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

Click here to view

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.

We don’t know if it is true or not but we have heard that sometimes people do not always open all the investment statements that they receive in the mail.  Naw, that can’t be true!  We respectfully remind you that at this time of year it is more important than ever to check your mail to make sure you do not discard any valuable documents. Mutual Fund companies are now mailing out RRSP receipts that you will need when completing your 2009 income tax returns in the spring of 2010.  For RRSP investments made in 2009 you will receive receipts up to December 31, 2009. For RRSP investments made in 2010 you will receive “First 60 Days of 2010” receipts which must be entered on your 2009 tax returns even if you are not planning to deduct the entire amount for 2009 and are planning to carry some over to 2010 tax year.

Also mutual fund companies, banks and other financial institutions will soon be issuing T3 and T5 receipts reporting your 2009 investment income of interest, dividends and capital gains.  Alas, should you not receive an expected statement or should you misplace a receipt for an investment or RRSP arranged through us please just contact us and we will obtain a duplicate for you. Spring is coming and that means another wonderful and exciting tax season will soon be upon us. Make sure you have all your documents in order so you don’t miss any of the fun!

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

Ok, so what’s this Federal Government Home Renovation Tax Credit all about anyway?

Let’s begin by reviewing what is NOT eligible!  New appliances such as big screen TV’s, refrigerators, furniture, throw rugs, appliances, electronics, stereos and tools such as electric saws, drills et cetera are NOT eligible.  Also, routine maintenance repairs such as small paint jobs, cleaning the gutters, power washings are not covered.

Well what is eligible?

Essentially, repairs of a major or permanent nature would be eligible. These would include major structural renovations, new carpeting, major interior or exterior painting, new deck, new floors, new windows, new doors, major landscaping, new furnace, new roof, new plumbing or bathroom fixtures, et cetera would be eligible items.  Also, the expenditures have to be for your personal property. So your home, cottage or Canadian vacation property would qualify. Renovations for a rental or investment condominium or renovations to a basement apartment that you are renting out are not eligible for the credit. Renovations have to be done between January 27, 2009 and January 31, 2010. Remember that there is just one allowable claim per family.

How much is the credit worth?

The credit is 15% of renovation expenses between $1,000 and $10,000. If you spend $1,000 then you get zero. Between $1,000 to $10,000 you get 15% or $1,350.  So if your total cost was $15,000 you would get the maximum credit of $1,350. If your total cost was $7,000 you would get a credit of $900.

How exactly do I get the credit? Does the Canadian government send me a cheque?

You will claim the credit when you file your 2009 income tax in the spring of 2010.  Let’s say you spent $7,000 and therefore your credit is $900. On your 2009 tax return the income tax that you would otherwise owe will reduce by $900. So essentially, if you are due a refund then your refund will increase by $900. If you owe taxes then your tax bill will reduce by $900. If you have a modest income for 2009 (under $10,000) you would not enjoy the credit because you would not owe any tax anyway. You do not have to send receipts in with your tax return but you must be able to provide them should Canada Revenue request them as part of their routine review request.

How can I get more information?

Canada Revenue has an explanatory website feature at this address below.

http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhmrnvtn-eng.html#q6

If there is a way to scam the system, someone out there will find it.  I am just amazed at how fast and ingenious some people can be.  Unfortunately, taking advantage of the system usually ends up spoilling it for most of us honest people out there.

This time the “scam” is about taking advantage of Tax-Free Savings Accounts (TFSA).  The strategies in questions make deliberate use of the over-contribution and asset transfer transactions between TFSA’s and other accounts.

Canada’s Minister of Finance, Jim Flaherty, proposed amendments to the Income Tax Act to put an end to these practices.  Here is how it will now work:

Deliberate over-contributions

Contributions in excess of the annual $5000 contribution limit are subject to a tax of 1% per month on the highest amount of excess contributions for the month. The government says it has become aware that in certain situations that some TFSA holders are attempting to generate a rate of return on deliberate over-contributions over a short period of time sufficient to outweigh the cost of the 1% tax.

Under the proposed amendments, any income “reasonably attributable” to deliberate over-contributions will be made subject to a tax penalty on the income of 100%.

This means that if you earned, for example, $1,200 income or gain on an overcontribution then the tax penalty will be $1,200.  In other words, the government will tax back the entire profit that you made on an overcontribution.  Hikes!!  That is a hefty penalty ! It removes any incentive for “playing games” with the overcontribution limit !!

Asset transfer transactions

The government wants more scrutiny on asset transfer transactions - sometimes known as “swap transactions”. Asset transfer transaction usually are transfers of property (other than cash) for cash or other property between accounts for example, a RRSP and another registered account. When performed on a frequent basis with a view to exploiting small changes in asset value, the government says these transfers could potentially be used to shift value from, for example, an RRSP to a TFSA without paying tax, in the absence of any real intention to dispose of the asset.

The government’s proposed amendments would effectively prohibit asset transfer transactions between registered or non-registered accounts and TFSAs.  TFSA income amounts reasonably attributable to asset transfer transactions will also be taxable at 100%.

For full information on the government’s proposed changes can be read by clicking here

Hundreds of thousands of Canadians rely on mutual funds to help them save money for their retirement. While mutual funds are an important tool in one’s portfolio, some just can’t stomach the ups and downs and potential of loosing capital.

Good alternatives are Principal Protected Linked Notes or Guaranteed Market Return GICs. These are designed to guarantee the investor’s principal as well as provide growth potential. They are innovative financial product that combines key investment characteristics of both stocks and conventional bonds. The key distinguishing feature of these investments is that the principal amount - your original investment - is 100% protected provided you hold the Note to maturity usually 3 to 7 years depending on the note.  Some also guarantee the first year interests. These notes are not locked-in like a GIC.

The return of principal at maturity makes them similar to bonds. A conventional bond also repays the full principal amount at maturity, but earns a return through periodic pre-determined coupon payments over the term of the bond. Although linked Notes may pay pre-determined periodic coupons, it has the potential to earn a variable return based on the performance of the underlying stocks over the term of the Note, paid sometimes periodically but generally at maturity.

Benefit at a glance

• Guaranteed principal. Add equity exposure with no risk to principal by holding the Notes to maturity.
• Excellent opportunity for diversification. Linked Notes offer access to investments in markets that investors may find difficult to access through conventional means.
• Management fees. Most Linked Notes do not charge annual management fees, making them a cost-effective alternative to managed products.
• Flexibility. Because you’re not “locked in,” the Notes may be sold prior to maturity at the prevailing market price. Our favourite notes are issued by CIBC World Markets.  *They currently maintain a secondary market, but reserves the right not to do so in the future at its sole discretion without providing prior notice to investors.
• Tax-efficient. Outside of registered plans, investors generally do not have to include the interest income for tax purposes until it is received. If the Note is sold before maturity, you may be entitled to treat any gain as a capital gain for income tax purposes.

Are Principal Protected Notes right for you? They may be suitable for investors who:
• Prefer the safety of conventional bonds and GICs, but seek higher returns than those typically associated with such investments.
• Wish to participate in the potential growth of the equity markets, but do not want to risk losing principal investment.
• Want the flexibility to sell prior to maturity if necessary.
• Would like to include fixed-term investments as part of their portfolios.
• Are seeking cost-effective investment alternatives.

Not all Linked Notes are created equal. We can help you select an appropriate note and determine whether or not these investments are suitable to your situation.  A series of new notes are coming available this week.  Please let us know if you want to look at some of these issues.

Are you considering taking an early retirement package?  Make sure to consider all aspects before making one of the biggest decisions of your life.  Here are a few question we would go over together to assess whether this makes sense for you at this time.

1.  What are the tax consequences of the package?

2.  Does the package include a lump sum severance payment? If so, will your client be able to roll this payment over into his or her RRSP as a retiring allowance?

3.  Does the package provide for continued extended health care or group life insurance? If not, what are the cost implications for obtaining private insurance?

4.  How do the benefits compare to the benefits that you would have received at normal retirement age?

5.  If the employer usually provides for a payout of unused sick-time upon retirement, is this still available?

6.  If you are a member of an Registered Pension Plan, does the package eliminate or reduce early retirement penalties, or will your pension be reduced for life?

7.  How will early retirement affect your retirement income? How soon can you begin receiving CPP and OAS benefits?

8.  What is likely to happen if you do not accept the package?

9.  What are the possibilities for obtaining another job, or consulting? Is this somethingyou even wants to consider?

10.  Are youpsychologically or emotionally ready for retirement? Have you considered what you are going to do to fill the time?

There are many things to consider. Make sure to visit us.  We can help you make an informed decision.