Getting a Good Return on Education Expenses

If you are one of the many parents who are writing cheques to universities this month; you are not alone if you are hoping to get a good return on your investment.  A recent study by HSBC found parents are expecting the university education their kids are receiving should prepare them for a successful career.

Almost half of Canadians polled (47%) said a university education was a key component in competing in the workplace, followed by higher potential income (43%) and the chance of maximizing their child’s life opportunities (41%).

Mothers and fathers apparently have different ideas on what a good education should provide; mothers are more concerned with the income-earning potential a university education will bring (54%), compared to only (38%) of fathers.  In the elementary years, 64% of mothers feel strong skills in the core subjects are most important, while only 54% of fathers agree with this.

Canadian parents have high aspirations for their children when it comes to education.  Four in five or 82% of parents in Canada want their children to attend university, while almost half (48%) want their children to study at a post-graduate level.

Canadian parents feel public schools are just as good as private schools, although 26% do see the value of a private education.  Furthermore, even though 43% feel public schools provide their children with the necessary skills; only 24% of respondents feel the public system is living up to that standard.

When it comes to paying for that university education, Canadian parents said they would allocate 54% of their money towards their child’s education. 

Where does the money come from?

• Savings 55%
• RESPs (and alike) 53%
• Current Income 48%
• Other Investments 34%

Planning to pay for your kid’s post secondary education is a vital part in making their (and your) education dreams come true.  Of the Canadian parents polled 33% agreed the number one thing they wish they had done differently; was that they should have started saving sooner.

If you need help evaluating your education savings options, don’t hesitate to contact me, I would be happy to help.

Enjoy the last long-weekend of the summer.

Tracey

Source:  Original article posted on Advisor.ca 04-16-14 by staff.

Tax Free Savings Accounts (TFSA) Q&A

The TFSA was first introduced in 2009 and there is still a lot of confusion regarding the benefits of investing in this tax efficient vehicle.   Here are some common questions;

What is a TFSA?

The TFSA is a flexible, registered general-purpose account that allows Canadians to earn tax-free investment income.

Who can invest in a TFSA?

In order to invest in a TFSA an individual must be at least 18 years old, a Canadian resident taxpayer and have a valid social insurance number.

How much can I contribute to a TFSA?

The annual allowable investable amount started at $5000 per year in 2009; in 2013 the amount was increased to $5500 for inflation.  If you have not contributed to a TFSA, your allowable amount will continue to accumulate provided you remain a Canadian resident and are over the age of 18. Currently to total allowable contribution limit is $31,000. 

How much can be redeemed from a TFSA?

You can redeem the entire account at any time without paying tax on the investment income you have earned.

Are contributions tax-deductible?

No.

Do withdrawals have an impact on my contribution room?

Yes.  If a withdrawal is made from a TFSA during the year, the amount withdrawn is added back to your TFSA contribution room the following year, and can be re-contributed in any subsequent year.

What happens if I over contribute?

Any over contribution amounts are subject to a 1% penalty tax per month.

Can I name a beneficiary or successor account holder on my TFSA?

Yes, beneficiary and successor accountholder designations can be made directly on the TFSA plan, unless you are a resident of Quebec.

If I borrow to invest in a TFSA is the interest expense tax-deductible?

No.

Can I use my TFSA as collateral for a loan?

Yes, this is specifically authorized and will have no negative tax consequences.

Can I hold a TFSA in joint ownership with my spouse or adult children?

No.

Can I open a TFSA for my minor children?

No.

What happens to my TFSA if I die?

The full account value becomes an asset in your estate.  While no tax is incurred on passing into the estate, any income earned after death will become taxable.  However, if there is a surviving spouse who is your successor accountholder/beneficiary that spouse may maintain that account as a TFSA, without affecting their contribution room on their own TFSA.

Should I contribute to my TFSA or my RRSP?

In most cases, if you are earning over $30,000 in income, need some tax relief and don’t need the money for a specific purpose, I would suggest investing your extra cash into an RRSP.  If you are saving for something specific like a car or vacation; the TFSA would be a better option.  In addition, for those that have maxed out their RRSPs and are continuing to save the TFSA is an excellent investment vehicle.  The money can still be used for a specific purpose, emergency fund or additional retirement savings. 

Hope this helps, if you have any other question don’t hesitate to contact me.

Have a great weekend,

Tracey

 

 

 

 

 

 

 

 

 

 

 

 

Source: Invesco Canada Ltd.

 

Tax Tips for Back to School

As the kids head back to college or university in a couple of weeks, why not share some tips with them so they can be sure they are taking full advantage of the tax system to maximize the amount of cash in their jeans.

Here are five top tax tips for students:

1 Maximize your non-refundable tax credits.
If you earn income during the year, perhaps from a part-time or summer job, then the various non-refundable credits available to you as a student should come in handy to reduce your federal, or in some cases, provincial taxes payable.

The most common credits for students include: tuition, education, and textbook credits, a credit for the cost of monthly public transit passes, a credit for interest paid on certain student loans and the relatively new Canada employment amount.

2 Your scholarship is tax-free!
The tax rules changed back in 2006 to exempt the full amount of any scholarships, fellowships, bursaries, study grants and artists' project grants received by students from tax; provided the program you are enrolled in entitles you to the education credit.

3 Report only the EAP portion of RESP withdrawals.
Only the educational assistance payments (EAPs) from your Registered Education Savings Plans are taxable. EAPs consist of the income, growth, or Canada Education Savings Grants (CESGs) paid out to you from your RESP. Any contributions refunded to you are tax-free.

4 Claim moving expenses.
If you moved back home from school during the summer months to earn employment income, you can deduct your moving costs against your summer employment earnings provided your move was more than 40 kilometres.

5 Consider a TFSA for extra cash.
Saved some extra cash from working during those summer months? Why not sock up to $31,000 into a new Tax Free Savings Account (TFSA). The money grows tax- free and you can access your funds whenever you want, for any reason. Plus, any amounts you do withdraw can be re-contributed, beginning the following year.

Educating our kids early by helping them keep more of their hard earned cash in hand; will hopefully instill the importance of tax planning; because none of us like to pay more than our fair share.

Have a great weekend,

Tracey

Source: Original article written by Jamie Golombek, welcometojamiegolombek.com, originally posted on The Money Tree 08-2012

Pitfalls to Avoid in Your Peak Earning Years

The peak earning years usually happen between the ages of 45-55 when your income continues to rise while your debt and expenses decline.  The combination can give you the means to reach many of your financial goals and ultimately financial freedom.

However, if you fail to strengthen your financial position during these years, you could put your financial future at risk.  Here are five pitfalls to avoid during your peak earning years:

Playing it safe with your investment portfolio – During your peak earning years you should be focusing on growing your portfolio, especially if you have a defined pension plan, intent to continue working part time or have an alternative income source such as rental income.  Playing it safe in low interest GICs and Canada Savings Bonds could leave you short and not enough to fund your future goals.

Not paying off debt – Being debt free at retirement opens up many possibilities that wouldn’t be available if you were still paying off the mortgage or other consumer debt.  Now would be the time to use your increased earnings to aggressively pay off debts, allowing you to enter your pre-retirement years stress free and able to concentrate on the lifestyle you want to create.

Focusing too much on the wish list – You finally made it, your income is the highest it has ever been, so why not enjoy it?  That’s fine, but be careful; there is a point where spending too much will impair your ability to save for the future.  What is really important to you?  Prioritize, instead of trying to have it all concentrate on what you really want; whether it is traveling, buying your dream car or doing a home renovation.

Not taking advantage of tax sheltered investment accounts - Most people have unused RRSP contribution room and have yet to open a TFSA.  Now that you are in your peak earning years you have little excuse not to max out your RRSP, once that is done; open a TFSA and top that out as well.  Making it a priority to max out these contributions while you have the money will put you in a much better financial position and enable you to accomplish all of your lifestyle goals.

Having your heart set on an early retirement – When I ask people when they wish to retire the most common answer is ‘tomorrow’.  Early retirement takes a lot of planning; but if this is your dream it is time to start saving and investing rigorously.  As always speak with a professional like myself on how feasible the plan really is; before you hand in your resignation.

Do you make a lot of money but not sure where it all goes?  Your peak earning years shouldn’t be wasted, it is time to take advantage of your higher income, manage it wisely and accomplish your lifestyle goals.  Give me a call and we will restructure your household finances, run it like a business and make it profitable.

 

Have a great weekend,

Tracey

Source:  Original article posted on advisor.ca by staff, 08-05-14

Leaving your Job? Severance Packages and Retiring Allowances

Whether leaving your job is voluntary or not you may receive a termination or severance package upon exiting the company. If your departure is involuntary every jurisdiction stipulates how much notice you will receive, it is common for the company to pay you in lieu of actually having you work through this time period.

Severance is payment in recognition of years of service with the company. At this point only federal jurisdiction and the province of Ontario has statutory minimum severance requirements. In Ontario the minimum severance is one week pay per year of service with the company. In other jurisdictions severance amounts are based on precedence and the dollar amount will be determined by your employment arrangement and the circumstances of your departure.

In either case the termination/severance pay is considered employment income and will be taxed as such. Therefore it is important you understand your choices when determining how and when to take your severance. Employers are required to withhold the appropriate income taxes when paying out a lump sum. For amounts over $15000 your employer will automatically withhold 30%, this could be higher depending on your marginal tax bracket. Therefore the timing of receiving your package could be important; if you are near the end of the year you can request your employer defer the payment until January. By deferring the payment you will push the income into next year when your income may be substantially lower due to your current unemployed status; and therefore it will be taxed at a lower rate.

Retiring Allowance

A retiring allowance is normally paid in recognition of long service or as part of payment due to involuntary job loss. It will include severance pay and sick leave credits, but it does not include unused vacation pay or termination pay. The retiring allowance must be included in taxable income, however all or a portion of it can be transferred tax free into your RRSP providing specific requirements are met. You can transfer $2000 for every year of service prior to 1996, and an additional $1500 for every year of service prior to 1989 when you were not part of the company’s pension plan.

Severance Packages

Severance packages are meant to help you though the transition period of finding new employment. Knowing the bills will be paid reduces stress and lets you concentrate on getting back to work. However, a severance package may seem like a windfall if you already have a new job lined up. Buying a new car, going on a holiday or doing some renovations might be tempting, but you should look at the long term implications of your decision. Provided you have contribution room; you could transfer the money directly into your RRSP without taxes being withheld by your former employer. If you have already maxed out your RRSP you could top up your emergency fund or invest it into your TFSA and have the money grow tax free.

If you find yourself in the position of receiving a retiring allowance or severance package make sure you speak to me, we can look at all your options and ensure the money goes in the most tax efficient way towards something that is really important to you.

Have a great weekend,

Tracey

Source: Dynamic Funds