“Common sense is the knack of seeing things as they are, and doing things as they ought to be done.”
—Josh Billings, pen name of humorist and lecturer Henry Wheeler Shaw
(1818 – 1885).
 |
| Adrian Mastracci, portfolio manager at KCM Wealth Management, says "There is something for everyone in these timely tips. Remember the dose of common sense." |
Vancouver, BC (May 22, 2008): Reviewing your finances help tweak them in the right direction. It’s much about pursuing simple, common sense ideas. Stick to your knitting. Tune out the distractions.
However, one size does not fit all. A blend of capital preservation and growth is essential for some. Others may seek a dependable retirement income stream. Focus on what is important to you.
Mull over your big picture. Make it a family affair. Follow the money. Pursuing one provision often affects other areas.
Benefit from these planning tips for 2008:
1. Plan your game
The lack of financial success for investors points to one frequent explanation. Too often, there is no game plan. If that is the case, or it’s long out of date, prioritize your game plan design.
It covers things like risk tolerance, time horizon, investor profile, diversification, tax friendliness and the all-important asset mix. It’s your personal roadmap to reach your chosen destination.
I like a plan that coordinates all components. I prefer stable investment returns to hot performance. One bad year can wipe out many good years of achievements.
Curb undue optimism. For planning estimates, I use long-term returns under 5% for bonds and up to 8% for stocks. Refresh your financial wish list every year. If your goals are falling short, seek changes.
2. Early RRSP
Start the 2008 RRSP contributions to your account or spousal plan. You don’t have to wait until early 2009. The maximum 2008 RRSP is $20,000 less the pension adjustment, plus the unused room.
Spousal RRSPs are still one major way of building nest eggs. Make spousal deposits to the lower-income spouse. The depositor gets the tax deduction at the higher rate.
A request can be sent to Canada Revenue Agency to reduce tax deducted by your employer. It's like receiving your 2008 tax rebate in advance.
3. RRIF conversions
Converting the RRSP to a RRIF must be completed by December 31st if you turn 71 in 2008. There are some options for 70-year-olds that converted before the 2007 Federal Budget.
RRSP deposits must still be made before converting, unless there is a younger spouse. Qualifying investments are the same for both plans. However, a RRIF has to make the required payments.
4. RESP
If you have children, grandchildren, nieces, nephews, consider making RESP deposits by December 31st. The lifetime maximum is $50,000. RESP funds can be used for some part-time studies.
The maximum grant is received with a deposit of $2,500. A family RESP is preferred for two or more related beneficiaries. It’s an easy way to help with the cost of education.
5. Pension split
Spouses and common-law partners can elect to split up to 50% of the pension income that qualifies for the $2,000 pension credit. The 2008 decision can be different from last year’s.
Be careful when OAS clawback, age credits and medical expenses credits apply. It’s possible to split the pension income but lose ground in other areas. US citizens resident in Canada should consider the US tax implications of splitting Canadian pension income.
6. Split CPP
CPP can be split with a spouse or common-law partner when the younger one attains age 60. An application must be made to split it.
Say the monthly entitlements are $200 and $800 respectively. The result is $500 received by each. This can be reversed at any time.
7. OAS clawback
The OAS clawback starts near net income of $65,000 and is all paid back at about $105,000. It is also affected by the dividend grossup amounts.
Hence, it may be beneficial to have dividend income received only by one spouse. Alternatively, in some disproportionate amount.
8. Donate securities
Donate securities that have gained in value directly to your favourite charities and private foundations. You won’t pay tax on the capital gains. Your donation receipt is based on the market values of the donated securities.
For some, it makes sense to design a long-term charitable donation schedule while living. Together with the charitable wishes to be included in the will.
9. Gains and losses
Review your capital gain and loss strategies. Consider the losses you may be carrying forward from 2007. Revisit your tax cost entries from the $100,000 capital gain exemption claimed in 1994.
Don't be afraid to lock in a gain. Especially if you have a loss position that has faint hopes of turning into a profit. A little portfolio rebalancing helps.
10. Payers and savers
Many families have one person who earns the higher income. Often that same person owns more financial assets and may also have the employer pension.
One goal is to equalize retirement incomes. Hence, the higher-income person can pay the family expenditures. The lower-income person can do the saving and accumulate more financial assets.
11. Business structure
Your business structure might use some polish. Perhaps you have a proprietorship, a partnership, an incorporated company, or a complex set of holding companies.
Evaluate the business reasons for having what you have now. Then examine if you can benefit by modifying the structure.
12. Crystallize the business
Analyze if crystallization of your business, fishing property, or operating farm qualifies for the $750,000 lifetime capital gain exemption. Full use of the exemption can save a considerable amount of income taxes. However, this exemption may give rise to paying Alternative Minimum Tax.
13. Cross border issues
Canadians who spend time in the USA may be required to file a US tax return. It is important to determine whether you meet the “substantial presence” test. If you carry on business in the USA, you may also be required to file a US tax return.
Canadians who own property in the USA should review the estate tax rules that apply. Renting your property may subject you to withholding taxes.
US citizens living in Canada should seek advice on the tax filings that the IRS requires. US citizens who own Canadian private companies are wise to check the US tax treatment of receiving investment income. Such as capital dividends.
There is something for everyone in these timely tips. Remember the dose of common sense.
Happy planning.
|
