File as a Family to Save on Income Tax

You can save thousands of dollars by filing all your family's income tax returns together. If you file as a family, you can transfer deductions and credits amongst family members, split income for better after-tax results and even make better investment decisions.

So, start with the lowest-income earner, then work your way up to the highest-income earner. Keep an eye on net income levels and sources of income.

 Does each eligible family member contribute to his or her RRSP and Tax-Free Savings Account? Do you know who in your family qualifies for each? Do you know how much contribution room is available? 

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Tax credit for your children for arts programs

There is new credit for your children for arts programs this year that allows you to deduct $500.00  for any arts related programs. Make sure you get a receipt for music lessons, dance lessons, and any other programs your kids in. 

This is in addition to the $500 that is available for fitness related activities. 

That is $1000 total for each child for fitness and arts related programs. The credit is 15% of $1000 or $150 in tax savings.

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Housing prices in Canada - is the market overpriced?

The year over year housing price index in Canada has been rising 2.5% as reported by Statistics Canada. This is the Canada wide number , but regionally some areas have been rising between 5 % and 6%.

The Bank of Canada uses the ratio of disposable income to the house price index to determine housing affordability. The ratio in 1990 was 3 times,  and in 2010 is 5 times disposable income. This suggests that  house prices are higher than justified by the underlying fundamentals. The overall average overvaluation is estimated at 10% with significant regional differences.

Bank economists expect house prices to shrink over 2012, which could lead to a negative feed back loop,  where the drop in house prices reduces individuals net worth which results in further cuts in spending affecting overall GDP.

In the past week three major Canadian banks have reduced their closed mortgage rates to 2.99%, the lowest rate in Canadian history. If interest rates return to more normal levels this could in turn lead to a further 10% to 15% drop in house prices due to affordability. This would lead to a drop in construction activity and declining jobs in the construction sector.

Given all these factors house prices will not be going up any time soon, and could be in for a 15% decline in 2012 along with a further decline in the GDP due to the drop in construction activity.

 Saving more money in 2012 so that you have an emergency fund should be a major goal. Your emergency fund should be large enough to provide all the necessities for your family for 6 months. 

The latest polls show that Canadians are very pessimistic about the economy in 2012. How do you feel about the economy in 2012, and would you feel better if you had 6 months of living expenses just in case something unexpected happened

1) Pay down credit card debt and save on interest payments, by consolidating debt with your home mortgage.

2) Make an RRSP contribution and save on income taxes, the contribution deadline is Feb 29th.  Does and RRSP Loan make sense? Your income tax refund can be used to pay down credit card debt to save even more.
3) Make a contribution to a Tax Free Savings Account.(TFSA). You have an additional $5000  of contribution room for 2011 plus any unused contributions from previous years. The income you earn  is Tax Free. If you have non registered money in other accounts transfer this money into TFSA. This can be part of your emergency fund because money can be taken out of the TFSA at any time without penalty. ( depending on the type of investment within the TFSA)
4) Pay yourself first. From every pay cheque set aside 20%  of the cheque in a separate account. Do this every month even if you do need to dip into this account for some payments, continue to do it every month and look for ways in which you can reduce payments so that you will gradually make progress on the savings account.
Get Help with your plan 

The new Tax Free Savings Accounts are proving to be popular, but many Canadians are choosing only interest bearing TFSA plans that pay so little that the accompanying tax savings are negligible. This is generally what your financial institution will suggest, because it is simple and easy for them to set up and there is no advice required. The teller takes your money and signs you up and the teller gets a sale( one of the performance measurements for the job). Everybody is a winner except the investor.

Taking a current rate of 1.2% offered by a credit union on a high interest savings account, $5000 earns $60.00 in yearly interest, and if you are paying a 30% rate of income tax you save $20.00 in Tax, not exactly a windfall. A study by one of the major banks found that 90% of TFSA’S are in term deposits or high interest savings accounts.  The same mistake is often made today with RRSP’S.
Self directed TFSA’S and RRSP’S can invest in stocks, bonds, mutual funds, segregated funds, and ETF’S as well as interest bearing securities. The point of the TFSA is to save on the income tax you earn on your investments, and the better the return you earn on your investment the more tax free money you keep in your pocket. Therefore there is a good case for investing your TFSA in more aggressive investments to earn a higher return. 
I would suggest that investing in Segregated funds is a smart choice for TFSA ’S. Segregated funds offer the opportunity for a higher return and have other advantages such as passing to a beneficiary without probate, and guarantees on return of Capital varying from 75% to 100% depending on the product.

Some advisors suggest TFSA’S for keeping emergency funds available, but to get any return on the funds and save any amount of tax you need to lock the funds in for a longer period.  The best current option for an emergency fund is a high interest savings account.  The funds are immediately available, which is the idea, and the amount of tax you save by putting them in a TFSA is negligible. 

You can save more by buying a few less latte’s.

To Find out more about investing your TFSA in a segreagated fund Contact us.

Lower your tax bill using an Insurance Company GIC


The pension tax credit of $2000 can normally only be used against income which comes from a company pension or a Registered investment such as a RRIF. 

Non- registered money invested in an insurance company GIC is reported as annuity income, therefore it qualifies for the $2000 pension income tax credit. If you have non registered money with a financial institution and collect interest, it is fully taxable at your marginal rate.

By using that money to buy an GIC with an insurance company you can receive $2000 interest tax free by using the $2000 pension income deduction. At a marginal rate of 30% that results in  $600.00 more dollars in your pocket.

To Take advantage of this Strategy Contact Us
If you have a qualifying disability, the British Columbia Provincial Government has a fuel tax rebate you may be eligible to register for. Once registered for the program you can apply for a refund of the provincial fuel tax you pay on fuel used in your vehicle based on your fuel receipts.
The refund program has a maximum refund amount of $500 for each calender year.
The criteria for qualifying is that you must have a qualifying disability , be over 16 years of age, and be a registered owner or have a joint ownership interest in a motor vehicle.
In most cases if you qualify for the disability tax credit then you would qualify for the fuel tax rebate program. The fuel tax rebate program includes mental disabilities as well as physical disablities. We provide assistance with the claim process as there are other specific documents that can help you to qualify is certain cases.
The process for registering is to fill in an application which is available online or at any Service Canada BC Centre. The necessary documents that are required are your drivers license, vehicle registration, and a doctors certification of your disability on the registration forms for the fuel rebate program.
The period for which you qualify is also important because you may claim a maximum of four years of fuel rebates ( $2000 Maximum) depending on your effective date of qualification. The claim must be supported by original fuel receipts, but an exception may be made for the period prior to getting your registration confirmation letter for the program. 
Please contact us for further information or assistance with filling out the forms and getting registered for the fuel tax rebate program. 
Over the last few years I’ve been freely dispensing financial advice.  In the present article I’ll summarize my recommendations.  These are conservative tips that would be appropriate in any setting, but are particularly important given my dire views on the Western economies.

Save More
It’s common knowledge that if a person has the wisdom and discipline to save for the future, then he or she can eventually enjoy a permanently higher standard of living.  As Albert Einstein reputedly remarked, the most powerful force in the universe is compound interest.Incidentally, people shouldn’t feel guilty about saving more, notwithstanding the handwringing coming from mainstream economists. Everybody can increase his or her standard of living through saving. In other words, it’s not the case that if Alice makes a better future for herself by saving a higher fraction of her income, then there must be some Bruce out there who is going deeper into debt. Society really can save and invest “on net”, in the sense that everybody can obtain claims to a growing stockpile of capital goods that make workers more productive. If households and firms save more, they will actually speed the general economic recovery.

Develop Multiple Streams of Income
When people hear the advice to save more, they typically think that they need to stop spending. Although one obvious way to save more each month is to reduce frivolous expenditures, that’s not the main thing I have in mind. If a person really wants to start socking away a lot more each month, the best avenue is to boost income, not cut spending. There’s no limit on how much (in principle) someone can earn.Don’t misunderstand me. By all means keep your expenditures sensible. Having huge payments and over the top living expenses on a modest income doesn’t work. Yet even after looking at your expenses and cutting out the stuff that you really don’t need, everybody — should start brainstorming about how to bring in more income. Notice here that I don’t simply mean someone who currently works in an office should consider working nights as a waitress. In fact, that’s not primarily what I have in mind. Instead, I think  people should consider a host of entrepreneurial ventures. Rather than looking for other bosses, people should become their own bosses, at least in a few limited areas. Self employment opens up a bunch of ways you can save on the income taxes you pay on your self employed income.
To some people this suggestion may sound intimidating, but you can find customers (usually through word-of-mouth) and provide a service  for which you get directly paid.  Look for a service which people need  or want. When I am not doing financial planning or taxes. I like boating and have a certification as a skipper. People will pay me to help them learn how to handle their boat and to get a Pleasure Craft Operator certification. This certification is required by law in Canada, so everyone who has a boat needs to get it. Think about any skills or hobbies you have and how you can earn some extra income from something you like to do.
I’m not saying a person needs to brainstorm until finding “it,” the fantastic idea that will eventually make someone rich. It’s worthwhile doing all sorts of different ventures, so long as each one is self-contained and doesn’t threaten to absorb too much time. It may take a lot of trial and error to gain the skills, confidence, and knowledge of customer demand before finding something really profitable.As with all of my recommendations in this article, generating multiple sources of income is always a wise thing. However, in the present environment it is critical. Even someone who currently has a “good, steady job” can’t be sure of his position even a year from now. It’s much better to get a fledgling business established now, during the weekends or other days off, so that the owner will already have a solid base of customers when the economy slumps again.To reiterate, my advice is not to try to save more by looking at the monthly budget and saying, “Well, this is how much I make, and so if I cut back here, here, and here, then I can afford to put aside $250 more per month.” No, I would much rather a person say, “If I cut back here, I can free up another $100 per month. And if I cleaned three houses every Saturday, then after expenses and treating myself to a nice dinner every weekend, I could save an additional $600 per month.”

Build Up at Least a Month’s Worth of Expenses in Cash.
Now if a person is saving more each month, the obvious question is: How should those savings be used?  The point of doing this is to get out of the habit of living paycheck to paycheck. Such a lifestyle is bad for (at least) three reasons: Most obvious, it leaves a person vulnerable to even a minor setback. If there is an unexpected expense, or if the person gets laid off, then obviously a small cushion of cash would be crucial.Yet beyond this obvious justification, there are two other reasons that building up at least a one-month window of cash balances is a vital, immediate step. First, it frees up more time, especially for a person who has followed the earlier steps and is now earning income from several sources. Rather than having to run to the bank every time a new check comes in the mail, and rather than having to go online and check the bank balance every other day to make sure nothing is going to bounce, a person with at least a one-month cushion can better afford to let the paychecks and bills accumulate, then deal with them in one fell swoop. This allows for the person to spend more time focusing on the business(es), rather than stressing out about cash flow.The other main reason the paycheck-to-paycheck mentality is destructive for the entrepreneurial person, is that the person is more prone to goof off whenever he’s done enough to “get through the month.” But once that critical threshold has been extended past the one-month barrier, there is little difference between having enough to pay for one month versus two or three months. Once a person takes it for granted that he will have money left in his checking account even after paying all his bills for the month, that surplus will mysteriously begin to drift upwards with each passing month.

Eliminate Variable-Rate Debt as Quickly as Possible
.If a person already has a decent amount of cash on hand, I think the next goal should be to eliminate variable-rate debt as quickly as possible. The most obvious example is credit-card debt Note that “eliminating” variable-rate debt doesn’t have to mean paying off the balances. Using a new balance-transfer promotional offer, for example, might allow a person to lock in a fixed rate for a year or more. Taking an RRSP loan at prime plus 1% and using the resulting income tax you get back from the government to pay down credit card debt is one method that converts credit card debt at 19% to debt at prime plus 1%In closing, I want to stress that I am by no means a role model in this arena. I can write with confidence on the above matters precisely because I have seen firsthand what happens when you don’t follow these ideas. 
Experience is a great teacher, so take advantage of someone who has been there.

Contact us anytime for further information on saving taxes and financial planning ideas.
When it comes to getting the best return for money, it is important to file all family returns together, and get to understand them too, by keeping an eye on income levels and sources. This will help you make better investment when to contribute to RRSPs and the Tax Free Savings Accounts-and get more cash back from tax credits and social benefits.

If you are working with a professional advisor, enlist their help before year end. There are three simple steps you'll want to know more about:

1. Review each return separately and make sure it's prepared to the individual's best tax benefit, starting with the lowest income earner and working you way up the the highest.

2. Now look at the results on each return from a family, rather than individual, viewpoint. Did you claim all transferrable deductions and remember to split family income?

3. Now tweak your tax and financial plans, to make the best investiment decisions for the family unit as a whole.

Breaking News - This report was published just recently. It is most likely not that much of a shock to discover that housing is overpriced in Canada. I personally have had a home listed for a few months now and recently dropped the price. There has been very little activity on this listing even with a price drop. Our place is in Chilliwack , BC. It is not a major center , but is growing with new residents moving from the cities and other parts of Canada and there is demand, but the buyers are looking for deals.

Housing Prices: A 24% Decline Coming?
Over the years, the wealth of Canadians has grown due in great part to increases in housing values. But, as the Governor of the Bank of Canada, Mark Carney, pointed out last month, a correction to the housing market in Canada is a distinct possibility. An increase in interest rates and a housing correction could change things in a hurry. Canadians should pay attention to debt reduction as a sure way to increase net worth.

This is backed up by a report by The Economist, which has just published a survey of global house prices in which it compares the ratio of current house prices with rents: .

It determined that Canadian houses are overvalued by almost 24%. Certainly a decline in housing activity would diminish the net worth of many Canadians, yet another potential blow to those contemplating pre-retirement.

According to Statistics Canada, the benchmark of housing affordability is 30% of income. One in five Canadians exceed this threshold with single people, single-parent families, renters, home owners with mortgages and recent immigrants making up a large part of this group. More Canadians own homes than rent them and this has increased since 1986. However, household debt increased to $145 for every $100 of disposable income in 2009, up from $139 in 2008. 

Now is the the time to find ways to shore up wealth by minimizing costs and debt, and increasing tax efficiency of income—both passive and active. There are several ways to increase tax efficiency of investments and protect you capital. For more information contact us!