Tag Archives: taxes

Make the Family Cottage less Taxing this year

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Cottage On The Carpenter Lake, Canada

By Fraser Willson

Special to the Financial Independence Hub

As the days of summer dwindle to a precious few, the last few weekends at the family seem especially poignant now. And while those thoughts may warm you up a bit, you don’t want to be left out in the cold if you’re not aware of the financial implications when you sell the family retreat or if you transfer ownership to your children this year.

Unlike with your home, transferring ownership of the family cottage to anyone other than your spouse may trigger a taxable capital gain on the appreciation in value during your ownership. You may want to consider leaving the property to your spouse. Doing this helps defer the tax bill until the property is sold or passed on to future generations.

In addition, there are a number of strategies that you can undertake to help reduce and potentially avoid the capital gains tax, including:

Selling and taking back a mortgage

If you decide to sell the cottage to your children, consider taking back a mortgage by offering your children a mortgage loan as payment for the purchase price. The capital gain can be spread over a period of up to five years. And you can forgive the mortgage in your will so your children will own the cottage without debt or paying taxes.

Transferring ownership while you’re alive

Transferring ownership of the cottage to a trust that designates your children as beneficiaries will trigger an immediate capital gain. But from that point on, your heirs are responsible for taxable gains. They won’t pay those taxes until they sell the property or transfer ownership.

Declaring the cottage as your principal residence

You can have only one principal residence for tax purposes. So if your cottage has gone up in value more than your home, consider designating the cottage as your principal residence, which isn’t subject to capital gains tax.

Buying life insurance

Family members can use the tax-free proceeds from a life insurance policy to help pay capital gains taxes on your cottage when you leave it as part of your estate.

If you plan to sell or transfer ownership of your family cottage this year, make sure your finances align with your goals. Doing so can help ensure you stay on track to reach them.

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Upgrading technology in the Victory Lap

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Depositphotos_107159416_s-2015One of the key elements of the post-corporate Victory Lap Retirement lifestyle is self-employment. If this begins in your late 50s or early 60s, you’ll be living on multiple streams of income. Some of it may be passive, such as pension income (I draw from two modest corporate pensions, for example) or non-registered investment income, but a big component is continued earned income.

If you are no longer a salaried employee, it’s probably best to set up a sole proprietorship or even incorporate. I’ve always run a corporation alongside salaried employment and have found that once you’re fulltime in business for yourself, It’s hard to generate as much pre-tax income as a salaried corporate job does. However, there are significant compensations in time and flexibility, plus the net after-tax proceeds of self-employment are relatively more attractive than being a fully-taxed-at-source salaried employee.

One reason is the allowable deductions or “write-offs” for legitimate business expenses, which may include certain computer equipment, software and some services. Obviously you should consult with a tax professional and engage an accountant because you don’t want to trigger an audit from the Canada Revenue Agency. After all, it’s clear the new Liberal government regards self-employment with suspicion: my guideline is to “assume an audit” and act accordingly.

Time to upgrade equipment

I am writing this article on brand new equipment that replaces products that were as old as six years. My fiscal year-end is the end of May and it’s been a decent year revenue-wise, so it seemed like a good time to book some legitimate expenses. Those whose calendar year-end correspond with their fiscal year (i.e. Dec. 31st) would go through this process at the end the calendar year.

241362-apple-macbook-air-13-inchIn my case, apart from the tax considerations of booking valid deductions, it really was time to upgrade the single most important business tool I use, which was an Apple MacBook Air.

After six years the machine had just about used up its storage and processing capacity and I had begun to lose significant chunks of time rebooting and closing applications. Continue Reading…

Climb into a higher tax bracket — and save money

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MoneySense.ca has just published the second instalment of my new Retired Money columns. Click on the highlighted headline for the full piece: Climb into a higher tax bracket — and save money.

Yes, the concept may seem at first blush a bit contradictory but strange things can happen when you’re in the netherworld between full-time employment and full-stop retirement.

A period of semi-retirement (or what we call Victory Lap Retirement in an upcoming book I’ve written with Mike Drak) brings with it various opportunities to pay a little more tax than necessary while you’re “basking” in a relatively low tax bracket, in order to pay a lot less tax once those large RRSPs grow into even larger RRIFs and their forced annual (and taxable) withdrawals once you reach age 71.

dougdahmer
Emeritus Financial Strategy’s Doug Dahmer

One of the sources for the piece is Emeritus Financial Strategies’ Doug Dahmer, a Hub contributor who has penned many blogs on this theme, most of them housed in the Decumulate & Downsize section. Doug is pictured to the right.

Check out some of his earlier Hub guest blogs:

Debt is more than a four-letter word during your drawdown years. 

Timing of CPP Benefits: Get both a bird in the hand and two in the bush. 

A Rare Breed of Financial Planner. 

Withdrawing from your Retirement Nest Egg

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MarieEngen
Marie Engen, Boomer & Echo

By Marie Engen, Boomer & Echo

Special to the Financial Independence Hub

You’ve been saving all your working life and now that you have entered your retirement phase, it’s time to start drawing from your savings. In some circumstances there will be people who will be able to live off their dividends and interest alone. Most retirees, however, will have to start spending the money they have saved.

Once you have decided on the amount of income you need annually for your retirement lifestyle and determined how much of it will come from your guaranteed pensions, the remainder must be withdrawn from your nest egg.

You may have multiple accounts and both registered and unregistered savings. Your investments could be stocks and bonds, ETFs and/or mutual funds. You might be in a position where you must withdraw a minimum amount from your RRIFs.

This example will show you how you can manage your retirement withdrawals, taking the total of all your accounts as a whole. It assumes dividends and interest will be reinvested, but you can use them as part of your yearly cash allotment if you so choose. You just have to adjust as necessary.

A model for retirement withdrawals

Meet newly retired Rodney and Pamela O’Brien. They have a retirement nest egg totalling $500,000. Continue Reading…

Debt is more than a four-letter word during your drawdown years

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Doug Dahmer

By Doug Dahmer, Emeritus Financial Strategies

Special to the Financial Independence Hub

 The month of April is always a particularly busy time for Retirement Income Specialists. One of our key roles is to provide each of our clients with a year-by-year draw-down recipe: outlining how much and where to source their annual cash flow needs.

The ultimate goal is not to minimize the amount of income tax they pay on any given year, but instead to minimize the amount of tax they pay over the balance of their lives. (Please note these two goals are frequently confused, and seldom accomplished simultaneously as often you will need to pay more tax sooner in order to pay significantly more later.)

One of our many sources of insight for the guidance we provide is found within our clients’ annual tax returns. At the same time our clients’ previous year’s tax returns act much like a report card, keeping them informed as to how well we performed our role over the previous year, as we endeavor to accomplish this important long term goal.

Debt can more than offset taxes

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