Neepawa Income Tax (1997)
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|Posted on March 3, 2013 at 11:52 AM||comments (388)|
Jamie Golombek | 13/03/02
With RRSP season now behind us, this weekend marks the unofficial start oftax season, which can be a source of pain and frustration for many Canadiansbut, apparently, not for everyone.
Believe it or not, some Canadians enjoy filing their tax returns accordingto a new national survey commissioned by Thomson Reuters, the makers of the taxsoftware program UFile. The survey found that 41% of Canadians enjoy filingtheir tax returns, but the majority still do not.
Of those who dread the process, Canadians surveyed cited “confusion, timerestrictions and too many receipts to keep track of” as the top three reasonsthey dislike tax time.
The survey also asked Canadians how they will do their 2012 returns. While49% said they would use an accountant or professional tax-preparation service,31% said they would do it themselves using a tax software package on theircomputer or via the Internet. Only 14% said they would do it the old-fashionedway, “by hand.”
But even if you ultimately plan to go to an accountant ortax preparer to file your return, taking a stab at your own tax returnpreparation can prove to be a very useful educational exercise, whether you usethe software or try to do it by hand.
In fact, each year I have my Schulich MBA students who take my PersonalFinancial Management course prepare a simple tax return by hand, using only apencil and calculator. By walking through the forms, from the Schedule 4 toreport investment income to the Schedule 1 to calculate federal tax owing,students gain an appreciation for how different types of income, such asCanadian dividends, capital gains and employment income, are taxed as well asan understanding of our graduated federal tax brackets and non-refundable taxcredits.
For instance, have you ever tried working through the calculation of taxesowing on Canadian eligible dividends? Well, you first have to gross them up by38% such that you report 138% of the dividends actually received on your Schedule4. Then you calculate your federal tax on your taxable income, which includesthose taxable dividends, before deducting the federal non-refundable dividendtax credit, which is equal to 15.0198% of your taxable dividends.
By going through this exercise, it then becomes obvious why, to cite anexample, your federal marginal tax rate on dividends can be zero for lowerincome earners with no other source of income. For example, if your only incomein 2012 was $30,000 of Canadian eligible dividends, when you gross them up by38% to $41,400 and calculate federal tax of $6,210 (at 15% for income in thelowest federal bracket), once you subtract your non-refundable federal dividendtax credit of $6,218 (15.0198% X $41,400), your federal tax owing is zero.
Confusing? Perhaps, but that’s where the software or professional taxpreparer comes in to make sure your calculations are up to snuff.
Jamie Golombek, CA, CPA, CFP, CLU, TEP is the Managing Director, Tax& Estate Planning with CIBC Private Wealth Management in Toronto
|Posted on February 18, 2013 at 6:39 PM||comments (1675)|
Everybody says you should save for retirement. The problem is they don’ttell you when to save, where to save, or what to save. So here are my 5Commandments to Retirement Saving:
1.Thou shalt save a lot when you can, but not when you can’t.
This meansthere are periods in your life when saving is much easier than others. Don’tfeel so guilty about not being able to save much during your most expensiveyears. Usually the best times for saving would be before children, and afterthey are out of the house. This doesn’t mean you should not save for 25 yearswhen the kids are around. What it means is that if you are 29, married, have nokids and two full-time jobs, you might be in a position to save a lot of money.Let’s say your combined incomes are $130,000, your after-tax income is$100,000, and your expenses are $65,000 a year. There is an opportunity to save$35,000. This savings will be very powerful because it has so many years togrow before retirement. At 39, with two kids and a big mortgage, you could bemaking $180,000 but your after-tax income might be $130,000, and you might bespending $120,000 a year, leaving $10,000 for savings. The large savings yearsmight not happen again until you are over 55.
2.Thou shalt not contribute to RRSPs if your income is under $42,707.
While thenumber will change a little each year, the message is the same. It doesn’t makesense to use an RRSP if you are in a very low tax bracket. The reason is thatyou still must pay tax on every dollar coming out of an RRSP, and there is adecent chance that in retirement you might end up paying a higher tax rate thanthe 20% or 24% refund you received when putting the money in. If you have a lowincome in a particular year (or every year), it is usually better to putsavings in a TFSA or if you have children, in their RESP (if you are going to haveto help pay for their education anyway).
3.Over the long term, stock markets go up. Do not be afraid to invest in them.
The generalrule is that you should be quite aggressive with your long-term investments.Over a 30-year period, a 7.5% return will leave you with twice as much money asa 5% return. Over 60 years, it will be worth four times as much. Believe it ornot, for some of today’s young investors, they really do have a 60-year timehorizon. If you are 30 years old, even if you retire at 60, the purpose of yourretirement savings is to last you the rest of your life. That means that whilea small part of your investments have a 30-year horizon, some will actuallyhave a 60-year time horizon if you live until 90. This might mean a 30-year-oldshould have 80%+ of their retirement investments in stocks, and less than 20%in cash and bonds. While the portfolio should get safer as you get older, inmost cases, people should invest their long-term retirement money moreaggressively than they do.
4.Thou shalt never forget about taxes.
As yourwealth grows, taxes become more important. Even for those without great wealth,one simple but little-known rule is that dividends on U.S. stocksface withholding tax in a TFSA, but do not in an RRSP. Therefore, if you haveboth an RRSP or RRIF and a TFSA, hold your U.S. stocks in the RRIF or RRSP. Ifyou have enough wealth that you also have meaningful non-registered or taxableinvestments, you want to maximize the benefits of the tax-sheltered accountslike a TFSA or RRSP. The basic rule of thumb would be that investments withhigh income (whether dividend income or interest income), should be held in atax-sheltered account, and lower-income investments should be held in thetaxable account. In addition, all things being equal, Canadian stocks — whetherthey pay dividends or not — should aim to be held in your non-registeredaccounts if there is room, rather than in your TFSA or RRSP. This is becauseCanadian dividends face a much lower tax rate than interest income. The goal isto hold the same investments across your entire portfolio, but hold them inaccounts that will leave you paying the least amount of tax.
5.Thou shalt not panic at deadline time.
It is trueyou may miss out on a tax benefit if you miss the RRSP deadline, but it is onlytemporary. If you put funds in after Feb. 28, you will still get all of thesame benefits, but the impact on your tax return will take an extra year. Whatyou don’t want to do is to simply put the funds in to get the RRSP credit, butleave the funds in cash or money markets for months or years at a time. It isbetter to take the time to plan your retirement and then the appropriateinvestments, rather than make a mad dash to get funds in but not have aninvestment plan.
Ted Rechtshaffen is president and wealthadvisor at TriDelta Financial, a boutique wealth management and planning firm.
|Posted on February 18, 2013 at 6:32 PM||comments (571)|
After years spent paying into a registered retirement savings plan (RRSP),investors eventually have to use the funds as post-retirement income.
RRSPs must be collapsed by Dec. 31 of the year in which the holder turns71. If RRSP savings are not put into a tax-deferred income plan by that time,the entire value of the RRSP becomes taxable income.
A registered retirement income fund, or RRIF, is one of the most commonoptions Canadians choose to convert RRSP savings to tax-deferred income.
“There are generally five types of RRIF, including self-directed, fullymanaged, guaranteed interest, mutual fund, and segregated fund,” says TomHamza, president of Investor Education Fund, a Toronto-based not-for profitorganization founded by the Ontario Securities Commission. “The choice dependson the level of flexibility you are looking for.”
Investments in a RRIF continue to accumulate earnings. “Restrictions applyto withdrawals, not to returns,” says Mr. Hamza. But once set up, nocontributions can be made to a RRIF, nor can it be terminated except by theholder’s death.
While 71 is the maximum age, conversion to a RRIF can begin at any timedepending on the income needs of the holder.
A formula based on age and the value of the RRIF at Dec. 31 of the previousyear is used to determine the minimum annual RRIF withdrawal. Minimumwithdrawal amounts increase with age.
For example, at age 71 the minimum withdrawal amount is 7.38%. If the valueof a RRIF is $100,000 on Dec. 31, the holder must withdraw $7,380 over thecourse of the following year. If the holder is 83, the minimum amount is 9.58%or $9,580; at 90 it is 13.62%.
There is no upper limit on the amount that can be taken out of an RRIF.However, while all withdrawals are taxable at year end, withholding tax appliesto amounts above the minimum.
Under certain circumstances, the tax burden can be reduced. Delayingopening a RRIF until you are 65 or older offers the option of income splittingwith a younger spouse. Income splitting can also help to reduce OAS clawbacks.
“While the full minimum amount must be withdrawn from the RRIF, up to halfcan be given to a spouse and is attributed to her taxable earnings,” says DavidAblett, director of tax and retirement planning with Investors Group inWinnipeg. For example, if $20,000 is withdrawn from a RRIF, up to $10,000 canbe allocated to a spouse for tax purposes. Federal and provincial pensionincome tax
credits may also be available.
Electing to use a spouse’s age to calculate the minimum withdrawal isanother option. This lowers the amount taken out of the account and may alsoreduce taxable income.
Whether a RRIF is opened at 60 or 71, the most important aspect isstructuring a portfolio correctly prior to conversion, says Robin Muir, acertified financial planner and managing partner of Hatch & Muir LLP in Victoria.
A portfolio should have between 20% to 30% in cash, GICs or short termbonds that can be drawn from while leaving growth investments intact, he says.This should be phased-in before converting to a RRIF, allowing a cushion sothat equities can be sold by choice rather than by necessity to replenish thecash flow pool for annual withdrawals.
After death, what happens to an RRIF depends on whether or not abeneficiary has been named. Naming a beneficiary ensures that the RRIF isexcluded from the calculation of probate fees on an estate.
If a spouse is named, they can automatically start receiving payments fromthe RRIF. A financially dependent child or grandchild can purchase a termannuity or transfer it to their RRSP.
“When seeking RRIF advice, be sure to get it from someone who understandsdrawing down wealth not just accumulating it,” Mr. Muir says, “so you don’t runout of money before you run out of life.”
|Posted on February 18, 2013 at 11:50 AM||comments (210)|
Annually, many of us have to sit down and ponder over our prior year’s income tax filing. It could have very frustrating, upsetting, sleepless moments, but it doesn’t need to be. Tax rules are both simple and complex depending on one’s situation.
Yearly, the Canada Customs and Revenue Agency (CCRA), commonly called Revenue Canada, is adding more and more rules to the already huge volume of tax regulations. With proper planning, understanding and paperwork, your tax filing could be an easier task than you think it’s supposed to be. The aim is to maximize tax benefits and minimize tax liability.
Who should file? This is an annual question, but easily understood. Anybody expecting to receive a tax credit such as Child Tax Benefit, Property Tax Credit, GST Credit and others need to file with CCRA to receive these benefits. Anybody receiving any kind of income must report it.
Most tax filing do not result in taxes owed, as there are many factors that can result in a net return to the tax filer.
Each year at this time many of us start searching through drawers, envelopes or even the bottom of bags stuck in the corner of the closet that must have the ONE receipt that will solve our tax dilemma. Where did I put that letter/receipt/cancelled cheque? Is it clinging to the fridge under the “art” or, heaven forbid, in the deep recesses of someone’s purse of most would prefer to the more unpopular chores before starting the “find the paper” scavenger hunt. Is it any wonder bathroom floors and closets are their cleanest during this time of year?
To prevent this type of scramble, I often recommend an accordion file folder. These can be arranged by month or category and can help to organize receipts as they come in during the year. When cashiers give you a receipt don't put it in the bag but keep it to be placed in the folder when you get home. In circumstances where there is an automatic withdrawal, a record should be printed then added to the folder.
Now is the time our clients can begin planning to get to get their taxes done. You can begin figuring out if you need to purchase RRSPs. If you have a business or employment expenses, you can gather and tally your receipts to lower your income.
We have designed a free Microsoft Excel macro that can help manage these numbers.
Call us if you have any questions about this new tax season and what you can do to lower your tax bill. It may be too late for this year, but you can always get started on saving for next year.
|Posted on February 18, 2013 at 11:49 AM||comments (347)|
Wow! February already and the RRSP purchase deadline for 2013 is fast approaching. This deadline for those under 69 is March 1 this year, 60 days after the end of the tax year.
RRSPs can save you money by deferring the taxes that would be owed on the amount of RRSP purchased. Simply put if you are in a 40% tax bracket, a $1000 RRSP purchase will save you $400 in taxes for that tax year. Purchased before February 29, the tax savings can be used in the previous tax year. There are other considerations depending on the individual or family circumstances, but overall that’s the drift.
Most of us are divided into "Working Guy” (or Gal) who trudges off to work each day, “Family Guy” who deals with life’s little emergencies, and occasionally “Tax Savings Guy”. Now Tax Savings Guy usually appears for only one week a year, scrambling at the last minute to squeeze what little tax advantages he can find to ease the cost of living and maybe even save a little something for retirement.
Many will tell Tax Savings Guy that this is the time to buy RRSPs. Buy Now…Save Taxes…Maximize Your Tax Return!! In fact this is reinforced at every bank and credit union. They are busy right now advertising special rates for RRSPs or even RRSP loans. Last Chance to Save! Borrow Money to Save Money! Rates so low it’s almost FREE!!
So how about that? Is it RRSP Season? Should we buy now to save on last year’s taxes? I say no. Purchasing now can actually HURT you financially.
Now, you should always buy RRSPs if it is beneficial to your individual tax situation, such as in a higher tax bracket. How much to purchase would be determined by where your income is within that bracket and by the eligible RRSP amount listed on the bottom of last year Notice of Assessment from the Canada Revenue Agency (CRA). However, it is not always wise to borrow now and pay all year for last year’s loan. Tax Savings Guy would be better off ignoring last year and focusing on being around more this year. The money that would have been set aside to pay off last year’s loan could instead purchase NEWRRSPs for the present tax year.
Knowing your RRSP eligible room, Tax Savings Guy can arrange an automatic withdraw from each paycheque to make RRSP purchases. This way he is ahead of the game. He is purchasing this year’s RRSP as well as value averaging the purchase of any mutual fund, stock, or GIC that is being purchased. But the big score is he is not paying interest. As well, the additional tax refund can be used for anything and not just to repay a RRSP loan such as paying down mortgage or credit card debt. Granted he could give the money to Family Guy who never seems to have enough. The point is money is saved, not borrowed. Interest is made, not paid.
So forget about the hype. Remember… RRSP Season is All Year Long!! Retirement Guy will thank you for it.
|Posted on February 18, 2013 at 11:49 AM||comments (206)|
Over the last six years working with more than 1,500 small business owners, I've heard a myriad of reasons about WHY people start a business but typically they boil down to one of three core reasons for embarking on one of life's riskiest journeys.
Irrespective of your motivation, I doubt you're going into business with a desire for failure and I suspect you might welcome seven tips that could enhance your chances for long term success.
Tip 1 - understand why most businesses fail to reach their full potential.
Yes, there are a multitude of reasons/excuses why business owners fail to reach their full potential--lack of capital, competition, unfair landlords and competition via the internet--but the two most common REAL reasons are that business owners are unclear about their goals (or have lost sight of their original goals as to what they want to get out of their business) OR business owners don't really know what's going on in their business.
We're no longer shocked by the blank faces of business owners when we ask them why they are in business. After talking for a while, they start to remember their original reason for starting. A balanced lifestyle is one of the most popular reasons but often hard to believe when we see them (the business owners) working incredibly long hours for little return and often feeling trapped like those hamsters on a wheel who keep running faster and faster whilst getting nowhere.
Not knowing what's going on in the business is also extremely common and relates to knowing your KPI's (key performance indicators) e.g. how many people you have to connect with to get the right percentage to walk through your door and the right percentage of those to purchase and the right percentage of those who purchase to become loyal clients and/or referrers of others to your business OR acceptable reject rates for manufacturing and managing against these.
Tip 2 - know where you are
This may sound stupid but in reality you must ALWAYS know where you are at in your business. You have to be able to identify your strengths and areas of challenge. You have to know when you require assistance (and have the courage to seek it). You have to know how much money you have and how long it will last. In other words you have to be constantly aware of your current reality rather than getting lost in the rose-colored glasses view of how you believe your world should be.
Tip 3 - know where you're going
As stated above, many small business owners (in fact I would say most from our experience) are in business as a result of habit rather than on a clearly defined journey toward a destination of their choice. Can you imagine a potential Olympic athlete who approaches his or her sport with the idea of, "If I turn up to training a few times I might win a race or get selected on the team and I could even win an Olympic gold medal one day."
As we all know, an athlete requires far greater dedication to achieve Olympic Gold and so do you if you are going to be successful in your own enterprise. Having said this, however, it's important to realize the size of obtaining your "gold" may seem overwhelming so, like the potential Olympian, you have to break down the big picture into manageable chunks so you can see how far you have come.
Tip 4 - decide your income
Yes I did say it correctly--decide YOUR income. Think about what you might look for financially when considering purchasing a business. For most, this would be the ability for the business to pay its bills, pay lifestyle wages and generate profits to grow the business.
It is interesting then to consider why many start-ups and those in small business believe they are only entitled to what's left over rather than earning a realistic income from their business?
When working with clients we help them create a predictive budget/cash flow using a tool we have developed so they can determine HOW much money the business has to generate to pay its way, provide wages for the owners AND create profits with which to grow their respective businesses. This latter point is crucial for success. After all, if you don't plan to create profit for growth, how is your growth going to be funded?
Tip 5 - tell the world
OK, so we know where we are, know where we are headed and have decided our income. All we have to do now is get customers buying our products or services. But WHO are these people and WHERE are we going to find them?
Sadly, many clients work on the "Field of Dreams" basis--build it and they will come--and while there is much truth in the belief, the reality usually requires that "they" show up a lot faster than your money will allow you to wait.
Marketing is a big topic in its own right so we are not going into any great depth here other than to highlight some of the key ingredients to be considered BEFORE launching into websites or advertising. It's important to remember an overall marketing strategy has to combine your decisions about who the people are that are most likely to buy what you have on offer, what these potential customers expect about the quality/service/price relating to your offering, how and where you can most appropriately communicate to/with your target audience and lastly, what messages are important for THEM to hear.
Tip 6 - manage for success
Everybody manages to succeed, I can hear many of you saying, but in truth, most business owners we see are too busy managing to avoid failure rather than managing for success.
So what's the difference?
Managing to avoid failure involves knee-jerk reactions to financial pressures and/or people dramas, whereas managing for success relates to constantly knowing what HAS to happen in your business, analyzing constantly and tweaking the bits that are not working effectively.
Obviously specific aspects of what applies to each business varies; however, there are some common elements of successful businesses that are worth emulating, like having clear policies and procedures, operating systems, providing right and effective training to your people and as stated earlier in this article, understanding your KPI's and managing your business around them.
Tip 7 - get a coach or mentor or both
One of the biggest differences between the Olympian who succeeds and the one who doesn't even make it to the Olympics is often the difference in quality of his/her coach or mentor. The coach/mentor is outside of the day-to-day activity and can provide a cool outsider's perspective about what needs to be done and/or can bring to the table ideas and concepts outside the athlete's awareness or current level of experience.
The same is true for business. When selecting a coach/mentor, ,it's important to be sure you choose the right one.
Remember, they are there to help YOU rather than sell you a coaching system designed to make them money. So ask questions about their specific expertise in business, ask for names of other businesses in your industry area they have helped so you can reference check them, check their availability in relation to responding to problems or issues you may encounter, and lastly, determine what is and what is not included in their fee structures.
Even as a coach/mentor myself, I regularly liaise and work with others to advise and assist me on a variety of aspects about my business and in fact owe many successes to their timely and sage advice.
So in short, if you would prefer to have the gold of a successful business rather than digging in the dirt in the lowest paid and most frustrating job of your career, I urge you to take heed of these seven tips and wish you success.
Article written by Anthony M Turner, an Australian based Coach, Mentor and skills trainer for small business who has assisted around 1,500 individual business owners from a wide variety of business disciplines to achieve their best.
|Posted on February 18, 2013 at 11:47 AM||comments (5457)|
While many Canadians are stressed about RRSPs and the looming contribution deadline, Jason Casagrande feels excitement. The 34-year-old Torontonian, however, has been investing since he was 15, and works as a certified financial planner with BMO’s investment and retirement planning department. “Seeing the accounts grow is my motivation,” Mr. Casagrande says.
The rest of us hear the term RRSP — maybe even just the first two letters — and get glassy-eyed, or even wide-eyed (60% of respondents of a recent BMO poll reported suffering from anxiety about gathering retirement savings).
So how do you get people excited about saving for the future? First, arm them with information. To help, Mr. Casagrande, and other financial experts, have provided answers to their most frequently asked questions.
Q What are the rates on RRSPs?
A “There seems to be a misconception with what RRSPs actually are. People think an RRSP is an investment,” says Scott Plaskett, a certified financial planner and founder of Ironshield Planning. “It’s not an investment, it’s simply an account that you put investments into that have certain tax benefits associated with it.”
Q OK, how much can I contribute to my RRSP?
A Revenue Canada puts limits on the amount of money you can contribute to registered savings programs every year. You’re able to contribute up to 18% of your previous year’s income to your RRSP, up to a maximum of $22,970 for 2012. The tax benefit? You are then taxed on your income, minus the RRSP contribution. (Revenue Canada mails you a notice of assessment, which tells you your contribution limit.)
Q What happens if I get too excited and over contribute?
A Revenue Canada will penalize you 1% a month on the over-contributed amount; you can then do a redemption from your RRSP to hit your limit.
Q Should everyone jump on the RRSP train?
A Not everyone should be putting money into an RRSP, Mr. Plaskett says. First determine whether it is the best wealth-accumulation vehicle for you. “We have clients who have low taxable income, very little debt and they’re self-employed,” he says. “If you don’t get the immediate tax savings then you’re actually doing a disservice to yourself or to your financial plan by putting money into an RRSP.” In this case, he says, you might consider a tax-free savings account.
Q When should I contribute?
A You have until the first 60 days of 2013 to contribute for the 2012 tax year; the deadline this year is March 1. But the earlier you do, the better — and save regularly. “Get into the practice of investing every week or every month or every time we get a paycheque. The sooner the money goes in, the sooner it’s working for you,” Stuart Gray, regional financial planning consultant at RBC, says. “When you’re looking at investments like mutual funds that may fluctuate in value, you’re taking advantage of dollar-cost averaging….You’re buying into those investments, if you were doing it monthly, 12 times a year, instead of one day sometime in February.”
Q I spent all of my money on Boxing Day. What if I don’t have cash for a contribution?
A If you have not been saving throughout the year for your retirement, you could borrow funds to make the contribution. But if you choose this route, you must ensure that you repay the loan as quickly as possible. Use the tax refund to pay down part of the loan.
“Most people pay it off in six months,” says Mr. Casagrande. “You might pay a couple hundred dollars [in interest], but you’re getting thousands of dollars back on your return and you now have a nest egg that’s thousands of dollars larger.
You have to be OK with the thought of having a short-term liability for a long-term gain.”
You could also make a transfer of eligible capital property to the RRSP but make sure this fits with your tax and investment strategy. (When securities are transferred from a non-registered investment account into an RRSP, the securities are treated as if they had been sold and will trigger any capital gains or losses. The amount of the security is its market value at the time of transfer to an RRSP.)
Q I don’t have an account, how do I get one?
A Contact your bank. Check if they have any incentives. For example, right now BMO will give you 15% of your first month’s contribution to a maximum of $150 if you open an RRSP account with an automatic savings plan.
Q So what’s the right investment choice?
A “Make sure the investments that you’re holding in your RRSP match the objective that you have for that money,” says Mr. Gray. “We’re looking at time horizon and your risk objective. When I’m looking at an RRSP, I’m looking 50 or 20 years out so my risk tolerance may be different than money that I’ll need next year. That means diversifying between the asset classes that are available to you whether that’s cash, fixed income or guaranteed investments, or equity investments.”
Q Do I invest in my RRSP or my TFSA?
A It’s not really an either/or situation. The savings tools complement each other. The benefit of an RRSP is that contributions reduce your taxable income. But you pay taxes on the money when you withdraw it down the road. Also, once you take the money out of your RRSP, you’ve lost the contribution room that you originally used.
With TFSAs, you do not receive a tax deduction. But money grows tax free and you do not pay taxes on it at the time of withdrawal; when you withdraw from your account, you may put that sum back in the following year.
“One of the things I would always look at is, what is the client’s tax rate today?” Mr. Gray says. “If the client is in a high tax bracket, RRSPs are more palatable because they get that tax reduction. Ideally, they’ll probably be in a lower tax bracket in retirement.”
Meanwhile, a younger individual who is just out of school might prefer a TFSA.
“They’re going to get more benefit from using an RRSP as their income increases. People who are younger have different savings goals, whether it’s a down payment for a house, or a car, and they can pull out from a TFSA and have less of a tax burden.”