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.

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…

The Canada Child Benefit – 4 key planning points to consider

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By Aaron Hector, Doherty & Bryant Financial Strategists Inc.

Special to the Financial Independence Hub

Budget 2016 introduced a new child benefit program called the Canada Child Benefit (CCB). This program replaced the UCCB, and despite their similar acronyms, they are very different from one another.

The U in UCCB stood for universal, and it was just that. Every Canadian resident family with a child under 18 received a benefit. For children aged 0-5, the amount was $160/month and for children aged 6-17 the amount was $60/month. This benefit was taxable as income to the lower income earning spouse (or single caregiving parent).

In contrast, CCB payments are tax-free. Eligibility for CCB payments are based on your family’s combined net income. The word “net” is important as it leads into other tax planning ideas that we will explore a little later on. In general terms, when compared with the UCCB the new program provides a higher benefit for lower and middle-income families at the expense of reduced benefits for high-income families. The specific calculation is as follows:

Step 1 – Calculate the maximum benefit

1. For each child aged 0-5 there is a maximum benefit of $6,400
2. For each child aged 6-17 there is a maximum benefit of $5,400 Continue Reading…

Helping Boomers create their own Victory Lap Retirement

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Victory Lap Retirement is currently #7 on the Globe & Mail’s Canadian non-fiction bestsellers list

I’ve been working hard on my year-end review and goal setting, which I will share with you in next week’s blog. I’m excited by what we have accomplished over the past year, but recognize that there is still a lot to do in the years ahead.

My co-writer Jonathan and I are on a major mission and that mission is made up of two parts:

1.) To convince investment advisors to adopt a more holistic approach and provide quality lifestyle planning assistance to their clients.

2.) To teach young people about financial independence, or Findependence as we like to call it, so that they can get off to a good start in life.

It’s a big job, but it’s something that we just feel the need to do.  Call it our way of giving back to the community! Today, I would like to expand on the first point a little more.

Retirement planning, as it is done today, is inadequate. We are constantly being told by the financial services industry that the more money we save for retirement, the better our retirement will be. This causes a lot of stress for people and the message they are sending is simply wrong.

Financial Planning Fails without Lifestyle Planning

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