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.

How to avoid a CRA Audit

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By Amit Ummat

Special to Financial Independence Hub

Our firm is a tax boutique with all kinds of clients and all kinds of tax issues. They may be corporations, individuals of high net worth, business people, and entrepreneurs running smaller enterprises. They can also be retired professionals.

One of our clients is a retired doctor from Alberta who owns several Canadian properties. He moved from Alberta to Ontario so he could be close to his sister, but he still owns that property in Western Canada. However, the Canada Revenue Agency is not satisfied that his Ontario residence is his primary residence – it is – and demands back taxes.

Unfortunately, the CRA often takes the view that one is guilty until proven innocent, which is why so many people require professionals like lawyers and accountants to help them in their tax dealings with the federal government.

We also have clients with stories that are heart-breaking. And make no mistake, the CRA is anything but a purveyor of mercy when it comes to taxes. It doesn’t matter if you are a multi-millionaire or a single mother with kids whom they deem to be in tax arrears.

Regardless who you are and your particular situation, one thing everyone has in common is that no one wants to be audited. According to the CRA’s Annual Report to Parliament, in fiscal year 2020-2021 the agency conducted 245,000 audits of individual tax returns and another 41,000 audits of small- and medium-sized businesses. Generally speaking, the CRA can only audit someone up to four years after a tax return has been filed. However, in some cases — such as in suspected fraud or misrepresentation — the CRA can go farther back and, in fact, there is no time limit for such a re-assessment.

Of course, many of our clients are self-employed, but as mentioned we also represent professionals and businesses who are required to keep their own books, as well as clients who operate other cash-based businesses. It just so happens that these groups are usually audited more often than others. So, if you belong to a group that is already under some scrutiny, it’s important to audit-proof your business.

How do you do that?

Indeed, one of the most common questions we get asked is “How do we avoid audits by the CRA in the future?” Well, there is no simple way. It’s not like taking a pill. But I have compiled a list of ten tips that should help you to remain audit-proof. Let’s have a look at them:

  1. Check and double-check your return after you complete it. This is especially true if you do the return yourself. Keep in mind where this return goes. It goes to the Canada Revenue Agency. If they discover a mistake – even if it’s an honest mistake on your part – they may conclude it was done for a reason. I have many examples of well-documented transactions being rejected due to the taxpayer’s failure to file a routine election. This is why it’s better to avoid mistakes as much as possible.
  1. Keep detailed records. I cannot stress this enough. The fact is some expenses and deductions are audited more than others. I had a client recently who was reassessed vehicle benefits because he didn’t have a log book. It was a huge headache, but we got him his relief. Ensure that you keep meticulous records of all these expenses.
  1. Make a point of filing correctly the first time. Amended returns can and often do draw scrutiny to your filing position. I have seen people forget to report a sizeable deduction. Once it was reported on an amended T2, the CRA conducted a full-scale audit. And this is a large public corporation.
  1. Properly document any unusual changes to your filing position. What exactly does that mean? If you are suddenly earning double the income from one year to the next, or you are claiming an unusual capital expense, do not be afraid to explain it in your return.
  1. Try not to claim unrealistic deductions. Home office expenses, especially these days in the post-Covid world, are often claimed. But if you are claiming half of all your home expenses, you may be audited. Likewise, if you ascribe 100% business use to a vehicle, you may be audited for that.
  1. As much as possible, try to fly under the radar. In other words, do not make it easy for the CRA to single you out as a person or business that should be audited. Examples of not doing this could be things like excessive charitable donations, very low income while living in a mansion, or participating in tax shelters. All of these will raise red flags that may result in an audit.
  1. File on time. This is pretty basic, but you would be surprised how many people and businesses file late. There really is no excuse not to comply. Late returns are never a good idea and opening the door to a potential audit is only one of the reasons to avoid doing this. It is always better to file on time. Continue Reading…

The 5 factors needed for timing your Retirement, and a 6th that shouldn’t be

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My latest MoneySense Retired Money column reprises a couple of interesting takes on the key factors in deciding one’s timing of taking on Retirement. You can read the full column by clicking on the highlighted headline here: The 5 Factors of Retirement for Canadians.

One take is from the Plutus-award winning US blogger and author Fritz Gilbert; the second a Canadian take from MyOwnAdvisor’s Mark Seed.

Gilbert started the ball rolling back in April with a blog on his The Retirement Manifesto blog, entitled The 5 most important factors in your decision to retire. Gilbert is also the author of a book on retirement: Keys to a Successful Retirement. After more than 30 years in Corporate America, Fritz retired (as planned) in June 2018 at Age 55.

Then this site, as it often does with bloggers’ permissions, re-reran Gilbert’s blog late last year. It was then noticed by Mark, who was inspired to write his own version of the blog, with more of a Canadian spin and remarks on his personal perspective. It was also republished on the Hub.

So what was it that so intrigued three different financial bloggers (I’ll count this blog and the MoneySense column as evidence that three of us found it worthy of a write-up)?

Fritz Gilbert

Succinctly, here are the five factors originally identified by Gilbert:

  1. Do you have enough money?
  2. Are you mentally prepared for Retirement?
  3. Have you made a realistic spending estimate?
  4. Is your portfolio ready for withdrawals?
  5. What’s your risk tolerance?

            By now, you may be wondering about the mysterious sixth factor which in his blog Fritz says “doesn’t really matter at all.” Strangely, he adds, many people consider it to be the most important in their decision.

            Spoiler alert: if you like a bit of suspense, read Fritz’s original blog before proceeding. For those who want the quick-and-dirty reveal, if you’ve not already guessed, it’s your age. Or as Fritz wrote: “For once in your life, age has nothing to do with this decision.  Unlike driving, voting, and drinking, there are no legal constraints on when you can choose to retire.  As long as you can check the boxes on the important factors listed earlier, you can choose to retire regardless of your age.” Continue Reading…

5 Best Apps for Budgeting & Financial Planning

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Image by unsplash/Kelly Sikkema

By Devin Partida

Special to Financial Independence Hub

Budgeting is hardly exciting, but it’s key to getting finances under control. However, making a budget and sticking to one isn’t always easy. That’s why we could all use some help now and then.

Consider using budgeting and financial planning apps to maintain disciplinary action. Here are the best budgeting apps on the market.

1. You Need a Budget [YNAB]

YNAB earns a spot on this list because of its proactive budgeting approach. It offers the ability to sync bank accounts, import data, and manually enter transactions.

Once users sign up, they can create a budget and assign each transaction to a purpose. For instance, they might like to use the app for car payments or mortgages.

The app’s goal is to get users one month ahead. That way, they spend money they earned over a month ago. Essentially, the app gives customers a complete budget overhaul. It also provides users with top security to protect their information and gives them additional resources for staying on track.

This app costs US$98.99 per year or $14.99 per month and offers a 34-day free trial. [All figures below are in US$]

2. Goodbudget

Goodbudget has a free version with ads. Or, users can pay for an ad-free version that costs $7 per month or $60 annually.

Goodbudget is a useful budgeting app that allows users to create and stick to budgets – and keep track of their debt to pay it down faster.

In addition, it helps with money management. That way, users know where their funds are and how they perform.

Users also have easy access to their accounts, as they can use them on the web and on multiple phones. In turn, people can easily share their accounts with others and stay financially connected. This is valuable for some, as it prevents miscommunication and mishaps.

The app also syncs each transaction to the cloud. And some reports show the finances in greater detail – as well as pie charts and other updates to track spending.

3. Mint

Mint is another great budgeting app, as it has high ratings in the App Store and Google Play. It’s also free and syncs with various bank accounts, including checking and savings, loans, credit cards, and more.

Mint works by tracking users’ expenses and placing them within budgeting categories. You might have categories of your own ready to go in a spreadsheet. Mint lets users more fully personalize their categories and set limits to maintain their budgets. Once users approach those limits, Mint will notify them within the app. Continue Reading…

 Budget and Stick to it: 18 Steps

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Image courtesy Terkel/Pexels Kindel Media

To help you create a budget and stick to it for achieving your financial goals, we’ve gathered advice from 18 professionals, including CEOs, founders, and VPs. From leveraging public accountability to reviewing and adjusting your budget regularly, these experts share their top steps to take for effective budgeting and saving. 

  • Leverage Public Accountability
  • Negotiate Lower Fees
  • Celebrate Budgeting Successes
  • Automate Your Savings
  • Identify Cost-Cutting Opportunities
  • Track Expenses and Income
  • Eliminate Unnecessary Expenses
  • Create a Realistic Budget
  • Prioritize Necessary Expenses
  • Monitor Financial Metrics
  • Automate Savings Consistently
  • Use the 50/30/20 Rule
  • Utilize a Monthly Bill Calendar
  • Limit Online Shopping Access
  • Establish a Purpose and Set Goals
  • Use Cash Stuffing With Discipline
  • Create Organized Sub-Budgets
  • Review and Adjust the Budget Regularly

Leverage Public Accountability

In my personal journey toward financial wellness, one of the most effective strategies I’ve employed is leveraging public accountability to create a budget and stick to it. I started by sharing my financial goals with my circle of trusted friends and family, which made the goals feel more real and tangible. 

Whenever I felt tempted to stray from my budget, the thought of explaining my overspending to them motivated me to resist. In fact, one time I was really close to buying an expensive gadget on a whim, but the idea of having to admit this unnecessary expense to my accountability partners made me rethink, and I decided against it. 

Using public accountability in this way can be a powerful tool to reinforce your commitment to your financial goals, and I encourage you to try it.  — Antreas Koutis, Administrative Manager, Financer

Negotiate Lower Fees

One example of a strategy not commonly undertaken when creating a budget is to negotiate lower fees on existing bills such as cable, internet, or cell phone plans. 

As the market becomes increasingly competitive, companies are more likely than ever before to reduce customer bills if they know they may otherwise lose that customer’s business. 

This can lead to significant savings without having to decrease spending on existing items. With the resulting saved money, you can then allocate it towards your financial goals, more easily allowing for what was once considered unattainable! — Carly Hill, Operations Manager, Virtual Holiday Party 

Celebrate Budgeting Successes

Creating a budget and sticking to it, in my opinion, is difficult work. Celebrate your accomplishments along the way. In the long run, I believe that this will make it easier for you to stay on your budget and will help keep you motivated. 

Treat yourself to a small reward if you reach a savings goal or pay off a debt, for example. Just make sure the prize is within your financial constraints! — Bruce Mohr, Vice-President, Fair Credit

Automate your Savings

A lot of people tell you to pay yourself first. I think a better approach is to save for yourself first. Set up automatic transfers to your various retirement and savings accounts. That way, the money isn’t just sitting in your checking account and tempting you. 

This works even better when you have high-yield savings accounts and retirement funds that aren’t linked to your main bank account. Spending habits are hard to break, but it can be easier to form new ones if you automate your savings. — Temmo Kinoshita, Co-founder, Lindenwood Marketing

Identify Cost-Cutting Opportunities

Of course, the goal of budgeting is to save money, but one step you need to take in order to be successful and reach your financial goals is to look for ways to save. You can do this by reviewing your budget and pinpointing areas where you can cut costs to save money. 

For example, if you find that you spend a lot of money on going out to eat, you can cut down spending here and instead cook your meals, which ultimately will be the cheaper alternative. 

You may also cancel subscriptions you don’t use or negotiate your bills with your service providers to see if you can get a discount. Overall, there are multiple ways to cut down your spending and save money—you just need to figure out which areas you can negotiate or compromise! — Bill Lyons, CEO, Griffin Funding

Track Expenses and Income

You can find areas where you might be overspending or where you can reduce expenditures by keeping track of your expenses and income. Additionally, you may utilize this data to make wise decisions on future purchases and investments, ensuring that you are deploying your resources as effectively and efficiently as you can. 

You may keep yourself motivated and on track to accomplish your goals by routinely evaluating your financial accounts and your progress toward them. Additionally, it can assist you in seeing future difficulties or obstacles, enabling you to modify your plan and change the route as necessary. — Michael Lees, Chief Marketing Officer, EZLease

Eliminate Unnecessary Expenses

A major problem people have when sticking to a budget is the little purchases they make along the way. Many of us are guilty of ordering takeout after a long day of work, picking up a daily Starbucks order, or wasting groceries. 

While these small purchases may seem innocent enough, they quickly add up and get you off track toward reaching your financial goals. Before making a purchase, ask yourself, do I need this? Or if you need extra motivation, consider how many hours of work it takes you to purchase these daily items. 

By cutting out or at least reducing some of these mundane purchases, you’ll notice your bank account feeling a little healthier and lower stress knowing you have enough money to put towards your financial goals and still pay your bills. — Brandon Brown, CEO, GRIN

Create a Realistic Budget

Often, I see people attempting to budget just for the sake of budgeting without considering its implications on their overall lifestyle. If you want to religiously follow your budget, make it realistic. Realistic financial goals will provide you with a head start in creating an achievable and sustainable budget.

Create a budget that takes into account not only your financial goals but also your lifestyle behavior and the situation you are in right now. If you regularly eat out, set aside money for that based on how much you anticipate spending and how much you are willing to spend.

Moreover, don’t make your spending plan too strict. What’s the purpose of working if you can’t occasionally treat yourself to a sumptuous meal or a new pair of boots? After all, you deserve to feel human.

If you don’t make room for the things you want, you’ll eventually give in and ruin your spending plan. Just make sure to plan ahead and remember that the ultimate goal is financial security and independence. — Jonathan Merry, Founder, Moneyzine

Prioritize Necessary Expenses

Pay all your bills before buying anything discretionary. When you’re trying to save money, it’s essential to cover all necessary expenses before you try setting money aside. This way, you have a better idea of how much money you have left for casual spending and savings. 

Paying any obligations first allows you to avoid surprise expenses after you’ve already started spending, which in turn helps you avoid having to pull money out of your savings. The best way to stick to your budget is to pay what you need to first. — Max Ade, CEO, Pickleheads

Monitor Financial Metrics

Entrepreneurs should track financial metrics to monitor their success. A metric for entrepreneurs to measure is customer lifetime value, which is the total amount of revenue that one customer generates during their entire interactions with the business. 

Monitoring this metric helps entrepreneurs understand how much revenue can be expected from a single customer and what marketing strategies are most effective at keeping them engaged. 

Additionally, tracking customer lifetime value allows entrepreneurs to maximize their returns on investment as they can target customers who spend more money and reward existing customers who have already demonstrated loyalty and commitment. — Julia Kelly, Managing Partner, Rigits

Automate Savings Consistently

Automating savings is a surefire way to help you stick to saving money and reaching your financial goals. Too many situations can thwart your best intentions to regularly add to your savings yourself: mainly forgetfulness since an additional task is the last thing anyone needs.

If you don’t automate, you may rationalize not regularly adding to your savings account because of an extra purchase you think you need or deserve. That could snowball into a pattern of doing it less than you initially wanted or not at all.

“Out of sight, out of mind” is an advantage of automating your savings: If you don’t see that money sitting in your checking account, you won’t spend it.

Disabuse yourself of the notion that you need a large amount of money for an automatic savings plan. Start with $5, $10, or $20 at a time. You can increase that by looking for ways to decrease your expenses, such as comparison shopping for your car and home insurance or requesting lower interest rates on credit cards. — Michelle Robbins, Licensed Insurance Agent, Clearsurance.com

Use the 50/30/20 Rule

To create a budget and stick to it, prioritize your expenses and allocate your income with the 50/30/20 rule. This rule suggests that 50% of your income should go towards necessities like rent, utilities, and groceries, 30% should go towards discretionary spending such as dining out and entertainment, and 20% should go towards saving and paying off debt.  Continue Reading…

How to Live Life to the Fullest when you don’t have a Lot of Money

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Image by Pixabay.com

By Beau Peters

Special to Financial Independence Hub

They say that money doesn’t buy happiness. But when funds are tight it sure can feel as though life is a little constrained. You may constantly feel as though you’re missing out on opportunities or fun events.

Learning to live within your means is a hard lesson, but many people who achieve it never feel as though they are going without. In fact, most have found ways to live their lives to the absolute fullest. Sometimes all that is required is a change of perspective or a minor reorientation of values.

It may come as somewhat of a surprise, but having a great and fulfilling life often isn’t tied to how much money you make or the fancy things you’re able to spend it on. Some of the most important things that really make life worth living don’t cost much and many come for free.

Improve Life, Save Money

Entertainment can be one of the draining items on your budget. A couple drinks with co-workers after work one night, going to a show with a gal pal another, maybe paying for tickets to the big game the next. It seems like everything fun costs money and over the course of a week or a month that really adds up.

But not all hobbies have to cost a lot of money, or really any money at all. Rather than grabbing drinks after work, you can invite people over to your house to hang out around the fire pit and have a potluck-style barbeque. Or instead of going to a show with a friend, you strive to attend free local events like music in the park, farmers’ markets, or explore new neighborhoods. Maybe instead of paying for a ticket to the big game, you can invite your friends to a tailgate in the parking lot. Continue Reading…