December 2012
Happy Holidays!




As we are nearing the end of the year, now is the best time to go through your financial checklist to see if you have accomplished your goals for 2012 and to get ready for the start of a new year with new goals. For this month, we have gathered some great articles to help keep you informed about your options when it comes to saving for your future. We have also included a great recipe to help you unwind and fill the house with a familiar holiday smell!


Wishing you all a happy holiday and a fantastic new year! Be well.



Peter, Richard, Claudio and Joanna

TFSA limit rises to $5,500

by Ellen Roseman, November 2012 -


Starting next year, you can put $5,500 a year in a tax-free savings account. That's good news if you want to invest without having your returns nibbled away by income tax.


The new limit (up from $5,000) was announced this week. You may have missed it in the wake of Toronto Mayor Rob Ford's ouster from office and Bank of Canada governor Mark Carney's surprise departure.


If you haven't mastered the intricacies of the TFSA, join the club.


"TFSAs look simple at first glance. Except they're not," says Gordon Pape in the introduction to his latest guide, coming out in January (Penguin, $18).


"TFSAs are much more complex than they first appear, as proven by the hundreds of questions I have received since the original Tax-Free Savings Accounts was published in early 2009."


I think TFSAs are a great innovation (as I said in endorsing Pape's book). But they're often used improperly - or not at all - because the rules can be hard to understand.


I blame the federal government for using "savings account" in the name. Confusion set in once the big banks started urging clients to open a TFSA without referring people to the Canada Revenue Agency for help.


You can be dinged if you maximize your TFSA contribution each year, while moving money freely in and out of the plan. Under the rules, you can't replace any withdrawals until the next calendar year.


You can also get into trouble when transferring your TFSA. There will be no tax consequences if your issuer completes a direct transfer on your behalf.


But if you withdraw the money yourself and contribute it to another TFSA, this is not considered a direct transfer. Prepare to be dinged.


The CRA has come a long way in explaining how TFSAs work since 2009. There's a separate section of thewebsite, written in plain language and graced with examples and bold print warnings.


I'm thrilled to see the government spell out how much tax is levied on people making inadvertent over-contributions to a registered plan that is supposed to save them money. It's more than you imagine.


If you make an error replacing withdrawals from a TFSA or doing a transfer, the funds may be treated as a regular contribution. This reduces your contribution room for the year and may cause you to come up short.


You will be subject to a one per cent tax "on the highest excess amount in the month, for each month you are in an excess contribution position," says the CRA.


In a case study, Don puts $5,000 into a TFSA in January 2011. He earns only $25 by July and moves to a bank with a higher interest rate by walking across the street.


Now he has an excess TFSA amount of $5,025 from July until December. He pays one per cent a month on that amount for each of the next six months - or $301.50 in total - far outweighing any gains from his higher rate.


Jill is a real person (unlike Don), a lawyer who is used to reading small print. But she, too, was blindsided.


In January 2011, she put $20,000 into a TFSA at an online bank. While aware of the $5,000 annual limit, she thought her interest on the first $5,000 would be tax-free and the remaining interest would be taxed at regular rates.


Instead, she was fined one per cent a month for 12 months - leading to a bill of $975 last July. Luckily, she had taken money out of the TFSA from time to time to reduce the balance.


"To add salt to my wounds, I find out about this penalty only six months into 2012," she told me. "And yes, that money was still sitting in the account.

"So, now I'm sure I will get another bill from the government for another $500 for this year's penalty."


If you find yourself in Jill's position, you can ask the CRA to be lenient. Better still, check the CRA rules each year and read Pape's excellent book.


Articles written by industry insiders give only the positive points of TFSAs. You have to know the downside in order to avoid it.


Ellen Roseman writes about personal finance and consumer issues. You can reach her at or

5 Common Myths about RRSPs

by Boomer, November 2012 -


RRSPs have been around for several decades enabling investors to save for their retirement while deferring taxes paid.  Everybody knows the rules by now - or do they?


Here are some common myths and misconceptions about RRSPs.


RRSP Myths

Myth #1:  You have to be over the age of 18 to contribute to an RRSP.


Anyone living in Canada who has earned income should file a tax return - regardless of age - to receive contribution room.  That includes children with flyer routes, those who babysit, and kids who have promising singing careers.


There's little point in most children claiming the RRSP deduction because little or no tax will be owed, but the benefits of making a contribution make it worthwhile to file a return.


Consider a 12 year old who makes a $500 contribution each year until age 18 and then stops.  At a 5% annual return he will have $33,000 at retirement.  Of course, the savings habit will be ingrained early on, and he will be well on his way to a substantial retirement nest egg.


The second benefit is that a child's RRSP tax deduction can be carried forward indefinitely, so when he does start working full-time, he'll have deductions he can use to offset the tax on his income then.


This leads us to Myth #2.


Myth #2:  You have to claim your RRSP deduction each year.


Most people do take the deduction for their RRSP contribution right away. Sometimes holding off makes more sense.


Take, for example, someone who goes back to school in September.  Since her income for that year will be reduced, her marginal tax rate will also be lower.  Claiming the deduction then would result in less of a tax saving.


It would be better to hold the deduction for when she returns to work full time and her taxable income increases.


Myth #3:  You can withdraw from a spousal RRSP three years after the deposit


The "3-year rule" is commonly misunderstood.  It is not three years after the initial contribution, nor can you withdraw any money while still keeping contributions up to date, without incurring tax in the contributor's hands.


The rules are based on calendar years.


For example, if you made your Spousal RRSP contribution for the 2010 tax year by December 2010, and it was the last contribution made to that, or any other spousal account, you can withdraw funds as soon as January, 2013.


If you waited until the first 60 days of 2011, you will have to wait until January 2014 - a whole year later - before the withdrawal would be taxed in the plan holders hands.


Myth #4:  You can no longer contribute to an RRSP if you are over 71


What if you are still generating income?  Are you out of luck?  Perhaps not.

In early December of your last year to contribute, put in an additional amount, based on your earned income. If that puts you over the $2000 allowable lifetime limit, you will incur a 1% per month fee on the excess RRSP over contribution - just one month - then you can deduct in the subsequent year.


Also, keep in mind that contributions to a spousal RRSP are based on your spouse's age not yours, so if your spouse is 71 or younger, you can still contribute on his or her behalf and take the tax deduction.


Myth #5:  You must convert your entire RRSP to a RRIF when you turn 71


It is true that you must convert your holdings by the end of the year in which you turn 71.  You are then required to withdraw a minimum amount each year starting the year after the RRIF is established.


You can, however, convert a portion, or the entire amount at any earlier age.


Many financial institutions charge a fee for regular withdrawals from an RRSP, but not for withdrawals from an RRIF - contact them for a fee schedule.


There's not much benefit for converting the funds prior to age 65, unless you need the money.  At age 65, though, you can take advantage of the pension income tax credit on your tax return and pension income splitting with your spouse.


Some people keep their RRSP account for further contributions, and just convert enough to their RRIF in order to generate enough income to qualify for the credit.


Income splitting is beneficial when you're calculating your OAS amount and any potential clawbacks.


To see the original article, please click here.

3 Big Budgeting Bugs

By Gail Vaz-Oxlade, December 2012 -


It's part of the human psyche to think that once you've written something down, it's a truth, unchangeable and concrete. That's the only explanation I can think for why people hate budgets and are so bad at using them. But just because you've written "$450" in your food category doesn't automatically mean you're only going to spend $450. That would be nice. But it's not life. And if you're not paying attention, having that "$450" written on that piece of paper won't mean sweetdiddlysquat.


Big Bug #1: Perhaps the biggest mistakes people make in budgeting is... thinking...working it all out... writing it down and then saying, "There... it's done." It's not done. If you want your budget to work, you have to continually fine-tune it. Track your actual expenses every month against your budget and then compare what you actually spent to the budget you're currently working with.


"Overages" are where you spent more than you planned. Note them. If you had expenses that were not in your budget, think about them. Should they be new categories on your budget? Can they be lumped into a catch-all category like "unexpected expenses" that you've set aside some money for? Remember, if you end up adding a new budget item, you'll need to reduce another expense in order to balance your budget.


Big Bug #2: Forgetting about or grossly underestimating expenses that are just uncommon enough not to make it on to most household budgets. Sure, everyone knows they give gifts, but people like to throw a token amount in their budgets and are surprised when they run over. If you budget a measly $20 a month for gifts, will that cover all your Christmas and birthday presents? How about wedding gifts, grad gifts, baby showers and all those gifts they collect for at work?


If you've got school-aged kids, I bet you didn't think about the stuff you have to cough up for during the school year: school photos, field trips, fund raisers. Putting even a small amount into your budget and letting it accumulate even through the summer months means you won't be thrown off when this "unexpected" expense rolls around. If you don't end up using it all you can slide the balance into your "curveball account". Speaking of which...


Since it's usually the unplanned items you're suddenly faced with that tend to throw your budget off kilter, having a category that assumes crap happens makes sense. Think parking ticket, DVD late charges, and the like.


Another huge drain-hole in most people's budgets is "snack money." You're driving past Timmy's and you swing into the drive-thru. You're out shopping with your kids, it's gotten late, and they are starving. Oh, look, there's a Micky-D's. It's lovely to be able to spontaneously head out for ice-cream, or pick up a bucket on a night when all your plans have gone to hell in a hand-basket, but if you don't plan to spend that money, how else will you know to cut back on your spending elsewhere to come out even?


And then there are all the sporadic and often-overlooked costs associated with having all the stuff we have. Think games for your kids' x-box, new Wii controllers, songs that you download for $1 a pop for your MP3 player. How about the extra ear buds to replace the ones that just went kaput. Or the printer ink, new keyboard or batteries for your digital camera. I could go on and on and on, but you get my drift.


Big Bug #3: Thinking one size fits all when it comes to budgeting will only get you a budget that doesn't work for YOU.  You and your family have unique needs. Your budget has to reflect what's unique about you if you want it to work. So using an off-the-shelf budget won't cut it. Those budgets are meant as guidelines. To really make this money-management thing work for you, you've got to start with one of those templates and then customize it to your family's unique and quirky spending patterns.  Get yourself an excel spread-sheet and build a budget that let's you add categories and you need to. Just remember that every time you put money into a new category, it's got to come from somewhere. If you don't know how to build a spreadsheet on your own, The Gail Way on my website has the most complete budget I could come up with.


Happy tweaking.


To view the original article, click here.

Gingerbread Cookies
By - Everyday Food, December 2004


  • 2 cups all-purpose flour (spooned and leveled), plus more for rolling
  • 2 teaspoons ground ginger
  • 1 teaspoon ground cinnamon
  • 1/2 teaspoon ground nutmeg
  • 1/4 teaspoon ground cloves
  • 1/4 teaspoon baking soda
  • 1/4 teaspoon salt
  • 1/2 cup (1 stick) unsalted butter, room temperature
  • 1/3 cup packed dark-brown sugar
  • 1/3 cup unsulfured molasses
  • 1 large egg
  • Decorating sugar or sprinkles (optional)
  1. In a medium bowl, whisk together flour, spices, baking soda, and salt; set aside. With an electric mixer, beat butter and brown sugar until smooth. Beat in molasses and egg. With mixer on low, add dry ingredients; mix just until a dough forms. Place dough on floured plastic wrap; pat into an 8-inch square. Wrap well; chill until firm, 1 to 2 hours.


  2. Preheat oven to 350 degrees. Divide dough in half. Working with one half at a time (rewrap and refrigerate other half), place dough on floured parchment or waxed paper; roll out 1/8 inch thick, turning, lifting, and flouring dough (and rolling pin) as needed. Freeze dough (on paper) until firm, about 20 minutes.


  3. Loosen dough from paper. Cut out shapes, and transfer to baking sheets. Decorate with sugar or sprinkles, as desired.


  4. Bake until firm and edges just begin to darken, 10 to 18 minutes, depending on size. Cool completely on baking sheets.

Cook's Note

For the neatest edges, dip cutters in flour before cutting out each cookie.

Issue: 24
Financial Markets
In This Issue
TFSA limit rises to $5,500
5 Common Myths about RRSPs
3 Big Budgeting Bugs
Gingerbread Cookies
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Peter Bailey
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1 

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