Retirement Planning
for the
Canadian Investor

Home Page


Client's Comments

Associated Sites


Financial Commentary

Tax Strategies

Borrowing to Invest




Design by
CY7 Computer Services


May/June 2009

Commentary - Hans H. Mathisen

Tax Free Savings Plans - - LIFE LETTER for May describes a few different scenarios of TFSPs. There are also other ways this new savings/investment vehicle can be used. So, please, call with any questions you may have.

So, you got a tax refund - After we have lent our money to CRA for free for maybe as long as a year, LIFE LETTER for June suggests two avenues that may be used to reduce the money we lend for free to the tax collector. Ideas on how to get the most mileage from our tax refunds are also found here.

LIFE LETTER MATURE - focus on fraudsters being more active in difficult economic times (Now is the time to be especially wary) and Steps you can take to control high blood pressure. Both topics are relevant for many people.

THE STOCK MARKETS - All major indexes continue their move upwards. As of the last business day of May, 2009, the year-to-date performance of the S&P TSX stood at +20.06%; the Dow Jones registered -6.07%. In Europe, Germany's DAX was at +2.72%; Frances's CAC 40 +1.85%; and England's FTSE 100 -0.37%. In Asia, the situation was: Hong Kong's Hang Seng was at +26.30% and Japan's NIKKEI +7.48%.

It appears as if the the worst of the economic downturn is behind us and that the huge injections of capital by many governments are starting to work their way through the respective economies. Those investors who moved to T-Bills during the downturn: are they still earning less than 1 on their investments after taxes? Or, did the Tooth Fairy put them back in the market the very day the market hit bottom? Aren't you glad you decided to stay where you are?

Hans Mathisen





Tax-Free Savings Plans

When Sophia first heard the term Tax-Free Savings Account (TFSA), the first thing that came to her mind was a low- or no-interest account at a bank. She soon learned that just about every investment option available to her in an RRSP is also available to her in a TFSA plan.

Glenn, 58, is of modest means and has saved less than $50,000 in his RRSPs. He likes the fact that TFSA withdrawals will not affect his income-tested benefits, like the Guaranteed Income Supplement (GIS), when he retires. For every dollar of income from his RRSPs, there will be a fifty cent reduction in his GIS. It may make more sense for Glenn to gradually collapse his RRSP before he retires and deposit the after-tax proceeds in a TFSA.

Mike and Monica maximize their RRSP deposits every year and also save additional amounts for their retirement. Because growth in a TFSA is never taxed, it is a very attractive vehicle for additional retirement savings. Because interest income is 100% taxable outside a TFSA, Mike and Monica decided to use their TFSA plans for interest bearing investments.

Lauren opened two TFSA plans. She can only deposit $5,000 (in 2009) in total to her plans. Lauren is using one TFSA to save for her next car. She likes the fact that she can withdraw funds from her account and her contribution room will be increased by the full withdrawal amount the next year. She is using her second TFSA as a rainy day account. With the uncertain economy, Lauren is concerned about her income needs in case she is laid off.

John borrowed to invest in his TFSA. Just like an RRSP loan, interest paid on the TFSA loan is not tax-deductible. He wanted to take advantage of the lower investment fund unit values available now.

Pete and Laura each have a non-RSP investment account. They transferred $5,000 each, in-kind, into TFSA plans. For tax purposes, it is deemed that the investments were sold, which means there could be a gain or a loss. In this situation, gains are taxable but losses are not deductible. Good thing for Pete and Laura that their accounts were very close to even.

Theresa was only able to deposit $2,000 to her TFSA in 2009. She likes the fact that, like RRSPs, she doesn't lose her contribution room if she doesn't make a full deposit. Assuming that this amount remains at $5,000 for 2010, Theresa will be able to contribute up to $8,000 into her TFSA next year.

So far, only Alberta, British Columbia, Nova Scotia, Prince Edward Island and the Northwest Territories have enacted legislation allowing the naming of beneficiaries on TFSA plans. Ron and Rachel like the fact that they can use a life insurance company deposit product for their TFSAs. It doesn't matter where they live in Canada, they can name a beneficiary. They can also name secondary beneficiaries so that if they die together, their children will automatically be next in line to receive the proceeds. This means that Ron and Rachel's kids won't have to wait for their estate to be settled before they can access the TFSA funds. They also avoid legal and probate fees on the money.

Want help with your tax-free savings?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright © 2009 Life Letter. All rights reserved

[Top Of Page]






So, you got a tax refund.

According to the Minister of National Revenue, the average tax refund is over $1,400 for the 2008 tax year. Surprisingly, many Canadians are thrilled about getting a big refund. While certain situations can lead to an unusual tax refund, far too many Canadians lend large sums of money to the government at 0% interest year after year. Two things you can do to make your refunds smaller are:

File a new TD1 - When Ben started his new job several years ago, he completed a TD1 form with his employer. This form tells Ben's boss how much to deduct from his income for taxes. He has since married and had two children. Ben should complete a new TD1 form that better reflects his situation today. These life changing events provide Ben with more tax lowering opportunities and, rather than getting a large refund, he prefers to have less deducted from his paycheques.

File a T1213 - Cheryl makes RRSP deposits on a monthly basis by automatic bank withdrawal. By completing a T1213 "Request to Reduce Tax Deductions at Source" form, her employer can reduce her monthly salary by the RRSP deposit before calculating tax deductions. This gives Cheryl an instant tax break rather than a big refund.

Mike was laid off for a few months. Julie had some unusual medical bills. Doug and Mary started their twins in daycare. These events resulted in tax refunds that were not normal. Then again, many plan on getting refunds each year. What can you do with your income tax refund? Here are some ideas:

Start an emergency fund - Like many, Mike didn't expect to get laid off. It took almost six weeks to receive his first Employment Insurance payment. Mike deposited $5,000 of his refund in a Tax-Free Savings Account (TFSA). Next time there is an employment interruption, he can dip into his TFSA to help get him through. Any withdrawals he makes get added back to his contribution room the following year, so he can replenish his emergency funds.

Pay down high interest debts - Julie had incurred some unusual expenses and some went on her credit cards. Most bank credit cards charge about 19% annual interest on outstanding balances. Any new charges to the cards attract the same interest until the balance is paid off. Julie used her refund to pay down her credit card balances and save on interest costs.

Pay down the mortgage - Doug and Mary have $250,000 left on their 5% mortgage. They have twenty years left to pay on the current amortization schedule. If left as is, they will pay $144,320 mortgage interest over the next twenty years, assuming the same interest rate throughout. Let's say they will be getting a $2,500 tax refund every year and apply it to the principal. Doug and Mary will reduce the interest paid on their mortgage by $26,981 and pay it off about 3 years sooner.

It can be tempting to view a tax refund as found money and blow it on consumer items. A little bit of financial discipline now can make a very real difference in your long-term financial situation. After all, do you really want to lend your money for free?

Want help with your financial strategies?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2009 Life Letter. All rights reserved

[Top of Page]

[Home Page] [Services] [Financial Commentary] [Tax Strategies]
[Associated Sites] [F.Y.I.] [Client's Comments] [Biography] [More Info]

Mutual confidence is the power that binds together all harmonious human relationships.

Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314