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The TFSA: Introduction (Part 1 of 4)

The Tax Free Savings Account (TFSA) is one of the hottest topics in the Canadian investment world today, and for great reason.

Like everyone else, I believe the TFSA is an incredibly useful savings vehicle for anyone currently living in Canada. In fact, I am exceptionally grateful that the Canadian Government decided to bless an iniative of this nature.

Over the course of the next few days, I plan on providing you with a very simple explanation of what the TFSA is. This is not an overly complicated account or tax vehicle, but it is one that needs to be understood properly in order to take full advantage of its full potential.

Your Take-Away: Because the TFSA is so new to the Canadian market, in fact January of 2009 is the first time that one could open an account, I plan on providing you with an explanation of a number of different questions and topics relating to this new account. Together we will cover the following topics specific to the TFSA:

  1. How does it work?
  2. Why does it make sense for me?
  3. Is it better to invest in my RRSP or my new TFSA?

I am very excited about this series and hope that by the time you are finished reading our posts you will have a much clearer understanding of what this TFSA is really all about and better yet, how you can make it work most effectively for you and your family.

Until next time, have a Magnificent Monday!

Chris

RRSP’s Can Create a HUGE Tax Burden

It is commonly accepted that RRSP’s are the single greatest investment vehicle for Canadians saving for their retirement.

A recent article was just written talking about the substantial tax burden that RSP’s can create during your retirement years. In the article, Frank Witington states “Many people approaching retirement have been savers all their life. When they go into retirement, they don’t increase their spending, they just reduce their lifestyle.” The real problem with this situation is that the tax burden on your heirs can be significant considering the majority of your RRSP account, and some times the entire amount, will be taxed at the highest level leaving your recipients with a substantial tax bill. 

Your Take-Away: There are a number of strategies that one can take advantage of such as withdrawing larger amounts during your retirement years or even purchasing a life insurance policy to pay the tax bill on your death and thus leave your entire account to your heirs tax free. Additional tax planning can play a big role as you accumulate this asset because there may be other ways for you to actually create a tax deduction similar to your RRSP, and also ensure your investment account is transferred a little more tax effectively to those you care about.

No matter how you cut it, an RRSP can be a tremendous investment vehicle in the immediate future, but don’t forget that with the pro definitely comes a con. Proper planning could potentially save you thousands if not tens of thousands of dollars!

Until next time, have a Magnificent Monday.

Chris & Elisseos

2008 Budget Analysis

As you probably know by now, the proposed budget for 2009 was announced last night at 4:00pm, and it contained a number of very interested points and initiatives to consider. There were three initiatives that apply to us today including the ”Tax Free Savings Account (TFSA)“, changes to your RESP’s, and changes to Dividend Tax Credits.

Your Take-Away: Although we don’t have the time to discuss every detail of these updates, I do want to focus on the Tax Free Savings Account as this is a tremendous opportunity for 2009 and one that the Government definitely hit a homerun with. Below is a summary of the major benefits and details of this new Tax Free Savings Account:

As you can see, this new Tax Free Savings Account will provide substantial benefits for any Canadian, regardless of income bracket or age. I personally have to say that I am very impressed with this initiative and congratulate the policy holders for coming up with a very creative, effective and generous strategy to help ease Canadians tax burden.

If you have any questions or thoughts regarding this new account, or any other part of the budget announcement, please do not hesitate to contact us directly. Feel free to to post your comments as we’d love to hear them.

Until next time, have a Wonderful Wednesday!

Chris & Elisseos

Are Your Investments Right for You?

How can you know that your current investments are right for you?

There are several reasons that knowing the answer to this question is essential for your future success.  For example:

  1. You may be holding a mix of investments that are inappropriate for your risk comfort level
  2. You may have multiple portfolio’s in place that are not effectively working together for your success
  3. You may be missing out on planning or tax opportunities that you are not currently taking advantage of

Your Take-Away: Your first step should be to clearly understand and define your financial goals.  Without this, you might as well try to drive to Florida from Toronto without a map! Your second priority should be to take a look at your current portfolio to determine if your investments match your recently defined goals.  Finally, your third priority is to make the necessary changes as quickly and effectively as possible.

Whether you invest in your own self directed portfolio or have a Professional helping you achieve your goals, an annual review is a very “Must Do” item.  No matter how new or old you are to the investment world, you can and will benefit from making sure your portfolio is consistent with your overall financial objectives!

Until next time, have a Terrific Tuesday!

Chris

Do You Own BCE Shares? (Part 2)

In our last post, we discussed the potential implications that BCE shareholders would be forced to deal with in 2008. We also promised that we would provide three key strategies that could be used to compensate for the potential tax implications that may arise.

Your Take-Away: The first strategy you could implement is to decrease the income drawn from your other investments during 2008.  This could help to counteract the large income that you will need to report based on the sale of your shares assuming a growth on your investment. The second strategy is to take advantage of any capital losses incurred throughout 2008 and any capital losses that may have been carried forward from previous years. The third potential strategy you can take advantage of is to donate your BCE shares in-kind to a registered charity.  In this case, you would not be accountable for any capital gains tax on the shares you choose to donate AND you would receive a tax receipt for their market value.  in the end, both you and your charity of choice would win.

If you own BCE shares at all, you have hopefully experienced some very positive growth over the years which unfortunatley comes with a tax burden.  At the end of the day however, you’re only paying tax because you made a profit, and I can’t help but think that that is still better then claiming a capital loss!

Until next time, have a Fantastic Friday!

Chris

Do You Own BCE Shares? (Part 1)

The Ontario Teachers’ Pension Plan Board is in the process of purchasing all outstanding BCE shares.

This deal was approved by a majority of the common and preferred shareholders on September 21st, 2008 and it is expected to be finalized sometime in 2008. If you own BCE shares, you could feel the effects of this decision in any number of ways throughout 2008. In Part 1 of this post, we will address some of the major implications that BCE shareholders will be forced to deal with.  In Part 2, we will address three key strategies that shareholders can use to properly handle their own situation in as favorable a way as possible.

Your Take-Away: The first implication is that most individuals who own BCE shares will be forced to deal with a potentially large capital gain or  capital loss over the course of 2008. The size of this potential gain or loss will be based on the shareholders average purchase price of the BCE shares, and the length of time these shares have been owned. The second implication is that this taxable event could negatively effect a shareholders government benefits such as available tax credits, OAS and the GST credit to name a few.  The third implication is that a shareholder relying on the dividend income produced by their BCE shares will have to find additional ways to compensate for the loss of dividends paid as a result of their BCE shares.

Tomorrow we will look at three specific ways that BCE shareholders can effectively plan for and address the possible issues they will face in 2008. 

Until next time, have a Terrific Tuesday.

Chris

More Canadians Investing in RRSP’s

A recent poll has confirmed that a record 3 in 4 adults own an RRSP and that number is up 64% over last year!

The investment industry is expecting a banner year considering that 75% of those who own an RRSP are looking to make a deposit of some amount in 2007.  In fact, of those aged 45 to 54 a whopping 84% plan to make a contribution.  What’s even more exciting is that of those aged 25 to 34, 60% of them have an investment portfolio.  Sounds like the need for retirement planning has made its way down to the younger generations as well which is great news for all of us!

Your Take-Away: Whenever the Canadian Government offers a tax break like they do with RRSP’s, it would be almost crazy to not take advantage of it. After all, no one likes paying tax regardless of their income, job status or net worth. Do not be afraid of taking advantage of dollar cost averaging and investing a small amount each month rather then trying to come up with a large amount at the end of the year.  Setting up a monthly savings program is an easy way to ensure your money is working for you each and every month, without having to feel the pressure of coming up with larger sums at the end of each year.

Congratulations to all of you have an investment portfolio, and especially to those of you who have taken advantage of your RRSP.  Don’t forget that it’s always better to save a dollar in tax then to increase your income by a dollar!

Until next time, have a Wonderful Wednesday.

Chris

Incorporate and Save Tax

Canadians are always looking for ways to save tax on their income, and incorporating may just be a perfect solution.

The highest tax bracket for a Canadian paying personal tax is 46% however business income in a Canadian controlled corporation is only in and around 18% up to the first $400,000 and then 36% there after.  That is a substantial savings for an individual earning a large income who may be a small or medium sized business owner and is in a position to take advantage of his own Canadian controlled corporation.

Your Take-Away: This strategy is by no means for everyone.  Depending on your Profession, you may be able to incorporate even if you don’t own and operate a small or medium sized business.  For example, Doctor’s are now able to incorporate but only as of this year. Whether it be paying yourself a dividend as opposed to pure earned income, investing back in your business, or simply leaving money inside your corporation and investing it from there, the benefits can be substantial.

Take the time to learn for yourself if this is something that you and your family can benefit from.

Until next time, have a Magnificent Monday!

Chris

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

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