Getting a tax refund?  Before spending it all, read my suggestions below. 

Not getting any refund or not enough of a refund?  Start a monthly RRSP now!  You now have 12 months ahead of you to make this happen.  It is so easy to save for a comfortable retirement and increase your chances of a refund next year.  Just let us know and we will prepare the required forms for when you pick up your tax return. 

Many of you will be getting a tax refund soon.  Before spending your refund remember that a refund isn’t a gift.  It is the return of an interest free loan you made to the Government for overpaid taxes.  Even if advisors like me tell you that the best tax refund is no refund at all, the truth is that it is for most, the best forced saving.  So, now when it comes back to you, think hard before spending frivolously.  Why not spend some and save the rest!

Here are some thoughts on how you can use the refund to better your financial position.

1. Begin or add to your emergency savings plan: If you don’t have a cash emergency fund set aside, put some of your tax refund in a high interest savings account like ING or Dundee savings.

2. Make a 2010 RRSP contribution: Get a head start toward your 2010 RRSP contribution. This way you will add to your retirement fund, have more to spend later in life and get a tax saving for next year!

3. Invest in a TFSA: You can add $5000 a year to a Tax-Free Savings Account.  You can save it short-term or invest it for wealth accumulation and retirement!

4. Add to your children’s RESP: And get the 20% government Grant! You know this will cost you a bundle and an education is the best investment!

5. Reduce the mortgage: Please remember however that with interest rates this low, you will likely be better off investing your refund. More on that in a future Blog post.  Stay tuned!

Every situation is unique, whenever in doubt, just call us. We will review your situation and help you make an appropriate decision!

One of my 27 year old clients said to me today: “I could have made an extra RRSP contribution before the deadline but I didn’t because, I don’t care....really, I’m serious, I really don’t care!”

For all of you 27 years old out there, let me just say that it is totally normal or ok to not care at this time in your life but I can guarantee that you will care later when you get to 60.  So, I thought I would design an “I don’t care plan” for you!  This plan is simply a way for the young and carefree individuals to make things happen automatically without having to talk about it, think about it or even care about it!

Here is the “I don’t care plan” that I prepared for her.  After factoring her employer Group RRSP contributions, her retirement income need based on current income plus inflation, I figured that she would need a retirement fund of about $875k at age 60.  Based on an 8% rate of return, she will need to save an extra $1600 per year. Yep!  That’s all.  Can you imagine having to save only $1600 per year??  If she waits to age 50, she will have to save a whooping $27,000 a year!!! Ouch!  That is a lot of pub nights!

If she ask s her employer to increase her RRSP contribution by $66 per pay, the net difference on her paycheque will only be $46 (she is in a 30% tax bracket). 

$4000 a year seems like a lot but if you work out the numbers, look at your situation and divide the figure per pay cheque, $46 is a lot more manageable! The best part is that you won’t have to give up a lot of pub nights, think about it, talk about it or even “care about it”!!

She looked at me, smiled and said, I can do that!  I think she liked her new “I don’t care plan”.  She left my office after signing the form to adjust her Group RRSP plan, smiling and went straight to the pub!

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.

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.

Find out how much of your charity dollars goes to administration click to read

Canadians largely unaware of market rally click to read

Reading “The BRIC countries are Rich, But Poor” click to read

Reading “Jeff Rubin: Riding Hard and Fast on Energy” click to read

Are you a moving target?: How to avoid falling for an unscrupulous mover. http://bit.ly/5P5jxh

Bank of Canada keeps rate at 0.25%: Mark Carney stays true to promise and keeps interest rates low. click to read
Enjoy your week!

We’ve reached the 1st anniversary of the Tax-Free Savings Account and this means another $5,000 in eligible contributions (bringing the total to $10,000).  We’ve talked about TFSA strategies before, but there are so many key money-saving tips associated with this account, that they are definately worth mentioning again.

Below are two articles you must read on how and when to best utilize the TFSA.  They discuss ideas such as:

-TFSA vs. RRSP - Which should we use? When to use both? At what age, income level, and tax rate is one better than the other?

-Placing the refund of an RRSP contribution into a TFSA

-Which highly taxable assets should be placed in a TFSA?

-Using the TFSA as a homebuyer’s or emergency fund

-Income earned or withdrawals from a TFSA do not affect eligibility for income-tested government benefits and credits (important for retirement planning).

-Using the TFSA to supplement RESP savings.

Both articles explain these strategies in simple terms.  If you have any questions or would like to open a TFSA (if you haven’t already done so), please let us know.

Article 1: RRSP strategies from Advisor.ca

Article 2: RRSP strategies from Morningstar.ca

A new Investors Group survey of 500 Canadian boomers—aged 43 to 63—finds a large proportion are either supporting their children, their parents or even both!  More than 40% of those respondents said that they expect the support will erode their ability to save for retirement.

Two-in-ten boomer parents have a child aged 19 or over living at home. More than half of these (58%) say their adult child makes no financial contribution to the household.

The boomers in the most difficult financial situation are those providing financial support to both parents and children simultaneously. One in 10 boomers are currently in this group.

The individual surveyed were asked the question what kind of impact supporting both their parents and children was having. Four out of 10 say they are reducing the amount they expect to save in retirement, and one quarter of respondents say they have adopted a less comfortable lifestyle or had to actually take on more debt.

Helping boomer clients efficiently support family members is an area we can add value. We can crunch the number, evaluate the impact and help you make appropriate planning decision.  The worst would be to delay the planning.  It is best to incorporate the situation into the plan.

From a December Fortune Magazine article titled “Redefining Emerging Markets”:

Summary:
-Countries such as Brazil, India, and Korea are being labeled “advanced emerging markets” because of high national income levels or developed market infrastructures.
-These advanced emerging markets are unlikely to experience the downfall of the Dubai World debt situation. 
-There are still some skeptics of emerging markets who point to catastrophic episodes from the 80s and 90s, such as Brazil’s inflation crisis.  However these countries have learned from these episodes, and implemented structural changes to reduce risk and maintain growth. 
-Around 15% of the MSCI All Countries World Index comes from emerging markets
-Brazil and India stock market fell harder than the US markets in 2008, but rebounded higher.  Their GDP is expected to grow 3% compared to 1.5% for the US
-Economic indicators still show a strong correlation between emerging and developed markets, especially China, the main trading partner of Latin American and East Asian countries.

Comments:
-The last 5 years have been very strong for emerging markets.  According to the MSCI emerging markets index, as of November 30th the 5yr return has been 13.3%.
-Long-Term (10 years) forecasts predict that they will continue to outperform against developed economies like the US and Europe.
-All well-diversified equity portfolios should have some emerging market content.  A typical You First long-term growth portfolio will have around a 10% weighting in emerging markets. 

I’ve added a video link below to an October 18th, 2009 interview with Patricia Perez-Couttes, who discusses the opportunities in emerging markets.  She manages AGF Emerging Markets, one of the top-performing emerging markets funds and one that’s been voted top emerging market fund in Canada for three consecutive years at the Canadian Investment Awards.

Click here to view the video.