FYI, Here is a good list of what is and what is not eligible as an expense under the HRTC

Click here to view

From an article titled “Phillips Hager Tortoise Outpaces Hares” written by Rudy Luuko of Morningstar. 

Lots of clients love to point to one-year performance figures as a reason to buy or sell a particular fund.  As this article explains, these figures can be very unrepresentative of long-term performance.  It is very unlikely for a fund that tops a performance list one year to be in that same spot the following year.  In the end, things revert back to the mean. 

The author reminds us that most equity funds who have posted high double digits returns last year have also lost money in the past 3 years.  Funds that have the more credible 3-year or 5-year returns may not lead the pack in any given year, but finish strong in the end. 

To read the full article, click here.

The 2010 Federal Budget is optimistic by my financial planning standards, relying on slow growth in government spending and healthy growth in the economy hoping to balance the books by 2014-15.  This year’s budget has very little impact for most people. Here are the highlights pertaining to your personal finances :

What was not changed :

- no extension of the popular home renovation tax credit
- no tax cuts either
- no TFSA and RRSP limits increase either. 

What was changed (with excerpts from the National Post and CBC news)

Stock options relief: relief has finally emerged for many employees who exercised employee stock options and deferred their tax obligations until the date of sale of the underlying shares, only to find that the price of the shares has since plummeted in value. Read more here
For parents with a child with disability: If you have a disabled child and have contributed to a Registered Disability Savings Plan, you’ll be able to carry forward the Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs) entitlements for 10 years as welll as transfer your RRSP to the RDSP upon your death.  These are truly great for parents with disabled children.
No more tax break for Cosmetic procedures: Procedures like liposuction, teeth whitening and Botox injections are no longer covered. However, medically necessary cosmetic procedures will still qualify for a tax break.
Child tax benefit can now be shared: The budget also changes the rules for parents who share custody of a child, when it comes to the child tax benefit and the universal child care benefit. Under current rules, only one parent can receive the benefits each month. Under new rules, both parents can share the benefit if the child lives more or less equally with two parents who live apart.
Tax treatment of the universal child care benefit - that $100 monthly payment for children under the age of six. The payment is currently taxed as income in the hands of the spouse with the lowest income in a two-parent family. That means a single parent may end up paying more tax than a single-income couple even if their respective incomes are the same. Under rules coming into effect this year, a single parent will have the option of including the aggregate universal child care benefit amount received in their income or in the income of the dependant for whom an eligible dependant credit is claimed. The measure will provide $168 in tax relief for single parents with one child under six in 2010, the budget document says.
Prohibiting negative-option billing in the financial sector. A financial institution won’t be able to bill you for products or services unless you’ve agreed to them.
Mortgage penalties: standardization of the calculation and disclosure of mortgage pre-payment penalties. That is so welcome!
Cheques holding period: Reducing from seven days to four, the maximum time a financial institution can hold funds from a cheque you deposit to your account. As well, the institution would have to allow you to access up to $100 from that cheque within 24 hours.
Read the full budget plan here or more info in tomorrow newspapers.

BC Finance Minster Colin Hansen presented BC’s 2010 budget this week.  He projects that BC will return to balanced budgets within three years by clamping down on virtually all spending except that on healthcare and education.  The budget forecasts a deficit of $1.7 billion, an improvement from the $2.8-billion deficit from an updated forecast last September. The provincial debt is forecast to rise to $47.7 billion, from $41.3 billion this year and the debt will top $55.8 billion by the 2012/2013 budget year.  Hansen said British Columbia did not escape the world economic meltdown as provincial revenues—especially in natural resources and taxes—plummeted by almost $3 billion.  But those revenues are expected to recover over the next three years, with British Columbia forecasting economic growth of 2.2% this year, rising to 2.7% in 2012.

Here are some of the budget highlights.

-Budget 2010 includes a new property tax deferral program for families with children under 18 for the 2010 tax year. Beginning July 1, 2010, homeowners who are financially responsible for a child under the age of 18 and have at least 15 per cent equity in their homes will be able to defer property taxes on their principal residence. Deferred taxes must be paid if the home is sold, ownership is transferred or it becomes part of an estate.  Interest on deferred taxes will be charged at the prime lending rate of interest. The rate will be set twice annually. To be eligible for the program, homeowners with financial responsibility for a child under 18 must also meet the basic eligibility requirements of the current property tax deferral programs. They must be the registered owner of the home; be a Canadian citizen or permanent resident; have lived in B.C. for at least one year prior to applying and have a currrent fire insurance policy on their home.

-Increase in homeowner grant for northern and rural home owners up to $200, bringing to $770 the amount some people will be able to receive towards their property taxes. Seniors in those areas will be able to receive up to $1,045.

- Medical Service Premiums, increased last year, are going up again for individuals and families. Individuals will pay $3.50 more per month while the premiums rise $7 per family.

-$26 million more for child-care subsidies over the next three years.

-Increased funding for full-day kindergarten to $129 million in 2012-2013, up from $44 million in 2010-2011, the first year for the program.

-An additional $150 million over three years to fully fund teachers’ wages and benefits and offset cost pressures.

- $320 million in reduced ministry spending over the next three years.

- A reduction in the number of full-time equivalents working for the government, not including service delivery agencies, from 31,284 in 2009-2010 to 27,732 by 2012-2013

Peter Lynch, legendary investor, believes that in the next ten years, active fund managers will produce a better return than index funds and ETFs

The full story here

We will accept cheques for your RRSP contributions until 2pm on Monday March 1st.  Please contact us now to make arrangements.

In order to forestall the possibility of a housing bubble and subsequent housing market crash the federal government has tightened up mortgage lending regulations. The following changes are to be effective April 19, 2010 but it is expected that most banks and lending institutions will implement the changes effective immediately. These rules apply to all government backed (CMHC) insured mortgages. The new rules are as follows.

-Borrowers are required to meet the standards for a five year fixed rate mortgage even if they actually choose a mortgage with a lower interest rate and a shorter term. For example you may wish to borrow $200,000 amortized over 20 years with a one year fixed rate mortgage at 2.65% which results in a monthly mortgage payment of $1,035. Well under the new rules you will have to prove that you have the finances to afford a $1,260 monthly mortgage payment which is what a fixed five year mortgage would cost at the current 5 year rate of 4.5%.

-The maximum amount that consumers can borrow to refinance their mortgages is being lowered to 90% of the value of their home, down from 95%.

-Investors wishing to buy investment or rental property in which they do not live will now have to have a 20% down payment instead of the current 5% required to get a government backed mortgage.

We feel that these rules make sense. If a person gets in over his head and can’t pay the mortgage he has a big problem.  If many people get in over their heads and can’t pay their mortgages then we all have a big problem. Look what happened in the U.S.

Canadians are fortunate to enjoy one of the best lifestyles in the world.  The comfort and luxuries we are accustomed to are the envy of many other societies.

A new client came in for a meeting.  I asked her, “ what is the most important financial issue on your mind currently “ .  She answered jokingly:  “I am here to ensure that I don’t become one of those Wal-Mart greeters in retirement”. 

Not that there is anything wrong with being a Wal-Mart greeter but there is a big difference between having to be and wanting to be a greeter.  This may seem an extreme scenario but really, could this be the reality of some? 

To preserve your lifestyle, you need to plan and most importantly, save enough and early enough.  Many recent studies clearly show that Canadians do not save enough.  Most will need to continue working well past their 60s and will even see their lifestyle drop when the paycheques stops. The amount of money required to fund one’s lifestyle for 20, 30 and even sometimes 40 years, will be, for most, over $1million.  It takes time and discipline to achieve this.

Saving adequately and investing wisely is required to preserve lifestyle.  If it weren’t for inflation, cash and bonds would be all you need. But even with modest inflation of 3% a year, your buying power would be cut in half in about 25 years, so you need to invest for future growth, too. We all have to turn to equities to provide the inflation protection we need for that lengt h of time.

Invest consistently to ensure that your nest egg grow with your lifestyle!  For most, an RRSP is the best place to save for retirement.  Make your contribution by March 1st 2010!