Year End Tax Planning #6 – Tune Up Your RRSP

The 2009 RRSP limit is lesser of 18% of 2008 earned income, or $21,000.  In order to maximize the return on your RRSP investment, you should consider the following:

• If you haven’t made your 2009 contribution yet, make it now.  The deadline is March 1, 2010, but why wait?  The faster you contribute, the faster your money starts to accumulate tax-free earnings.
• Start a pre-authorized payment plan.  By making your deposits monthly, you may be eligible to have your income tax withholdings reduced at source, and keep more money in your pocket all through the year.
• Contribute to a spousal RRSP.  If your spouse will have a lower-income than you during your retirement years, a spousal RRSP is a good way to transfer income from a high tax rate spouse to a low tax rate spouse.  It is an effective way to split income.

Talk to your investment advisor about these and other important RRSP planning ideas.

Francis

Year End Tax Planning #5-Make Your Investment Portfolio Tax Efficient

Now is the time to sit with your financial advisor and review, among other things, the following three points:

1)  Make Sure You are Earning Low Tax Rate Investment Income.

The current maximum tax rates for 2009 on $1 of investment income earned are as follows:

• 46.41%   Interest and other investment income
• 31.34%  Non-eligible dividends
• 23.20% Gross capital gains
• 23.06% Eligible dividends

It goes without saying then that the most tax efficient investment portfolios are the ones that earn eligible dividends and capital gains.  Review this with your invesmtnet advisor and where possible, keep those interest bearing investments to a minimum.

2)  Consider Tax Loss Selling Prior to December 31st.

In 2008 when the stock market took a nose dive, many taxpayers chose to sell their underperforming stocks to realize capital losses, and either offset capital gains already earned, or carry those losses backwards to any of the three preceeding tax years to recover taxes paid in those years.  This strategy however has always been applicable every year as we get closer to December 31st, not just in recessions.   Talk to your investment advisor now to see if there continue to be underperforming stocks that can be sold and the losses realized. 

3)  Have your GST refunded on discretionary management fees.

If you pay your broker discretionary management fees, then you have paid GST on those fees as well.  There was a recent decision rendered by the Federal Court of Appeal, involving the Canadian Medical Protection Association (CMPA) that confirmed the Tax Court of Canada’s earlier decision that discretionary investment management services are exempt from Goods and Services Tax (“GST”) in certain circumstances.  This means that you can apply to have that GST refunded for up to the last two years.  You need to complete CRA Form GST189E, and the facts of your situation must be comparable to the facts of the CMPA case.  There is still a chance that this may be overturned and the GST will continue to apply, but if the amount you have paid in GST is large, it would be worth filing the forms

Francis

Year End Tax Planning #4 – Don’t be a Lender to CRA

If every year when you file your personal tax return you receive a significant income tax refund, then you are effectively lending your money to CRA with no interest or other benefit.  That refund you receive is not found money, it is your earned money that could be in your pocket, or invested in your portfolio now.

These refunds may be triggered by RRSP contributions, or deductible child care expenses.  Knowing that you have these deductions available you, why not ask CRA to reduce the amount of income tax being withheld from you on your paycheck?  You still receive all of your eligible deductions, but you effectively get part of your refund on each net paycheck you receive.

Therefore, you should consider filing Form T1213 with CRA.   The form will guide you through what deductions qualify.  If CRA agrees, they will notify you and your employer’s payroll department, who can then reduce the income tax deductions accordingly.

Some of the expenses that qualify are:

• RRSP deductions (only if you contribute through a PAC plan)
• Child care expenses
• Spousal support payments
• Employment expenses
• Carrying charges and interest expenses

The form must be filed annually and you cannot be in arrears with CRA to qualify.

Francis

Grassroots advocacy-How the Chamber gives its members a Voice

Byline:  Francis Mackan, as reprinted from the Burlington Post

I just returned from four days in Victoria, B. C., where I attended the 80th annual Canadian Chamber of Commerce (CCC) conference.

Chambers from across Canada gather each year for the CCC’s annual general meeting and to participate in national policy debates. These policies, when formalized, allow the CCC to deliver the business community’s collective concerns to the federal government. The CCC represents 170,000 Canadian businesses, and these policies help shape the direction of the country on issues like finance, the environment and social issues.

In total, 361 representatives of 257 chambers of commerce debated 59 resolutions with 110 action points for the federal government to consider. It is the culmination of months of work by individual chamber members across the country, including here in Burlington.

While I applaud the important work our chamber does in providing networking and education opportunities for our members, I want to bring our advocacy work to the forefront so that our members can understand what an impact one voice can have.

Consider the impressive process that I witnessed in Victoria. Every policy resolution that we debated was started by a member of a local chamber of commerce, perhaps one who serves on a volunteer advocacy committee. That member convinced the committee that the issue at hand was of federal importance and so they researched and wrote a policy paper including recommendations for the government to consider. After being approved by the board of that specific chamber it was submitted to the CCC for inclusion in its annual policy debate.

And debate we did. If two-thirds of the 361 voting delegates agreed with that policy, it becomes official CCC policy. The CCC will now use its significant voice to lobby the government for change.

This is a powerful, non-partisan, grassroots process that I was privileged to be part of as I represented our 1,100 business members here in Burlington.

Advocating for our members is one of the most important things we do. Recently, we hosted business consultations with both federal Finance Minister Jim Flaherty and with John McCallum, the Liberal finance critic.

All this means that a single chamber member has a voice and has the power to be heard by a federal cabinet minister. Please visit our website www.burlingtonchamber.com for upcoming advocacy events including a Business Forum Oct. 29 with Eric Vandewall, new CEO of Joseph Brant Memorial Hospital and Oct. 27 with Ontario Revenue Minister John Wilkinson, who will discuss the transition to the HST.

Year End Tax Planning #3-Spousal Loans

One of the main things I talk to clients about is income splitting among family members.  Our mandate is to ensure our clients are paying the least amount of tax possible, and by spreading that income over as many people as possible, we can achieve this objective.

Spousal loans are one way to split investment income with your spouse and not trigger the attribution rules of the Income Tax Act (ITA).  Those rules stipulate that if one spouse gifts money to the other spouse, and that money is invested, then certain types of investment income are attributed back to the gifting spouse (which is typically the higher income earning spouse)

A spousal loan, drawn up in the specific, detailed manner prescribed by the Canada Revenue Agency (CRA), can be very effective in avoiding the attribution rules.  If the higher income spouse were to loan money, with interest charged, to a lower income spouse, that money can be invested by the lower income spouse and all investment income will remain in the lower income spouses hands, effectively saving taxes.

Why is this a hot topic?  The interest rate that must be charged on these loans are prescribed in the ITA, and are updated quarterly.  The rates are currently at an all time low of 1%, and can be locked in now for the life of the agreement.  If the interest rates rise, you keep that historic low rate.

There are many detailed steps in setting these loans up so talk to use before you enter into a loan agreement.  We will work with your financial advisor to effect the best loan possible.

Francis

Year End Tax Planning #2-TFSA’s

Some have described the new Tax Free Savings Account (TFSA) as the most important investment vehicle to come along since the introduction of the Registered Retirement Savings Plan (RRSP).   However, the TFSA is the mirror opposite of the RRSP, being that contributions are made with after tax money, and any withdrawals from the plan are tax free.  And just like the RRSP, earnings are accumulated free of tax.

Since the announcement and introduction of the plans in 2008, much has been written about its advantages.  More and more planning opportunities are being discovered, and judging by the number of accounts that have been opened, it popularity is increasing.

Don’t underestimate the power of the these plans.  You receive $5,000 of contribution room each year and it can be carried over if unused from year to year.  Withdrawals from the plan simply create more contribution room.

Here are the basics:

• plans can be opened and begin contributions in 2009
• Canadians 18 years and older are eligible
• Canadians can contribute up to $5000 a year to a TFSA. The $5,000 annual contribution limit will be indexed to inflation in $500 increments.
• unused contribution room is carried forward to future years
• unlike an RRSP, contributions to a Tax-Free Savings Account are not decuctible from income tax
• capital gains and other investment income earned in a TFSA are not taxed
• income earned in a TFSA does not affect eligibility for federal income-tested benefits and credits, such as the Child Tax Benefit or Guaranteed Income Supplement
• investments which qualify for a TFSA include anything arm’s-length that would also qualify for your RRSP qualified investments
• withdrawals are discretionary and can be spent on anything
• withdrawals are tax free
• withdrawals create contribution room for future savings
• contributions to a spouse’s or common-law partner’s TFSA are allowed. TFSA assets are transferable to TFSA of spouse or common-law partner at death.

If you haven’t considered this investment as part of your portfolio, then discuss with your financial advisor the benefits of opening an account.  The ability to invest $5,000 per year for an extended period could mean  significant tax savings for all taxpayers.

If you have further questions, contact us!

Francis

Year End Tax Planning #1-Home Renovation Tax Credit

This is the first in a series of posts to help you minimize your personal income taxes as we approach the fall of 2009, and in the not so distant future, the end of the taxation year 2009.

The Home Renovation Tax Credit (HRTC) is one of the most advertised and heavily touted tax credits introduced in recent memory.  On my recent visit with Jim Flaherty, he remarked that this credit was a result of listening to the public and the idea was generated out of a Business Consultation similar to the one we recently held with him.

The HRTC is a non-refundable tax credit that individual can claim on their 2009 personal income tax return for renovations and alterations to your principal residence, although your cottage may apply as well.  The expenditures must be of an enduring nature and that are integral to the eligible dwelling or the land that forms part of the eligible dwelling.  The basics are as follows:

• expenditures must be made after January 27, 2009 and before February 1, 2010
• you must spend more than $1,000, but not more than $10,000 will be eligible to claim
• the maximum credit that can be applied to reduce your income taxes payable is $1,350 ($9,000 x 15%)
• the costs of routine maintenance or repairs will not be eligible
• you do not have to submit receipts with your tax return, but must have them available should CRA request them

For complete details on the program, visit the HRTC section of the CRA website.

One interesting item of note.  The HRTC was announced in the January 27, 2009 Federal Budget.  However, it has not yet received parliamentary approval, and therefore, it is possible that this program could be revoked when the Federal Legislature resumes.  Liberal Leader Michael Ignatieff has stated that he will defeat the Harper government at his first opportunity.  That first opportunity may be the vote to give Royal Assent on the Budget that includes the HRTC.   Some consider this a shrewd move on Stephen Harper’s part, forcing Mr. Ignatieff’s hand.  Mr. Ignatieff would not be a popular person if he is responsible for cancelling this heavily promoted program.

Francis

Chamber Hosts Hon. John McCallum-Liberal Finance Critic

Francis Mackan, Hon. John McCallum and Gord Fielding, RBC participate in the Business Forum.

On August 26th, I hosted  and moderated the third in the Burlington Chamber of Commerce series of business forums.  We were honoured to have with us Liberal Finance Critic, the Hon. John  McCallum.  About 25 Burlington business owners joined in the open, round table discussions and collectively we voiced our concerns on a wide range of topics.  As we experienced with Mr. Flaherty this past Monday, the topics of discussion included volatility in the Canadian dollar, bridging the innovation and research gap between business and universities, financing issues, HST issues, and general discussions of the “new economy” and ways the Burlington can ensure its future success.  I want to thank Mr. McCallum for his time and his insights.

You can read more in today’s Hamilton Spectator.

Francis

Chamber of Commerce Hosts Jim Flaherty

I had the pleasure yesterday, August 24th, of hosting  and moderating a business forum with Federal Finance Minister Jim Flaherty.  About 25 key Burlington business people joined in the open, round table discussions and collectively we voiced our concerns on a wide range of topics including capital investment, venture capital, the ‘buy American’ policies of the United States, Canadian dollar volatility, RRSPs, regulation, HST, auto bailouts, Chinese investment, along with esoteric issues like the federal government’s rationale for the new-world economy.  There was a heightened debate on the link between business and education.  I would like to thank Burlington MP Mike Wallace for organizing Mr. Flaherty’s visit

You can read more on the chamber website and in today’s Hamilton Spectator.

Is the Recession really over?

As printed in the Burlington Post, August 5, 2009

The headlines blared last week that Canada’s recession is officially over.  We have had so much doom and gloom in the last 12 months, and so many dire predictions and comparisons to the Great Depression, it’s hard to believe that this pronouncement has come so soon.

The Bank of Canada’s statement is based on the definition of a recession.  According to economic theory, a recession is defined as two consecutive quarters of economic decline.  Canada has experienced three consecutive quarters of decline, and according to the Bank of Canada, the Canadian economy is now expected to grow by a rate of 1.3 percent (annualized) in the current quarter.  This, according to this strict definition, means the recession is over.  However, this is just one economic indicator in a complex model of variables and assumptions.

My discussion with my clients, local business owners and other Burlingtonians elicits a much more cautious answer to the question, “Is the recession over?”  The answer I hear most often is “It depends.”

For consumers, it depends what you are in the market for.  With interest rates so low, it is a great time to buy a car or mortgage a new home.  A pronouncement from the Bank of Canada about expected growth might just provide enough impetus to stimulate pent up consumer demand.

For employees, it depends on what industry you work in.  For those working in traditional manufacturing jobs, like steel and automotive, the question becomes almost a moot point.  This is because in any recovery, economists will tell you that job recovery will always lag behind and recover more slowly than the general economy.  There will be rises in unemployment over the next six months, and there will be more job losses to come over that same term.  This portion of economic theory leads our Federal Finance Minister Jim Flaherty to caution that “it’s too soon for him to declare the country’s recession has ended, even as some economic indicators point to a possible recovery.”

For business owners, it depends on whether they have been able to “weather the storm.”  If you had a diversified business and if you had the financial means to ride out the recession, then you are hoping that the Bank of Canada pronouncement will release that pent up consumer demand.

My opinion has always been that for the most part, this recession was not as hard on Canada, or on Burlington, as the media may have portrayed.  It does, however, depend on your point of view.

Francis Mackan

Chair, Burlington Chamber of Commerce