000 is based on the effectiveness the upgrade—not the cost. The home must be assessed by a certified Natural Resources Canada energy advisor in order to be eligible. Check out www.ecoactic gc.ca for more information.
Public transit passes
A non-refundable, eco-friendly tax credit is available for dedicated public transit riders. Total annual costs for travel passes one week or longer are multiplied by the lowest personal tax rate to calculate the credit.
Thinking about Retirement?
Retirement income
In June 2009, the federal government announced significant changes to how the Canada Pension Plan (CPP) will be paid out to Canadians. Effective January 2012, you will no longer have to prove that they've stopped working in order to receive CPP benefits. This new rule could be beneficial to seniors who ease slowly into retirement through part-time and consulting work.
The collection of CPP benefits will continue to be available as early as age 60 and as late as age 70. But the recommended changes will reduce benefits received prior to age 65 by 6% per year as opposed to the current 5%. They will also increase benefits received after age 65 by 7% versus 5% beginning January 2011 for those selecting later retirement, and starting January 2012 for those selecting earlier retirement.
Until January 2012, though, it’s still a good idea to select earlier retirement whenever possible. After that, the decision to apply for CPP early and accept the lower income should be based on other factors such as whether your client needs the income to cover lifestyle expenses and longevity in their family.
Corporations and income splitting
Small business deduction increase
The 2009 federal budget increased the small business deduction to $500,000 from $400,000. Several provinces have also raised their deduction limit to match. The increased deduction increases the amount of business income earned by Canadian-controlled private corporations that can be taxed at lower rates.
Salary to spouse can increase retirement income
Many corporation owners already take advantage of the ability to split income by paying their spouse a salary. Take further advantage of this opportunity by increasing your spouse's salary to the Yearly Maximum Pensionable Earnings (YMPE), which this year is $47,200. This simple step will increase the spouse's opportunity to earn the maximum available CPP income in retirement as well as the higher RRSP contribution room created by the extra income.
Personal and corporate savings
When the higher-income-earning spouse owns a holding company and makes the majority of the income, they should plan ahead for income splitting in retirement. Maximizing contributions to the lower-income spouse's spousal and personal RRSP while saving the balance to the holding company (owned solely by the higher-income-earning spouse) will allow for tax-deferral and reduced taxation pre-retirement. Retirement income from the corporation will be attributed to one spouse and Registered Retirement Income Fund income can be attributed to the other, allowing for reduced individual taxation.
Loans to family members
The CRA’s prescribed interest rate for family loans fell to 1% in April 2009 and continues to cruise at a low altitude (rates change every quarter, so look these up). Locking in a family loan at this low rate and thereby shifting income earned on the investment of these funds to a spouse or other family member—including a minor child—who has little or no other income could provide significant tax savings for your clients. Ensure that any loan is governed by a written agreement outlining repayment terms as well as the interest rate at the time of the loan to ensure attribution rules do not apply.
Tax credits and grants
First-time Home Buyers’ Tax Credit
Worth up to S750, this credit applies to all homes purchased after Jan. 27, 2009. The credit is calculated by multiplying the lowest personal income tax rate by $5000. The first time home buyer (and spouse) must not have owned a home for any of the four preceding years. If the home buyer qualifies for the Disability Tax Credit (DTC), they do not have to meet this rule to qualify for the credit
Capital losses
The recent economic turmoil may provide a tax-savings opportunity. Capital losses in stock portfolios may allow you to claim back some of the taxes you paid on capital gains in sunnier times.
Transfer of unused tax credits to spouse
Some non-refundable tax credits can be transferred to a spouse if you are unable to claim them. Do not allow those credits to go to waste. Transferring the credits for age amount, pension income amount, disability amount, and tuition and education amounts to a spouse will maximize the tax savings available to the whole family.
Tax-efficient accounts
Open a Registered Disability Savings Plan
The Registered Disability Savings Plan (RDSP) provides individuals with disabilities, and their family members, the opportunity to save in a tax-deferred environment. Like a Registered Education Savings Plan (RESP), the RDSP tax-shelters the invested funds until withdrawal. Anyone eligible for the DTC may establish an RDSP. Parents and guardians can establish RDSPs on behalf of minor children. The maximum lifetime contribution limit is $200,000, but there is no annual contribution limit. The Canada Disability Savings Grant and the Canada Disability Savings Bond provide additional contributions to RDSPs for those who pass the income tests. More information on this useful plan is available at www.rdsp.com and www.plan.ca.
RRSPs and Spousal RRSPs
You know them and you love them. The RRSP may be a comparatively old dog, but it's loyal and dependable. Encourage the higher-income-earning spouse with the greatest contribution room to contribute to a spousal RRSP. Whilethe federal government now allows income splitting on RRIF income, one never knows when a tax law could be repealed.
Tax-Free Savings Accounts
Maximum annual contributions are $5,000, with no lifetime limit. While contributions are not tax-deductible, the growth is tax-sheltered and funds from the account can be withdrawn tax-free at any time. What's best is that withdrawals create new contribution room the following year; with an RRSP, if the client's contribution is used, it's gone, regardless of withdrawals. Withdrawals will also not affect eligibility for federal tax credits or income-tested benefits, something seniors who benefit from pension income credits and Old Age Security will want to be aware of.
Adapted from an article published March 2010 in AE Report
Newly announced changes to CPP, increases to small business deductions, and eco-friendly grants have ushered in fresh opportunities to maximize tax refunds.
Thanks to significant changes in 2008 and 2009, in addition to dependable, long-standing tax planning strategies you now have many approaches to defer taxes and save and for years to come.
Are you green?
EcoEnergy retrofit program
Are you going "green" at home? Cash grants are available to homeowners making eco-friendly renovations to their residences. The annual grant (up to $5,000 with a lifetime maximum of $500,000 is based on the effectiveness the upgrade—not the cost. The home must be assessed by a certified Natural Resources Canada energy advisor in order to be eligible. Check out www.ecoactic gc.ca for more information.
Public transit passes
A non-refundable, eco-friendly tax credit is available for dedicated public transit riders. Total annual costs for travel passes one week or longer are multiplied by the lowest personal tax rate to calculate the credit.
Thinking about Retirement?
Retirement income
In June 2009, the federal government announced significant changes to how the Canada Pension Plan (CPP) will be paid out to Canadians. Effective January 2012, you will no longer have to prove that they've stopped working in order to receive CPP benefits. This new rule could be beneficial to seniors who ease slowly into retirement through part-time and consulting work.
The collection of CPP benefits will continue to be available as early as age 60 and as late as age 70. But the recommended changes will reduce benefits received prior to age 65 by 6% per year as opposed to the current 5%. They will also increase benefits received after age 65 by 7% versus 5% beginning January 2011 for those selecting later retirement, and starting January 2012 for those selecting earlier retirement.
Until January 2012, though, it’s still a good idea to select earlier retirement whenever possible. After that, the decision to apply for CPP early and accept the lower income should be based on other factors such as whether your client needs the income to cover lifestyle expenses and longevity in their family.
Corporations and income splitting
Small business deduction increase
The 2009 federal budget increased the small business deduction to $500,000 from $400,000. Several provinces have also raised their deduction limit to match. The increased deduction increases the amount of business income earned by Canadian-controlled private corporations that can be taxed at lower rates.
Salary to spouse can increase retirement income
Many corporation owners already take advantage of the ability to split income by paying their spouse a salary. Take further advantage of this opportunity by increasing your spouse's salary to the Yearly Maximum Pensionable Earnings (YMPE), which this year is $47,200. This simple step will increase the spouse's opportunity to earn the maximum available CPP income in retirement as well as the higher RRSP contribution room created by the extra income.
Personal and corporate savings
When the higher-income-earning spouse owns a holding company and makes the majority of the income, they should plan ahead for income splitting in retirement. Maximizing contributions to the lower-income spouse's spousal and personal RRSP while saving the balance to the holding company (owned solely by the higher-income-earning spouse) will allow for tax-deferral and reduced taxation pre-retirement. Retirement income from the corporation will be attributed to one spouse and Registered Retirement Income Fund income can be attributed to the other, allowing for reduced individual taxation.
Loans to family members
The CRA’s prescribed interest rate for family loans fell to 1% in April 2009 and continues to cruise at a low altitude (rates change every quarter, so look these up). Locking in a family loan at this low rate and thereby shifting income earned on the investment of these funds to a spouse or other family member—including a minor child—who has little or no other income could provide significant tax savings for your clients. Ensure that any loan is governed by a written agreement outlining repayment terms as well as the interest rate at the time of the loan to ensure attribution rules do not apply.
Tax credits and grants
First-time Home Buyers’ Tax Credit
Worth up to S750, this credit applies to all homes purchased after Jan. 27, 2009. The credit is calculated by multiplying the lowest personal income tax rate by $5000. The first time home buyer (and spouse) must not have owned a home for any of the four preceding years. If the home buyer qualifies for the Disability Tax Credit (DTC), they do not have to meet this rule to qualify for the credit
Capital losses
The recent economic turmoil may provide a tax-savings opportunity. Capital losses in stock portfolios may allow you to claim back some of the taxes you paid on capital gains in sunnier times.
Transfer of unused tax credits to spouse
Some non-refundable tax credits can be transferred to a spouse if you are unable to claim them. Do not allow those credits to go to waste. Transferring the credits for age amount, pension income amount, disability amount, and tuition and education amounts to a spouse will maximize the tax savings available to the whole family.
Tax-efficient accounts
Open a Registered Disability Savings Plan
The Registered Disability Savings Plan (RDSP) provides individuals with disabilities, and their family members, the opportunity to save in a tax-deferred environment. Like a Registered Education Savings Plan (RESP), the RDSP tax-shelters the invested funds until withdrawal. Anyone eligible for the DTC may establish an RDSP. Parents and guardians can establish RDSPs on behalf of minor children. The maximum lifetime contribution limit is $200,000, but there is no annual contribution limit. The Canada Disability Savings Grant and the Canada Disability Savings Bond provide additional contributions to RDSPs for those who pass the income tests. More information on this useful plan is available at www.rdsp.com and www.plan.ca.
RRSPs and Spousal RRSPs
You know them and you love them. The RRSP may be a comparatively old dog, but it's loyal and dependable. Encourage the higher-income-earning spouse with the greatest contribution room to contribute to a spousal RRSP. Whilethe federal government now allows income splitting on RRIF income, one never knows when a tax law could be repealed.
Tax-Free Savings Accounts
Maximum annual contributions are $5,000, with no lifetime limit. While contributions are not tax-deductible, the growth is tax-sheltered and funds from the account can be withdrawn tax-free at any time. What's best is that withdrawals create new contribution room the following year; with an RRSP, if the client's contribution is used, it's gone, regardless of withdrawals. Withdrawals will also not affect eligibility for federal tax credits or income-tested benefits, something seniors who benefit from pension income credits and Old Age Security will want to be aware of.
Adapted from an article published March 2010 in AE Report
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