2520 Sixth Line, Unit 18, Oakville, Ontario L6H 6W5 Tel: 905.257.6528 Fax: 905.257.4221
[email protected] www.taxmanagementcentre.com
JUNE’S UPDATE
In this Issue
June’s Update
1
The Halloween Budget
1
Did You Know
2
What is a billion?
2
Tax Strategies
2
Labour sponsored
investment funds for
tax reduction
3
Turning Retirement
thinking on its head
4
January 2007
I’m writing this newsletter on December 24th – a beautiful sunny day in Oakville
without a hint of snow. Hopefully by the time you read this you will be having a
piece of the winter we are all so used to. I, however, along with my husband
Michael, will be sitting in a classroom in the local university in Merida, Mexico
learning Spanish – and I hope that classroom is air conditioned. Living in with a
Mexican family and attending class daily with field trips in the afternoon and
evenings – total Spanish immersion – I hope I can do it. They say “if you don’t
use it you lose it” so I’m really stretching this old brain to the limit this time. This
course is sanctioned by the Halton Catholic District School Board and we will be
two of the four Canadians, along with twelve others from around the world in this
particular January group. It’s repeated every month during the winter months,
so if you’d like to find out more, give me a shout after January 29th when I’m back
in the office.
While I’m away I know that Carol, Aparna, Shirley and Litsa will be able to help
you if you have questions or problems.
June
THE HALLOWEEN BUDGET
Personal Financial Planning
Financial Divorce Specialist
Prepaid Legal Services
Income Tax Planning
It caught us all by surprise – announced after the markets closed on October 31st.
Flaherty’s focus was on income trusts which will now be taxed more like
corporations. That had a dramatic effect on mutual funds that are invested in income
trusts and over the next week following the announcement, saw many income trust
mutual funds dropping in excess of 10% (source: Globeadvisor.com)
Investment Advisors
Estate Preservation
Insurance Analysis
Business Planning
Elder Planning
The budget did however, include some GOOD news, especially for seniors. Seniors
have always had the opportunity to split their CPP and many times we’ve proven to
our clients that they would pay less tax if they arranged with Human Resources
Development Canada (the CPP people) to split their monthly cheques so they each
receive an equal amount. The Halloween Budget will allow eligible pension income
splitting with one’s spouse or common-law partner and it will happen on your 2007
income tax returns prepared in spring 2008 (not by equalizing the cheques). If done
properly, this can result in significant tax savings to pensioners.
Page 2
TAXING HUMOUR
DID YOU KNOW?
• If you received dividends in 2006 from a public corporation, you
will be taxed at 145% of what you actually received, but you will
receive a dividend tax credit on your tax return which makes
dividend income almost as tax efficient as capital gains income.
BUT it might affect other government benefits, like OAS clawback
and Ontario property tax credits
Tax his land,
Tax his wage,
Tax his bed
in which he lays.
Tax his tractor,
Tax his mule,
Teach him taxes
is the rule.
Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.
Tax his ties,
Tax his shirts,
Tax his work,
Tax his dirt.
Tax his tobacco,
Tax his drink,
Tax him if he
tries to think.
Tax his booze,
Tax his beers,
If he cries,
Tax his tears.
Tax his bills,
Tax his gas,
Tax his notes,
Tax his cash.
Tax him good and let him know
That after taxes, he has no dough.
If he hollers, Tax him more,
Tax him until he's good and sore.
Tax his coffin, Tax his grave,
Tax the sod in which he lays.
Put these words upon his tomb,
"Taxes drove me to my doom!"
And when he's gone,
We won't relax,
We'll still be after the
terminal TAX!!
• That if you are between the ages of 65 and 70 you can take
$2,000 out of your RRSP every year TAX FREE – but it must be
done properly.
• There are still income splitting advantages to having a spousal
RRSP (even after the Halloween Budget) for couples who are
under the age of 65
• RRSP loans are now available at PRIME – 1% (that would be
5%)
• That according to the Canadian Securities Institute, IPO's, Real
Estate and Precious Metals are at the top of The Financial
Planning Pyramid, whereas insurance and Wills are at the bottom
•
That you can tax shelter the interest income earned on a GIC if
you purchase that GIC inside a Universal Life Insurance Policy
WHAT IS A BILLION????
A billion is a difficult number to comprehend, but one
advertising agency
did a good job of putting that figure into some perspective in one of its
releases.
A.
A billion seconds ago it was 1959.
B.
A billion minutes ago Jesus was alive.
C.
A billion hours ago our ancestors were living in the Stone Age.
D.
A billion days ago no-one walked on the earth on two feet.
E.
A billion dollars ago was only 8 hours and 20 minutes,
TAX STRATEGIES
The Smith Manoeuvre taken aggressively can allow you to fund your RRSP
or pay down your mortgage faster using “other peoples money” with
NO COST TO YOU.
You leveraged for your home – now leverage for your retirement.
Page 3
LABOUR-SPONSORED INVESTMENT FUNDS for tax reductions
These special mutual funds have an eight year holding period (or you would have
to pay back the tax benefit you received when you purchased them) and this year
many of our clients have reached that eight year maturity date and will be able to
roll that original investment back into the same fund and receive ANOTHER tax
reduction equal to 30% of the roll-over amount.
For example - If you invested $5,000 in the Vengrowth I fund in 1999 you would
have received a $1,500 tax deduction, so your net investment would have been
$3,500. That $5,000 would be worth approximately $4,100 at the end of December
and if rolled back into the same you will receive another 30% or $1,230 tax
reduction for 2006. We are currently contacting all our clients with mature units to
take advantage of this additional tax reduction.
This RRSP and tax season we are recommending the purchase of one of the
VentureLink labour-sponsored investment funds. The following strategies might
interest you……
• Purchase a VentureLink fund up to a maximum of $5,000 in a non-registered
account and receive a 30% (to a maximum of $1,500) tax reduction on your
2006 tax return
• Purchase a VentureLink fund up to a maximum of $5,000 in an RRSP account
and receive a 30% (to a maximum of $1,500) tax reduction PLUS the normal
RRSP tax deduction
• Use existing money already invested and purchase a VentureLink fund up to a
maximum or $5,000 and receive up to $1,500 tax reduction WITH NOTHING
OUT OF POCKET
At a recent CRA
meeting the need for
a mileage logbook
was discussed for all
drivers who are able
to claim some of their
auto costs as tax deductible expenses.
WE HAVE A
LOGBOOK HERE
FOR YOU – drop in
and pick yours up.
According to
Stats Canada,
the average net
worth per person in
Canada is $146,700.
Put all your eggs in
One basket!
Borrow $5,000 on an RRSP loan, purchase the VentureLink fund inside an RRSP
and use the tax savings to pay off the majority of the RRSP loan inside of six
months
Remember that the deadline to purchase these special funds and receive the tax
reduction on your 2006 tax returns is THURSDAY, MARCH 1, 2007.
If you have any questions or concerns about your investment statements or about
any other financial matter, please don't hesitate to telephone June or Carol at
905-257-6528.
LSIF disclaimer: “Tax credits are applied against any taxes owing. Investing in an LSIF does not
guarantee an automatic $1,500 refund. New shares must be held for eight years to avoid repaying the
tax credits. Leveraging has risks associated with it, call us at 905-257-6528 for more information
Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not
guaranteed, their values change frequently and their past performance may not be repeated.
Go to
www.manulifeone.ca
to try the calculator
that will show how
debt consolidation
using the Manulife
One mortgage can
benefit you
2520 Sixth Line, Unit 18
Oakville, Ontario L6H 6W5
Tel (905) 257-6528
Fax (905) 257-4221
[email protected]
www.taxmanagementcentre.com
Northern Office:
210 Peter’s Crescent, P.O. Box 261
Flesherton, Ontario N0C 1E0
Tel (519) 922-3028
Fax (905) 257-4221
Toll free (877) 208-4613
From the Desk of Carol Blevins…………….
TURNING RETIREMENT THINKING ON ITS HEAD!
I’m sure you’ve heard and seen the advertisements on Radio and TV - what’s it all about?
Well - here’s the scoop...
Manulife Financial has a product called “Income Plus”, which is the first product of it’s
kind currently being offered in Canada. This product promises to change traditional
retirement thinking in the industry. Income Plus features:
•
•
•
•
•
Predictable and guaranteed income no matter how well or poorly the investments perform.
Sustainable income until at least the principal is repaid
Flexibility to change investments at any time
Access to savings at any time
Account balances at death will be paid directly to beneficiary – bypassing wills and probate, ensuring smooth
transition of your assets.
How does it work ?
Let’s use a theoretical amount of $200,000 to demonstrate.
Scenario 1- Retirement Phase: Investor age 65, deposits $200,000, paid back at 5% ($10000) per year for 20
years . The deposit is invested in mutual funds, which offers growth potential, on top of which the portfolio is
reset every 3rd anniversary . With a $10000 withdrawal in years 1-3 the principal amount would be $170,000 in
year 3 – if the funds have performed well and the value of the portfolio is $185000, this becomes the new reset
amount for a new contract term of 20 years . Poor performance will not result in a downward reset – the initial
investment amount of $170,000 is guaranteed to be paid out in full.
Scenario 2- Accumulation Phase: Investor aged 55, who does not need income but wants to plan ahead, can
invest that same $200,000 and instead of receiving a 5% annual payout, will receive a 5% BONUS added to the
account annually until age 65. This resets every 3rd year, therefore , in year 3 the account deposits would be
$230,000. If the value of the portfolio of investments has grown to say $245,000 – then this amount would
become the new ‘reset value and minimum amount of principal to be repaid’ once the income stream starts at
age 65.
With $50,000 minimum deposit, Income Plus makes it possible for your retirement income to be: Predictable ,
Sustainable & Potentially Increasing in value, with the added ability to pass assets to your beneficiaries.
If you would like to know more about protecting the assets you’ve accumulated while securing a guarantee for
your retirement call us at 905-257-6528
Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.
Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and their past
performance may not be repeated.