Flaherty’s Tax Cuts

Finally some positive tax news for Canadians.

On October 30th, the federal government presented a “mini-budget,” which outlined a number of initiatives designed to create tax savings for Canadians. It was clear that tax cuts were the main priority of Flaherty’s announcement, which is a great thing for Canadians.

  1. GST reduction: The most noticeable savings will come into effect on January 1, 2008 when the government plans to reduce the GST by 1%, bringing the total tax to 5%
  2. Basic Personal Amount increase: Come tax time in April, Canadians will be able to claim a basic personal amount of $9,600 — up from $8,929
  3. Lowest personal income tax rate reduced: One of the government’s pledges is to reduce the lowest personal income tax rate to 15% from 15.5%, retroactive to January 1, 2007
  4. Corporate tax cut: For businesses, the Tories have promised to gradually reduce the corporate income tax rate to 15% by 2012, starting with a 1% drop in 2008
  5. Small business tax cut: Small business owners will receive an early tax break when the small business income tax rate falls to 11% in 2008, one year earlier than scheduled.

Your Take-Away: Taxes can be an overwhelming issue for many Canadians to try and understand on their own, or without the help of a Professional.  If you fall into any of the above categories, my suggestion it that you invest your time and money to speak with an Accountant about how you can benefit from these changes.  Our experience tell us that if you hire a knowledgeable CA that you will benefit in multiple ways and more then pay for their hourly fees with your current and future tax planning.

Have a magnificent Monday!

Chris

New Land Transfer Tax Explained

The new land transfer tax is an extremely hot topic for residents of Toronto, and for good reason too.

This new tax can and most likely will have a significant impact on cash flow, down payments, and even things as simple as furnishings for those Toronto residents who purchase their home after January 1st, 2008.  It is interesting to note that Toronto is the only city with two home buying taxes, we have the highest land transfer taxes in Canada, and the second highest in North America.  That shouldn’t sit well with many Toronto residents at all.

Your Take-Away: To some readers, this new tax is verging on offensive, but it can be hard to know how much of a real impact it will have on Torontonians.  To put it in perspective, an average two storey home sells for approximately (approximate being the key word here) $400,000 in Toronto.  Just for being a Canadian, your existing land transfer tax will cost you $5,475 and with the new Toronto land transfer tax, your total bill jumps to a whopping $10,200.  That means this new Toronto tax alone has a $4,725 price tag.  Pretty hefty.

One thing to be aware of is that this new tax does have a grandfather clause which means that if you were to buy a new home  prior to December 31st, 2007 you will be exempt from this new tax regardless of the closing date. 

If you are looking to buy today, it may make sense to buy before New Year’s Eve…it could save you thousands of dollars!

Until next time, have a Fantastic Weekend

Chris and Elisseos

What Does “Pay Yourself First” Really Mean?

The phrase “Pay Yourself First” has become a commonly accepted financial term promoted by many Guru’s and Author’s including David Chilton (The Wealthy Barber) and David Bach (The Automatic Millionaire) to name a few.

To some it may be difficult to understand exactly what it means, so let me elaborate.

The underlying concept of “pay yourself first” is to take 10% of your pre-tax income and invest that for the long term, before you worry about your other expenses. You can accomplish this through your personal RRSP, your company pension plan, or numerous other investment vehicles. It is considered a fact that you will retire wealthy assuming you start sooner rather then later.  Einstein himself said that ”the power of time and compound interest should be the 8th wonder of the world”.  

Your Take-Away: In order to actually implement this concept, you do not need to stretch yourself to the point of becoming cash flow poor.  In fact, it is very common for our clients to start a monthly savings plan with only 5% of their monthly income and quickly increase that number over time as they realize how easy it is to manage their existing lifestyle even with a decrease in cash flow.  I’ve said it before, and I’ll say it again: Small, consistent steps lead to large, exciting results.

Starting a monthly investment program is easier then you think.  Don’t feel as though you have to start huge, just make sure you start and I’m confident you’ll find that it’s a lot easier to manage your cash flow then you think.

Until next time, have a Terrific Thursday!

Chris

Retirement Questions Continue to Surface

Yet another article was published in the Financial Post today trying to address the many questions surrounding the issues of retirment in Canada.

Of the many interesting thoughts that were raised, one that caught my attention was the topic of Baby Boomers bringing debt into their retirement years.  Monique Tremblay, Senior Vice President at Desjardins, claims that “More than 80% expect to be in debt when they enter retirement yet are complacent about it.” The primary reason most Canadians say they will not need to replace 70% to 80% of their income is because their “debt load will be virtually non existent” appears to not hold much weight in terms of Tremblay’s claims.

Your Take-Away: Regardless of whether you plan to bring debt into your retirement years or not, and I’m assuming that very few if any would ever plan that, replacing 70% of  your current income during retirement seemse to be more logical and reasonable then ever before.  You may exceed that goal, you may just fall short.  But defining your desired retirement income today will give you something to aim for tomorrow. 

Its been said many times before, and I’ve even written a post to this effect, but the mantra “If you fail to plan, you plan to fail” has never been more true.  Don’t feel like you have to change your entire future in one fail swoop, but do make sure you take the smaller, more necessary steps towards achieving your plan.  What is step #1?  Create a plan.

Have a wonderful Wednesday!

Chris

The Truth About Mortgage Insurance

It scares me to think that many Canadians believe that Mortgage Insurance issued through major banks in Canada is comparable to personally owned life insurance for the purpose of protecting their mortgage.

I have built numerous relationships with a number of Mortgage Broker’s and Clients based on my passion to help Canadian home owners truly understand why owning Mortgage Insurance through their lending institution is a decision that should seriously be reconsidered. Consider the answers to these three questions:

  1. Why would you insure your life with a company who chooses themself as the Beneficiary?
  2. Why would you risk a claim not being paid out by allowing the insurance company to underwrite at claim time, as opposed to when you purchase the insurance policy?
  3. Why would you pay more on a monthly basis for a truly inferior insurance policy with less benefits?

Your Take-Away: If any of the three questions above spark a hint of doubt in your mind, invest the time to do a bit of research and obtain a life insurance quote for the balance of your mortgage. In summary, buying a personal life insurance policy for the purpose of protecting your mortgage provides you with:

  1. A policy that you actually own
  2. Savings of upwards of 25% and more
  3. The ability to choose your own beneficiary
  4. Upfront underwriting, not claim time underwriting

In my opinion, there is no reason that one would consider the alternative option and own their mortgage insurance through their lending institution, and I’m confident that you will come to the same conclustion if you do the research yourself and don’t just take my opinion as fact.

Until next time, have a terrific Tuesday!

Chris

Retirement Needs More Confusing Then Ever

Another great article was published at www.reportonbusiness.com and was a follow up to the Fidelity survey results from last week.

I had commented on the article and stated that each situation is very unique and that although a standard formula has been used for retirement planning (between 70% and 80% of current income needs to be replaced), that it is impossible to rely on that solely.

Specific to the article and some of those individuals Rob Carrick interviewed, I too agree that 80% is probably too high for the average Canadian, but I also believe that the majority of Canadians don’t want to have to live frugally during their retirement if they had the choice. A great question that one Advisor poses to his clients is “How much cash would you need to live comfortably if you were to stop working today and didn’t have child-related expenses and mortgage payments?” That is a great starting point, but not the only question that matters.

Your Take-Away: This very recent article proves all the more that seeking Professional guidance and advice in the arena of retirement should almost be mandatory for most Canadians.  There are multiple tools available online to help you determine how much you actually need to be saving in order to achieve your retirement goals, but it can sometimes be overwhelming to try and fight your way through the options, lingo and calculators on your own.  As always, it is better do something small on a consistent basis, then to do nothing at all.  After all, small steps can grow into large long term results.

Take a serious look at your retirement goals and your current situation and determine for yourself if you could use the expertise of someone who works with individuals like yourself for a living. 

Until next time, enjoy your first day of November!

Chris

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