November/December - 2007
Because this communication is to thank you and to wish you a MERRY CHRISTMAS AND A HAPPY NEW YEAR, I'm enclosing the current issues of LIFE LETTER and LIFE LETTER MATURE without my regular commentary.
LIFE LETTER MATURE - Designed for people over 55, please pass LIFE LETTER MATURE on to someone you know. The subjects covered November and December deal with Grandma and Grandpa Santa and Making Your Family Aware of your Personal Documents.
THE STOCK MARKETS - For the first 11 months of 2007, the TSX Composite Index is up 6.05%. This is not at the same level as the previous 4 years, but at least we're well on the plus side. The Canadian Index return is also competitive with those in other industrialized countries. A full report on the 2007 year-end performances of the major indexes will be published in January/February edition of my Newsletter.
If you're not on the internet, please call me and I'll personally get the Annual Review Check List to you.
Please, allow me to say it once more: MERRY
CHRISTMAS AND A HAPPY
NEW YEAR TO YOU AND YOUR LOVED ONES.
The mini-Budget and You
When Finance Minister Jim Flaherty delivered the so called mini-Budget on October 31, 2006, it caused major ripples through the whole country. The one he presented on October 30, 2007 was largely unnoticed. In 2006, he killed the preferential tax treatment of income trusts. Flaherty's main thrust in 2007 was income tax cuts. Whether the tax breaks are for businesses or individuals, everybody benefits. Here are the highlights:
Corporate tax cut - Starting with a 1% drop in 2008, there will be a gradual reduction of the corporate income tax rate to 15% by 2012. This rate reduction will also apply to income trusts, which are to be taxed starting in 2011. The income trust distribution rate will start at 16.5% in 2011 and be reduced in 2012 to 15%.
Small business tax cut - An early tax break is on its way for small business owners. The current tax rate for small businesses is 13.1% and will drop to 11% in 2008, one year ahead of schedule.
Lowest personal income tax rate shrinks - The government has pledged to reduce the lowest personal income tax rate to 15% from 15.5%. This will be retroactive to January 1, 2007. For families earning between $15,000 and $30,000, this means a tax savings of about $180. The savings are about $400 for families in the $45,000 to $60,000 range and about $602 for families with earnings of $80,000 to $100,000. May not sound like much to some, but it is still money you get to keep in your pocket. Should cover the average grocery bill for a few weeks.
Basic Personal Amount increased - When you file your 2007 personal tax return in April, you will be able to claim an increased personal amount of $9,600. Retroactive to January 1, 2007, this means that the first $9,600 of income you make is exempted from taxes. This is an increase from the previous level of $8,929, and will be increased again on January 1,2009 to $10,100.
Further reduction of the GST - This could generate the most noticeable tax savings for everyone. Effective January 1, 2008, the federal government plans to reduce the Goods and Services Tax (GST) to 5% from its present level of 6%. Some businesses have already begun offering the lower GST rate on larger ticket items. Perhaps more Canadians will choose to give gift cards at Christmas, with the intent of saving on the GST on larger purchases in the New Year. Retailers may see a slower Christmas season of actual merchandise heading out their doors, but could make for some interesting sales in January.
Whenever there is an increase in take-home income, whether by tax reductions or increased earnings, the temptation is great to spend it. Consider for a moment if these "savings" were actually saved. Andy and Sarah will enjoy about $1,000 in total tax savings. If they were to deposit this "extra" money each year in an RRSP, at 8 compounded annually for 30 years, they would have about $113,283 more to retire on.
For informational purposes only. This article is not intended to provide specific tax advice.
Copyright © 2006 Bowen Financial Inc. All rights reserved
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Overlooked RRSP Strategies
There are a number of common RRSP strategies that many of us use on a regular basis. These include making regular monthly deposits, borrowing to make RRSP contributions and making contributions at the beginning of the year instead of the end of the year. Here are some strategies that may get overlooked:
Take advantage of the age credit amount -There are more and more people working well beyond age 65 for a number of reasons. Pete started working fewer hours after his 65th birthday and wants to defer retirement income as long as he can. He realized, however, that he could take just enough money from his RRSP to buy an annuity that pays him $2,000 per year until age 71 and receive this income tax-free.
If Pete doesn't really need this income, he can simply invest it in a non-RRSP and use it to provide some extra income in the future. This will provide a little more income in his later retirement on which he will have to pay very little income taxes.
Reduce or eliminate taxes on a terminal tax return - Sally, a new widow, had to complete and file a terminal tax return for her husband, Jake. She received a substantial amount of money from his life insurance and he had a lot of unused RRSP contribution room. Jake had earned about $65,000 in salary in the year of his death. Sally was able to make a large contribution to a spousal RRSP with Jake as the contributor. By reducing his taxes to zero, all the income taxes withheld during the year were refunded. She deposited the refund in her own RRSP.
Make a contribution, but delay the deduction -Just because you make an RRSP contribution for a certain tax year doesn't mean you have to take the deduction right away. Theresa received a small inheritance and also had some unused RRSP contribution room. She made a deposit to her RRSP up to her limit, but did not take a deduction when she filed her tax return. She was a student at the time and had very little income. Theresa can "carry forward" the actual deduction until she has enough earned income to make it worthwhile. Meanwhile, her deposit will grow tax deferred inside her RRSP.
This strategy can also be used to take a deduction only for the amount of income that falls into the highest marginal tax bracket each year until the contribution amount is all used up. A large deposit now can provide maximum tax savings for several years to come and continues to grow tax deferred.
Pay a small penalty - Penny turned 71 this year and is still working. Her earned income this year determines her RRSP contribution for next year, but she has to convert her RRSPs to an income by the end of this year. By making her contribution in early December and then converting it to a RRIF by the end of the month, she will pay a 1% penalty but get the full deduction next year. For example, if she makes a $15,000 deposit, it will cost her $150 as a penalty, but she will get a $3,300 savings in federal taxes, plus provincial taxes, on next year's income.
This article is for information purposes only and not intended to provide specific retirement planning advice.
Copyright © 2003 Bowen Financial Inc. All rights reserved
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