Commentary Archives - Page 11 of 13

RESPs: free money from government that half of Canadians don’t ask for

According to Statistics Canada, less than half of parents take advantage of free money from the government. Any Canadian can open a Registered Education Savings Plan (RESP) for their child. And the best part is that for every dollar you put into the plan, the government kicks in an extra 20 percent towards the cost of paying for education expenses. There are also additional programs for low-income families that receive government help. While there are rules regarding the government portion, you have options available to you if the child named in the RESP doesn’t attend university or college.

Key Takeaways:

Even if you don’t have money to put into it right now, open an RESP so you can add as little as $5-10 when you can.
The government contributes through the Canada Education Savings Grant (CESG), which provides 20 cents for every dollar contributed, up to a maximum of $500. Depending on your income, the contribution may be even higher, and you may qualify for the Canada Learning Bond.
The CESG allows families to carry forward unused contribution room, so you can catch up from the previous year’s contribution.

“Millions of Canadians struggle under the financial burden of parenthood…It’s hard enough to pay the bills, let alone save for the kids’ education. That’s why it’s so baffling that less than half of those eligible participate in a program offering parents free money for their kids post-secondary education.”

How to ensure a smooth succession

While succession is a common and complex problem for many business owners, most have not put adequate time into preparing for it. In fact, according to a 2016 survey of business owners, only 8 percent had a formal, written succession plan in place. This lack of preparation puts this group at significant risk should they exit the business sooner than expected. It’s important to set the company up for the next generation of leadership with a strong financial foundation, tax plan, and legal structure. If the company is being handed over to a family member, it’s crucial to have a development framework in place so that the individual has a leadership roadmap. Finally, be sure to communicate with employees early and often about succession plans, so that they remain loyal and are not caught by surprise.

Key Takeaways:

Goals: What are they? Increasing wealth for your retirement or the business.
Planning: Do the key players know who they are and what they should do.
Knowledge: What is the real worth of your business and can you retain needed employees as you transition.

“As the saying goes, nothing is certain but death and taxes. For entrepreneurs, you can add “exiting the business,” whether through a sale, transfer to the next generation or their own passing.”

The top 10 things the taxman may review on your tax return

After you’ve submitted your tax return, here are the items that Canada Revenue Agency (CRA) is likely to question. This list is based on conversations with several tax professionals, and from a list by the CRA of the most common mistakes found on Canadian tax returns. The top ten items deal with: employment expenses, carrying chargers, moving expenses, medical expenses, charitable donations, capital gains & losses, allowable business investment losses, tuition credits, student-loan interest, and providence of residence.

Overall, receipts are key, and also knowing what you can and can’t claim. For instance, a lot of people try to claim non-deductible things like safety deposit box fees and brokerage fees, and there’s still a lot that can’t be claimed on medical expenses like vitamins or over-the-counter medications cannot be claimed.

Key Takeaways:

Employees are not allowed many deductions on employment expenses. Improper employment expenses should not be deducted because auditors scrutinize this area closely.
People sometimes fail to keep valid receipts. Make sure you have documentation, such as receipts, for all your deductions.
Changing your province of residence can result in increased scrutiny.

“The following is a list of the top 10 items that the taxman is likely to question.”

Prepare Now For These 3 Emergencies You’ll Probably Face

No matter how healthy and hardworking that you are, life can always hit you with sudden emergencies that can throw you off course. Some of these emergencies can be predicted and prepared for. People are living longer and as your parents age you need to be prepared emotionally and financially to care for them. Stress and anxiety can effect all of us and it’s important to seek care before it gets out of control. You also need to be prepared financially for any inheritance you receive, invest wisely and make it last.

Key Takeaways:

Unfortunately, we are all likely to experience a parent who becomes ill and/or passes away, and over the next decade or so will see many people step into caregiver roles.
According to the Centre for Addiction and Mental Health (CAMH), one in five Canadians experience a mental health issue in any given year, making it a leading cause of disability.
With life expectancy being higher than ever before, many Canadians will need to ensure they have enough money to fund their retirement years so they can live the type of full lifestyle they want.

“Life, and death, happens. It struck me that what tied these two experiences together was the lack — and importance — of preparation. This got me thinking about several life events that will be trending over the next several years as baby boomers age, but that impact each of us, and why it’s critical that we’re ready.”

5 Things To Know About Canada Pension Plan Changes

If you’re looking to retire, then you’ll want to know about the changes to the Canada Pension Plan (CPP) and how they will affect your retirement income. Federal Finance Minister Bill Morneau announced a suite of changes after meeting with his provincial counterparts in December 2017. Here are five things Canadians should know regarding the changes.

Key Takeaways:

Time off work for children or disabilities will not reduce retirement benefits for Canadians.
Instead of “drop out” years, benefits will be calculated with a 40-year accrual that will set the income for non-working years.
Survivors benefits will be paid regardless of age, dependent children or disability, and a lump-sum death benefit of $2,500 instead of being calculated based on a deceased’s earnings.
A lump-sum payment upon a person’s death will be set for everyone at $2,500, instead of being calculated based on a deceased’s earnings.
The government says there won’t be an increases in CPP contribution rates, but Canadians will have to wait until the chief actuary assesses the costs and effects of all the measures once the Liberals table the necessary legislative amendments to the CPP.

“The government says the changes won’t require increases in CPP contribution rates.”

Here’s what to do when you take over a parent’s finances

According to Statistics Canada, 17 percent of Canadians are over 65, and 90 percent agree it’s important to discuss finances with their parents. However, over 60 percent hadn’t had a conversation on what would happen in the event of the death of a parent or if they were otherwise unable to handle their finances themselves due to long term illness or incapacitation. The issue is further complicated by the fact that few people are well versed in the finer points of personal finance. This makes estate planning – i.e. having that discussion and making plans before the worst happens – even more important.

Key Takeaways:

The first thing you should do with your parent’s investments is take inventory of what they have in the first place.
Take a close look at your parent’s income and expenses to make sure you know how they are funding their lifestyle and whether it is sustainable.
Ensure that your parent’s tax returns are up to date, as some seniors may be entitled to government benefits and others may owe money on their taxes since neither investment income nor minimum withdrawals from a RRIF are required to have tax withheld at source.

“I think it is important for children to try to talk to their senior parents about money, even if it is short, sweet and high-level.”

Is your small business properly protected with insurance?

Regardless of what industry your business is in protecting it is vital. There are a number of different types and ways to protect your business to ensure that your business, employees and investment aren’t at risk. Business owners should have some form of insurance and the correct amount for all your assets. Without the right protection and coverage, you’re gambling with your business. A thorough plan should include insurance, safety plans as well as a continuity plans to survive a disaster or sudden loss of key people. This protects your yourself, the business, and your employees.

Key Takeaways:

Premiums will likely cost you less than dealing with something without insurance.
Choose an insurance broker who is knowledgeable about your industry and is aware of all aspects of your business.
Have a business continuity plan in place to ensure that your business continues to run smoothly even in the event of an emergency, and to review this plan on a regular basis.

“Although you can’t always prevent disasters, putting policies, procedures and protections in place will help mitigate the fall out from major events.”

4 Money Habits That Separate Building Wealth From Just Making a Living

Wealth is created not just by getting a well-paying job, but also by developing some small, healthy money habits. Using these habits can help you achieve financial success and independence, and set you apart from those who are struggling financially. Here’s a breakdown of some important money habits that people should to develop to help you not just make a living, but build wealth.

Key Takeaways:

Create multiple streams of income, which can include passive income from rental properties, stock dividends or interest from a high-yield bank account, so you’ll always have something to fall back on during lean times.
Live on less than you make, and use a formula like the 70/30 rule as a blueprint for how much to spend, save, invest and donate.
Grow wealth not just in your bank accounts, but in your whole community. Truly wealthy people, the ones who impact society and change our world views, understand that the more you give, the more those good feelings and vibes come back to you.

“The wealthy invest in themselves. They know the key to making their money work for them consistently over the long haul is creating an investment plan to create wealth. The plan should include regular payments into a mutual fund, a trading account and retirement accounts.”

Married? Common-Law? It’s complicated? Find out what happens to your taxes

The state of your relationship can impact your taxes. And if you change your status, it should be communicated to Canada Revenue Agency (CRA). CRA will need to know if you get married, consider yourself common-law partners or separate. Common-law regulations differ from official marriages and involve the time spent living together or sharing children. Marriages are easier to document as are legal separations, but regardless of status, both parties still need to file separately in Canada.

Key Takeaways:

A marriage typically increases the benefits and credits that you can claim on a tax return.
Married couples can claim their status as soon as it’s official through a civil or religious ceremony. Other couples are required be in a relationship for 12 consecutive months and live together before they’re eligible for common-law status for tax purposes. The exception is couples with children together, who are considered common-law the moment they start living together.
You can keep the CRA informed by downloading and mailing them the RC65 marital status change form.

“Whether you’re single, common-law or married, it’s good to know how your relationship will affect your taxes. Keep the CRA up to date to make sure you’re accessing all of the credits and benefits you’re eligible for.”

Take back control of your RRSP with these three easy steps

For any Canadian, who hopes to retire with a secure financial future, it pays to track your saving vehicles to maximize them. For instance, if you have an RRSP, then take the time needed to understand it, and specifically to pay attention to what your money is being invested in. You should understand how much of what your investing is in bonds, stocks, or other forms of securities. You should know what you are putting into your fund and how the fees are structured. Finally, you should expect and receive clear statements, showing the return of your investment in a regular and transparent way.

Key Takeaways:

Many investors are unclear on exactly what they own in their accounts, so it’s critical to know what type of financial products you own and what is their overall asset allocation between bonds and stocks, and ensure it’s within your risk tolerance.
Know what you’re paying for fees, and monitor what your returns are like by comparing them to benchmarks.
From a tax perspective, it’s also wise to look at where you earn those returns. For instance, it’s best to grow your TFSA, because your eventual withdrawals are tax-free. With a RRSP, your withdrawals will be taxed.

“Knowing what you own, knowing what you are paying in fees and knowing what you are earning in returns should be goals for anyone looking to take control of their RRSP.”