Now that Halloween has passed, there is nothing standing in the way of the Christmas holidays. While we are thinking ahead, let's consider the spending hangover that many of us seem to experience in January. Every year, we vow to do it differently, and every year, we seem to lose sight of our financial goals. The time to start planning our budgets is now, not after the holidays. The relief from financial stress that this planning process provides will help you appreciate what the upcoming holidays are really about -- enjoying the quality time spent with family and friends.
To get a jump start on your finances, take a look at the articles we have collected this month. Please feel free to contact us with any questions you may have. We are here to help.
Peter, Richard, Claudio and Joanna
A Tale of Optimism
by The Perspective - Fall 2012
After a robust third quarter which saw the S&P/TSX and S&P 500 total return indices gain 7.02% and 2.65% respectively, two distinct views of global financial markets have emerged. Some have referred to these views as, a "Tale of Two Cities", but the debate over the health of financial markets really boils down to whether you are an optimist or a pessimist.
Market optimists point to an improving US housing sector where home prices, although still down 30% from their 2006 peak, now according to information compiled by the National Association of Realtors have bottomed and have slowly begun to rise. The same seems to be true of the construction industry where the number of new housing starts also rose slightly over the course of the summer. This is good news for the Canadian lumber industry whose success is largely driven by demand from the US as well as from China. While Europe is now fully immersed in an economic recession some clarity has come to pass with the Greek election and the Spanish banking crisis. In Greece, the election has resulted in the continuity of austerity efforts and a continuance (at least for the time being) in Euro zone membership, while Spain has seen the approval of their banking bailout and some progress has been made in implementing necessary austerity measures and reforms.
Despite these happenings, as well as continued strength in corporate profits and improvements in US credit markets, pessimism remains. With the upcoming US election and pending policy decisions, uncertainty exists about the direction of government, its implementation of financial regulation, tax rates and health care reforms. As a result, corporations are reluctant to spend (as well as hire) and continue to hoard unprecedented amounts of cash on their balance sheets. In addition, although home prices have risen in the US according to CoreLogic (A NYSE listed company that provides consumer, financial and property information, analytics and services to business and government) almost 22% of all borrowers, still owe more on their mortgages than their homes are worth. These factors continue to weigh on consumer confidence.
While there is no doubt that Europe is in a recession. The chances of the dreaded R word spreading to the rest of the global economy continues to be aggressively dealt with as policymakers in major markets such as the US, Japan, the UK, China and Brazil have implemented further monetary stimulus while many emerging countries have cut interest rates. Although these measures have helped to increase investor confidence they have yet to increase their risk appetite as investors continue to flock to traditional havens such as bonds which now offer very little reward in return for the confidence investors have placed in them.
Whether you are an optimist or a pessimist, all can agree that policy makers have more work to do and investors must continue to be patient in order to see the results that they desire from their investments. Corporations, flush with cash must also regain confidence and begin to invest in staff training, new hires, product development and research. In the interim, governments including Canada's are encouraging increased savings and personal debt reduction. While the effects of Federal finance minister Jim Flaherty's, summer decision to reduce the maximum mortgage amortization from 30 to 25 years seems to have had an immediate cooling effect on the Canadian housing market, the long term savings that Canadians will realize from this conservative measure should prove rewarding despite the short term pain of strained cash flow.
What are RDSPs?
People with disabilities and their loved ones face a distinct set of financial challenges throughout their lives. To help address these challenges, in 2008 the government of Canada introduced the registered Disability savings Plan (RDSP). Designed to help build long-term financial security for disabled persons, the RDSP makes it easier to accumulate funds by providing assisted savings and tax-deferred investment growth.
What is it?
The RDSP is a tax-deferred savings vehicle introduced by the Government of Canada to help parents and others save for the long-term financial security of a person with a severe disability.
Qualified investments for RDSPs are generally the same as those for Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs) and include cash, GICs, mutual funds, segregated funds and a variety of other investments.
To assist in saving, the Federal Government offers Canada Disability Savings Grants (CDSGs) and CanadaDisability Savings Bonds (CDSBs). CDSGs are matching grants that the Government will deposit into a beneficiary's RDSP to help accumulate savings. The Government provides matching grants of up to 300%, depending on the amount contributed and family net income
Who is eligible?
A Canadian resident under the age of 60 who is eligible for the Disability Tax Credit (DTC) is eligible for an RDSP. The DTC is available to individuals who have mental or physical impairments that markedly restrict their ability to perform one or more of the basic activities of living (i.e., speaking, hearing or walking). The impairment must be expected to last a period of one or more years, and a physician must certify the extent of the disability.
Why do people will benefit from it?
A case scenario: As part of a birthday gift, Meg and Allen agree to contribute $2,000 for each of the next five years to an RDSP for their disabled adult nephew, Tony. Because Tony is age of majority, his family income is used for CDSG purposes. Tony's family net income and grant allocation for the next five years is as follows:
Income Contribution CDSG
Year 1 $44,500 $2,000 $3,500
Year 2 $48,350 $2,000 $3,500
Year 3 $50,000 $2,000 $3,500
Year 4 $75,000 $2,000 $3,500
Year 5 $84,000 $2,000 $1,000
Total - $10,000 $15,000
By maximizing the contributions into the plan, the additional grants bring the plan value to $25,000. This is a great way for families to establish a plan for their loved ones that have a disability.
Please, let us know if you would like to discuss how this may benefit your family or a loved one.
11 tax strategies for you
By Staff - Advisors.ca
Before the end of tax season, advisors should help their clients take advantage of tax-saving opportunities and strategies, says Tony Maiorino, vice-president and head of RBC Wealth Management Services.
By doing so, you'll not only help them achieve their financial goals, but will also boost the value of your business and services.
To continue with the rest of this article and see the 11 tax strategies, click here.
Now is the Time for Discipline!
By Worldsource Financial Management Updates
It's time to put away the patio chairs, cover up the BBQ and break out your shovels because the fall is now upon us and the end of the year will soon be here.
Now that our children and grand children have gone back to school and our daily routines are in place, this is the perfect opportunity to align your financial interests by ensuring that your tax and estate plans are up to date as well as efficient as possible. Not to mention that you also need to make sure that you take advantage of the government programs that may be available to you.
With that in mind here are some year-end tips for your consideration:
Consider selling investments that are underwater - This title refers to tax loss selling, a tax strategy that allows you the opportunity to reduce taxes payable on capital gains both in the current year as well as gains realized over the previous three taxation years. In addition to being allowed to carry capital losses back three years (Note this can be accomplished by filing CRA Form T1A,) losses may also be carried forward indefinitely. December 31, 2012 marks the last opportunity for investors to reduce capital gains realized in 2009.
Tax-Free Savings Accounts - If you have set up a TFSA and you are planning a withdrawal, consider doing so before year-end rather than early 2013, as amounts withdrawn are not added to your contribution room until the beginning of the following year after the withdrawal. You should also think about how much you might want to contribute in the New Year. If you haven't contributed before, you can contribute at least (as the current annual contribution amount of $5,000 will likely increase to $5,500 in 2013) $25,000 in January 2013.
Think about your RSP contributions - There's no particular December 31 deadline around your RSP, but thinking ahead could boost your fiscal outlook. If you really want to get out ahead of this, you should be making your 2013 contributions in January, not your 2012 contributions by the end of February like everybody else. You've got a whole 14-month head start.It's a move that requires some fiscal discipline (such as cutting back on ancillary expences) but it could pay off. Also if your spouse is under age 71 you may contribute to a spousal RRSP up until the calendar year end that your spouse celebrates his/her 71st birthday provided you have earned income in the previous year.
Save for your children's education - While Canadians pay their share of taxes our government has introduced programs to help us save A Registered Education Savings Program (RESP) is eligible to receive a maximum of $7,200 in government grants per beneficiary. If you did not contribute to an RESP last year then December 31 is the last day to contribute to it and receive the Canada Education Savings Grant (CESG) for 2011. Note that in this case a contribution of $5,000/beneficiary would have to be made by Dec 31 in order to receive the government maximum CESG of 20%.
Create pension income and realize a tax credit - If you are over age 65 you can claim a tax credit on the first $2,000 of pension income from a company pension plan or from your RIF or RSP. One strategy you may want to consider entails transferring enough from your RRSP (about $50,000) to a RIF in order to create a RIF minimum payment of $2,000.
While the end of the year is a good time to ensure that you take advantage of the programs, tax credits and deductions that the Canadian government makes available, it is also an excellent time to reflect on our legacies.
Some activities that you may also want to undertake are:
Review your will and make sure it works for you and your estate
Many Canadians do not have an estate plan and if they do the chances that they have discussed it with their heirs are slim. Reviewing your estate planning documents (your will and powers of attorney) should ideally be done at least every three years and if there has been a material change in your circumstances, such as to your finances, health, marriage, intention, legacies or province of residence these documents should be updated.
Review your risk management plan
Risk management is more than just asset allocation and the volatility surrounding investment products, as it also involves ensuring that you are protected should unforeseen events such as illness, disability, early death and even the chance that you outlive your savings occur. While many of us continue to think that such events will not happen to us, disability insurance is arguably even more important, because it's statistically more likely that you will get injured than die while you are working.
While many of these strategies do not sound fun, it is now, and not in March of 2013, that we should be disciplined and engage in the opportunities that are available to us, in order to ensure that we enjoy the holiday festivities that are soon to come.
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1
The information provided is for general information purposes only and is based on the perspectives and opinions of the owners and writers. The information is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting, or professional advice. Readers should consult their own subject matter experts for advice on the specific circumstances before taking any action. Some of the information provided has been obtained from sources, which we believe to be reliable, however, we cannot guarantee its accuracy or completeness. Worldsource Financial Management Inc. does not assume any liability for any inaccuracies in the information provided.Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual Funds and Segregated Funds provided by the Fund Companies are offered through Worldsource Financial Management Inc. Other products and services are offered through Peter Bailey.