Neepawa Income Tax (1997)

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Tax Discussions

February 7, 2013

RRSP or TFSA? Tuck money away into both if possible, experts say

CALGARY — It’s the battle of the acronyms — RRSP or TFSA?

They’re both savings vehicles that can help with your tax bill, but which one reigns supreme will depend on your own individual situation.


In ideal circumstances there would be no showdown — Canadians would sock money away into both, experts say.

But circumstances aren’t always ideal.


“Maybe it’s a quality of life decision or maybe it’s truly just there is not the availability of income or assets to contribute to both,” said John Tracy, senior vice president of retail, savings and investing at TD Canada Trust.


“Both is a great answer when you can do it.”


An RRSP — a registered retirement savings plan — is, as its name suggests, meant for retirement. Funds can be withdrawn sooner — under the Home Buyer’s and Lifelong Learning plans, for example — but generally this is money that won’t be touched until your golden years.


TFSAs — tax-free savings accounts — are more flexible. They can be used to save for retirement, to be sure. But because that money is easier to access in a TFSA than it would be in an RRSP, it can serve many other purposes.

“It’s starting to pick up a lot more popularity with the younger generation who is not quite geared to thinking about the retirement,” said Cleo Hamel, a senior tax analyst.


“They’re more along the lines of thinking of today and what they have planned in their own life — getting married, buying a home.”

You can find out how much you are allowed to contribute to your RRSP on last year’s notice of assessment from the Canada Revenue Agency — 18% of that year’s income to a maximum of around $23,000. Unused contribution room from previous years gets carried over.


The deadline for making a contribution for the 2012 tax year is March 1, so it’s really the only option Canadians have available now to ease last year’s tax bill — RRSPs give the immediate benefit of a tax deduction.


Because there’s a penalty for withdrawing from an RRSP before retirement, tapping those funds is really a “last resort,” said Tracy. Another deterrent is that once that money is withdrawn, that contribution room is gone for good most of the time.


“In some cases, it makes more sense to borrow money than access your RRSP because the penalty in tax would be so significant,” he said.


From a psychological standpoint, the difficulty in withdrawing from an RRSP can be a good thing for those keen on letting their retirement savings grow.


“I think for real retirement savings, feeling like you’ve locked it in a bit more in RRSPs and leaving it there and letting it compound for a longer period of time can really be quite beneficial,” said Dennis Tew, chief financial officer at Franklin Templeton Investments Corp.


On the other hand, you can take out money from your TFSA any time without being dinged by the tax collector and that contribution room is restored the following year.


The deadline for contributions is the end of the calendar year, so that ship has sailed when it comes to 2012. For 2013, the limit for contributions has moved up from $5,000 to $5,500 to account for inflation. Like with RRSPs, spare contribution room from previous years is available in the future.


Whether it be an RRSP or TFSA, the money contributed can be invested in mutual funds, stocks, bonds and GICs.

Since RRSP funds are taxed upon withdrawal and TFSA contributions are not, it’s also helpful to think about whether or not you foresee yourself being in a higher or lower tax bracket when you use that money than you are today.


Another factor to consider is what effect RRSP funds will have on Old Age Security, the Guaranteed Income Supplement and other government benefits. At times, it might make sense to divert some money into a TFSA.


RRSP or TFSA — whichever one Canadians pick, Tracy said the most important thing is that they do something.


“Create a habit of saving. Start small. Don’t get overwhelmed,” he said.

January 15, 2013

The Nuts and Bolts of RRSPs

Melissa Leong Financial Post

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.”


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January 15, 2013

Going for Gold: Seven Steps to Ensure Small Business Success

By Anthony M Turner


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.

  • Reason 1 (the most popular one) - running away from a bad work situation with the belief they can do it much better themselves.
  • Reason 2 - receiving a payout from an employer and buying a business, which both sadly and frequently results in buying the lowest paid job of their career.
  • Reason 3 (the most successful one) - running toward a long held dream.
    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.

February 7, 2012

RRSP Season… or is it?

Wow! February already and the RRSP purchase deadline for 2011 is fast approaching. This deadline for those under 69 is February 29 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.Wow! February already and the RRSP purchase deadline for 2011 is fast approaching. This deadline for those under 69 is February 29 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.

January 10, 2012

Is it Income Tax Season or a Taxing Season?

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.

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