Monthly Archives: January 2017

RRSPs — Getting past the contribution inertia

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By Aman Raina,  SageInvestors.ca

Special to the Financial Independence Hub

In the early part of the New Year we see, hear, and read a lot of messages regarding Registered Retirement Savings Plans (RRSPs). From every indication, they are important to have as a saving tool as we get older.

RRSP and Containers

Before getting to why it is important, a quick overview of the RRSP concept. The best way I can explain the concept of a Registered Retirement Savings Plan or RRSP, is that it is essentially a container. It can be a jar, a glass, a bathtub, anything that can hold something.

In terms of RRSP containers, I’ll keep this simple. You have several types to choose from:

Asset Specific RRSPs –can only hold a specific type of asset like a GIC or a mutual fund. You can hold multiple containers of Asset Specific RRSPs

Self-Directed RRSPs –can hold a variety of securities including individual stocks, bonds, ETFs, mutual funds, cash, GICs, Treasury Bills. They are much more flexible in terms of your options of what you want to put in your container. The banks and brokerages usually charge an annual fee for the privilege of using their containers, however if you have enough assets to put into the container or throw a lot of business there way, you can get it waived.

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Steps for saving Money in 2017

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By Barney Whistance

Special to the Financial Independence Hub

With a new year come new resolutions and new hopes. You hope to have a better life by maintaining good health, having emotional stability and making yourself stronger financially. All these tasks are achievable, provided that you have proper guidance and will power.

To end up with a lot of savings at the end of the year is no easy feat. Anyone faced with loans, taxes, and insurance payments would want to save some money at the end of the year. There are a few steps that can be taken to maximize your savings and lead you to a better retirement plan than now.

Car Insurance

If you have purchased a new car, it is worth having insurance against theft and accidents. But if your car has been in your possession for more than a 7-year period, it is better that you let go of that insurance. As the price of your car has already declined precipitously, it is no use insuring something that costs so much less. Your insurance will only add to the unwanted expenses since you could have most parts of it repaired for a lot less.

Food

Food is the basic necessity of every human. Studies have found that people in America spend at least an average of $151 on food in a week. Eating at home is far more economical and healthier than eating out. To contain your food budget, allot yourself a fixed amount for every week and see if you can manage within the budget. If you are still left with enough money, indulge yourself in eating out. Moreover, to save on your grocery purchases, you can buy in bulk from a supermarket, which can save you money. Be sure to buy only those items that you use excessively and have a long shelf life. Plan your shopping on the days the store is known to give discounts.

Energy Bills

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Snowbird season is also tax season

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By Kristin Zacharchuk, Master Tax Professional, H&R Block Canada

Special to the Financial Independence Hub

Each year, more than half a million Canadians escape the cold and travel to the U.S. sun-belt to wait out the winter, while the rest of us suffer. Must be nice!

One thing they need to remember while soaking up the sun and sipping on daiquiris, is that snowbird season is also tax season and escaping our Canadian weather, unfortunately does not allow you to forget about taxes.

The reality is, snowbirds are under a lot of pressure to understand their tax obligations, as initiatives are built between Canada and the U.S. to better track movement, assets and residency. Failing to do so could result in much worse than a sunburn including stiff penalties, lost benefits or even resident obligations that bring higher tax payments. Need I go on?

So, if you are planning to migrate south this winter, please keep these tips in mind:

Entry/exit initiative

It’s important that you keep a record of your trips to the U.S. since the Entry/exit initiative border tracking system allows Canada and the U.S. to monitor who crosses the border, when they do, and the length of their stay. Track and record this information in case you are asked to report it. If you don’t, you run the risk of being required to file a return as a U.S. resident or even losing certain benefits like provincial healthcare.

Resident alien status

The IRS looks at how much time you spend in the U.S. in order to figure out if you are a resident alien. Since, resident aliens are supposed to file a U.S. tax return, it’s important you find out if you meet their U.S. residency standards.

Closer connection declaration

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TFSA or RRSP? – The right answer for YOU

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By Ed Rempel

Special to the Financial Independence Hub

TFSA vs. RRSP is one of the most common questions I am asked. If you want to know for sure which is better for you, then you need a financial plan.

Many articles have been written on this topic that list pros and cons with general opinions.

The truth is that:

1.) Rather than just having an opinion, there is a precise right answer specifically for you. To the extent that you know your present and future marginal tax brackets, you can calculate a precise optimal contribution for RRSP and TFSA for each year, as well as the optimal amounts to withdraw each year after you retire.

2.) The decisive factor is your tax brackets now vs. after you retire. Most people just assume they will be in a lower tax bracket after they retire, because their income will be lower. In many cases, that is not true.

When you include the clawbacks of government income programs that affect everyone over 65, many seniors are in shockingly high tax brackets!

The clawbacks cost you actual money and are the same as a tax. The three main clawbacks are the 50% clawback on GIS for low incomes (under $20,000), 15% clawback on the age credit for middle incomes ($35,000-85,000), and the 15% clawback on OAS for higher incomes ($75,000-120,000).

The chart above shows the actual approximate tax brackets before and after age 65. Check out the tax brackets over 45% in red:

Understand the differences

You can own the same investments in your TFSA as your RRSP. The main difference is that RRSP contributions and withdrawals have tax consequences, while TFSA contributions and withdrawals don’t.

Therefore, the answer to TFSA vs. RRSP is primarily based on your marginal tax bracket today compared to when you withdraw after you retire: Continue Reading…

Opinion: Tax policy and the Liberals

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Trevor Parry

By Trevor Parry, M.A., LL.B,LL.M (Tax), TEP

Special to the Financial Independence Hub

I am always concerned when a Federal government starts thinking of the Province of Quebec as a policy innovator.  Certainly the left exalts their cheap daycare, made possible by an utterly punishing tax burden on business and individuals.  Well, it should be no great surprise that the Boy King and his fellow trust fund alumnus, LSE grad Bill Morneau have started to embrace “revenue measures” quite popular in La Belle Province.

Taxing private medical and benefit plans

The latest trial balloon is to make private medical and benefit plans a taxable benefit.  This would mean that most Canadians who have dental and pharmaceutical coverage provided as part of their employer compensation would start seeing these benefits taxed as income.

Of course, the middle class:  that amorphous group that the kumbaya chorus known as the federal Liberal Party claims to represent would feel the pinch most acutely.  If your group plan costs $6,000 per year you can now look forward to having the Little Prince confiscate just over $2,000 from you.  If you are unfortunately part of the class enemy known as the 1% then count on $3,000 or more being forked over.   One can assume that the bedrock of the Liberal Party, that is the civil service, would somehow be spared from this tax measure.

The rationale for this policy innovation is of course the grand and lofty goal of egalitarianism.  The homeless and downtrodden don’t have these plans so once again we must measure all policy according to the lowest common denominator.  The fact that these individuals, if they care to check into the medical system are completely covered is irrelevant in the Fabian Socialist society (a.k.a LPC).

Unfortunately too many Canadians, fed a steady diet of Liberal sycophancy from the Canadian media believe that Justin and the Liberals are champions of the little guy.  There has been no bolt of lightning that jars into accepting the reality that the LPC is the part of oligopolies, banks, insurance companies, Bombardier and the law and accounting firms that service them.    It is also lost upon them that the general health of the population should be given at least equal weight as mandated equality of results. Continue Reading…