Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

What first-time home buyers should know about FHA loans (U.S.)

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By Cher Zevala

Special to the Financial Independence Hub

For most people, a home is the most significant purchase they will ever make, as well as one of the most complex. Finding a home is actually the easiest part in most cases, but financing the purchase can be stressful.

That stress is only amplified when you want to purchase a home, but don’t necessarily meet lender qualifications for an attractive mortgage. Simply put, it’s not always easy to get a mortgage for a home. Lenders have strict criteria in terms of down payment, income, and credit history, and failing to meet those criteria can mean disappointment, at least when you work with a traditional lender. Thankfully, there are other options for purchasing a home, such as an FHA mortgage.

What Is an FHA Mortgage?

An FHA mortgage or loan is a home loan backed by the Federal Housing Administration (in the United States).  Borrowers who get a mortgage under this program must purchase mortgage insurance, which protects the lender in the event of a default. The agency itself does not issue the loan, but instead works with traditional lenders, providing assurance that the bank will not lose money on the deal.

FHA loans are attractive to many home buyers because they typically have less stringent qualifications in terms of down payment and credit score, but still offer competitive interest rates. For instance, while a buyer who only has a 10 per cent down payment and a credit score of 600 is not likely to qualify for a traditional loan, he or she has a better chance of getting financing via an FHA loan. Continue Reading…

How to earn $50,000 in dividend income tax-free (in most provinces)

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The Financial Post has just published (in Thursday’s paper and online) my article headlined “You can earn $50K in tax-free dividends but there’s a catch: You can’t have a job.”

Can’t have a job, indeed, or a large pension or any other source of significant alternative income.

The article is based on a BMO Financial Group report (May 2016) entitled Eligible Dividend Income. It shows that at least eight provinces or territories make it possible to receive $51,474 a year in “tax-free” eligible dividend income, provided there are no other major sources of income, and notwithstanding any provincial health levies.

These include Alberta, British Columbia, New Brunswick, Ontario, Saskatchewan, the Northwest Territories, Nunavut and Yukon. It’s only $45,309 in Prince Edward Island, $35,835 in Quebec, $30,509 in Nova Scotia, $24,271 in Manitoba and just $18,679 in Newfoundland and Labrador.

BMO won’t update for 2017 until all 2017 provincial budgets are released. When it first began publishing the document for the 2012 tax year, the maximum amount of tax-free income on eligible dividends was $47,888 in Ontario and eight other provinces. The amount rose to $48,844 in 2013 and to $49,284 in 2014.

Dividend Tax Credit, Basic Personal Amount are keys

This low-tax phenomenon happens through a combination of the Basic Personal Amounts (which in 2016 makes the first $11,474 tax-free federally) and the 15.02% federal dividend tax credit on eligible Canadian dividends: Continue Reading…

On the Middle Class & paying one’s fair share of taxes

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By Tim Paziuk

Special to the Financial Independence Hub

The Liberal Government has stated it wants to build a strong middle class, but who comprises the middle class?  Mr. Morneau in his 2017 budget speech stated, “All Canadians must pay their fair share of taxes,” but what is a “fair share”?  Does fair share mean the total amount of taxes one pays as a percentage of their gross income?  Is this based on an annual consideration or a lifetime consideration?  Or does fair share mean positively contributing to the general revenue?

The answer to the first question is an ongoing contentious debate.  According to former Finance Minister Mr. Joe Oliver, the middle class could include households earning as much as $120,000.  Given research completed by MoneySense Magazine[1], the middle class could include households earning incomes ranging from $38,800 to $125,000 (average second, third, and fourth quintiles for Canadian households), but this varies considerably between Provinces and Territories, and even between cities.  But does owning a private corporation automatically exclude you from the middle class?  The continued witch hunt on private corporations by the Liberal Government would indicate this is the case since it directly contradicts their mandate to build a strong middle class.

Comparing a private-sector and public-sector worker

It is at this time I would like to introduce Sally.  Sally could be a physician or accountant, an engineer or architect, a therapist or life coach, or a hairstylist or clothing retailer.  Suffice to say that either out of choice or necessity, she is self employed.  Let’s make her a plumber who is in a position where it makes sense for her to incorporate because she can defer income within her corporation and income split with her spouse under present tax legislation.  Her spouse works part-time.  Their situation can be summarized as follows:

  • Sally’s taxable corporate income: $100,000
  • Spouse’s gross income: $25,000
  • Net income required to meet their lifestyle: $80,000
  • Spouse’s CPP income: $4,300

Continue Reading…

Men and women approach taxes & investing differently

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By Gennaro De Luca

Special to the Financial Independence Hub

Anyone who is in financial services, and especially wealth management, knows there are big differences between men and women in terms of how they invest. But what isn’t as well known is that there are also big differences between men and women when they do their tax returns.

I started working at a bank at the age of 19, have been in financial services since 1990, and have spent the past 18 years in wealth management. But I also have a company that specializes in doing tax returns for small businesses, families and students. All this experience has provided a lot of insight into how men and women differ when it comes to financial matters.

Let’s first look at tax returns. Nine times out of ten it is the woman who takes the bull by the horns to get the family’s taxes done. Women tend to be more involved and are much more apt to ask questions of their accountant or tax preparer. Men may not ask any questions at all; they just hand over their documents and see you later.

What kind of questions am I talking about? Women want to know things like this:

  • What kind of tax credits are we eligible for?
  • Are there any government benefits we are eligible for?

That latter point is especially important for women who have small children. Indeed, many young families are really squeezed nowadays, so every opportunity for a tax break is vital.

Here is a perfect example from a client that illustrates what I mean. The woman is a teacher who could claim certain expenses for driving her car to work. Her husband is not a teacher, but does work for an employer. She asked us if her husband is also eligible for this same deduction because, like her, he drives a car for his employer and has lots of expenses.

As it turned out, he was eligible for what is known as a T2200, which is a declaration of conditions of employment –- effectively work-related expenses –- and in his case it meant deductions of $10,475, which resulted in a tax saving of over $3,000 on his tax return. But if his wife had never asked the question, none of this would have been claimed.

Men are more resistant to change

Another difference with doing taxes concerns technology. Today more than 80% of tax returns in Canada are done digitally, Continue Reading…

Making Canada great again

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By Trevor Parry

Special to the Financial Independence Hub

I have to apologize to my CFL fan friends, particularly in Saskatchewan, where I have found it the rule rather than the exception to find a shrine to the fabled “Riders” in clear site in most offices.  The game just doesn’t do it for me.  The one, two punt monotony of the game isn’t overcome by the stoic resolution to play in Stalingrad like conditions on the Prairie in late fall.

With his second foray into Budget making, Finance Minister Bill Morneau’s attempt must be described as nothing more than a punt.  In this instance they have kicked away the ball to see what the offense south of the border will do.  For fiscal conservatives, who believe budgets should only go into deficit when faced with financial calamity, rather than to send the swag to the long list of Liberal sacred cows, pet projects and friendly consultants, this Budget was more of the same Keynesian dirge, although with veiled threats of further confiscation of wealth.  Certainly Prince Justin and LSE alumni Billy are taking marching orders from the reconstituted politburo to lay low and wait to see what The Donald can get through.

The Trump tax reform package, which despite the recent  (and what I am sure will be a temporary) hiccup in repealing and replacing Obamacare, will likely enjoy complete GOP support and support of Democrats concerned about re-election in 2018,  is the most ambitious tax plan to see the light of day since the days of Ronaldus Magnus.  It puts the Trudeauopian punitive “tax the hell out of everyone who wants to save 10 cents” dictum in definite jeopardy.  It would reduce all tax rates, including the top rate down to 33% from to 39.60%.

Canadian top tax rates kick in at just $200,000, half that of the US

Canadians should know that the top bracket in the US doesn’t kick in until you hit an income of US$418,000 as an individual, $470,700 if you file jointly and $444,550 if you file as a head of household with dependents.  Remember the Little Prince cancelled the miniscule Family Tax Cut ($2k) professing claims of “fairness”.  Canadian top rates kick in at C$200,000.

Continue Reading…