What about tax credits?

Many tax credits can be split between spouses, and occasionally with parents and even grandparents. Splitting tax credits is especially beneficial when one spouse has little or no income. Every person in Canada is entitled to a personal exemption, where you can make up to an set amount of income without paying any tax on it. (currently $10,320 Federally and $16,775 Provincially) If one spouse is not using the personal exemption the other spouse may claim any unused portion. Some tuition and education amounts may be transferred to spouse, parents or grandparents. Disability amounts can be transferred to spouse or to parents. Age and Pension amounts can also be split between spouses, as well as transit and children’s fitness credits. The bottom line when you are splitting income, deductions and credits you want to pay the least amount of total family tax!

Tax Deductions

Many Tax Deductions can be split between spouses. For example moving expenses can typically be split between spouses, as long as it is a family move and a legitimate moving expense claim. Child Care expenses are typically claimed under the lower income earner except for in specific circumstances. The RRSP deduction is claimable by the contributor, but the other spouse (the Annuitant) may receive the income when you withdraw the RRSP. This is very beneficial when the spouse in the higher tax bracket has large RRSP contribution room and can “Shift” income to the lower income spouse. Interest and Carrying Charges is another example of a tax deduction that can be split. To do this you must structure your transactions compliantly from the loan to the investment.

Income Splitting

Many types of income can be split, only a few of them can be split at the time of filing the tax return if you have not yet done what is required prior. Business income can be split in many ways, by paying wages, dividends, bonuses and more. Wages can be paid for work the spouse has done, dividends can be utilized if the spouse is a shareholder, and bonuses can also be paid to spouses. Capital Gains income can be split by either purchasing the asset jointly, or flowing the Capital Gain through a Family Trust. Dividends can also be split easily using the family trust. CPP and Pension income may also be split. With CPP you must apply with Service Canada to split the income, however with other pensions you can typically just split it right on the Tax return. RRSP income may be attributed to the other spouse if they are made the Annuitant. Some RIFF income can also be split between spouses. So as you can see much of the income from investments, businesses and Pensions are able to be split between spouses. Don’t forget to include your kids in income splitting where possible.

Tips on Tax Planning

The problem with most people’s tax planning is that they do it last minute or try to do it when it is too late. Although you are currently completing your taxes for 2009 there is not much you can do to save taxes for 2009 now! Planning happens early, that’s why it’s called planning. Planning for 2010 should be happening as you complete and file your 2009 tax return, and followed through right until December 31^st. That being said, what can we do to still save taxes for last year? There are still some things you can do now, such as income splitting, deduction splitting and credit splitting. In the next blogs I will briefly discuss each.

Core Consumer Price Index Inflation Vs. True Inflation

http://www.statcan.gc.ca/subjects-sujets/cpi-ipc/cpi-ipc-eng.htm

On this latest release from Statistics Canada it is stated that “Overall, energy prices went up 8.2% between January 2009 and January 2010, following a 5.9% increase in the 12 months to December 2009.” Yet at the same time the Media continually states that Inflation never seems to be more than 2-3%? That’s because they are going by the Core Consumer Price Index which is a complicated calculation that does not seem to give us a clear picture of true inflation in Canada. How much have fuel, groceries and taxes gone up over the last 10 years, 2% per year? When I ask many people the question of how much they think true inflation is, they reply that they believe true inflation has to be at least 6%, and I’ve even had some reply that they think actual inflation is closer to as high as 9%. What do you think True Inflation is?

Canada is Golden!

The Olympics is a great example to us of what we can accomplish in Canada. Leading the Gold Podium at 14 Gold Medals in the 2010 Winter Olympics, Canada has set the new record! We’ve all been given gifts and talents, but many never exercise them regularly or fail to stay the course when things get tough. Keep in mind that an athlete practices and competes for 4 years before they get to the Main Event: The Olympics. With Canada’s hockey teams winning Gold again, it goes to show us that not only do we breed the best hockey players in the world, but we also have the heart needed to accomplish anything we put our minds to, and as a TEAM everyone achieves more! No matter what our calling is in life we must do it with Excellence, and NEVER, NEVER, NEVER GIVE UP!

Increasing Interest Rates in Canada

http://www.financialpost.com/news-sectors/economy/story.html?id=2631601

This article in the Financial Post eluded to the possibility of Interest Rates increasing in Canada as early as July 2010. Originally the projection for the beginning of the increase was to be in October, then retracted to possibly September, now maybe July? Canada went beyond the projections for 2010. Over the last 2 quarters of 2010 output was increased in Canada and it was announced that inflation was increasing at a faster rate than expected. As demand in the economy increases so does interest rates typically rise. Is the economy coming back or will there be another major downturn? In many of the financial downturns in history there was a big down swing, followed by a short up swing and then a bigger down swing! Because much of the East Coast in Canada is still suffering from the recession we need to still keep the cost of living low. People cannot get caught up in the media hype that states the economy is rebounding at a fast rate. As we’ve seen in the past when economies rise at a fast rate it is not sustainable. Even though core inflation is stated to remain under 2%, that does not mean that true inflation is not rising at a rapid rate.

For more information on the Core Consumer Price Index Inflation vs. True inflation, please check back here in the next few days for my new blog entries.

Beware slackers!

Taxpayers who are late with their tax returns and who owe taxes will be charged interest and late filing penalties.  Interest is charged on the outstanding balance starting the day after the due date of the return and is compounded daily. 

Interest are subject to change quarterly so make sure you check the CRA website regularly for updated rates (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/ntrst/menu-eng.html).

The late filing penalty is 5% of the outstanding balance, plus 1% of the outstanding balance every month that your return is late, to a maximum of 12 months. 

Remember, prepare your tax returns well ahead of the due date to avoid paying interests and penalties!

Tips on the Closed Circle

How you can you ensure an effective and successful Closed Circle? Here are a few important points to remember:

• It is very important for married couples to agree on their Closed Circle. One of the main causes for divorce is division over finances. When a couple agrees on “How Much is Enough”, finances are much less of an issue.
• Be diligent and consistent with your Closed Circle, enter your receipts daily or weekly.
• Your Closed Circle should be reviewed and adjusted annually and upon any major life changes.
• Accountability is important. If you are married, your spouse is your accountability partner. If you are single, you need to appoint a family member, friend or mentor to be your accountability partner.

I hope you have more of an understanding about the Closed Circle budget by this time. If you need my help in clarifying some points, let me know. I will be glad to help!

March 2, 2010 by KustomDesign · Leave a Comment

Steps to creating a Closed Circle

Filed Under Contributors, Creating a Closed Circle, Expenditures, Necessities, Obligations, Wants, calgary · Tagged:  

These are the steps to creating a Closed Circle Budget:

1. Track your expenditures. You must track your expenses on a regular basis – daily, weekly, monthly, annually.
2. Total your expenditures. When starting your Closed Circle, it is good to have at least 3 months worth of expenditures so you can get an accurate picture of what you are spending monthly. Separate your obligations from your necessities.
3. Capture sources of income. It is important to know where your income is coming from and how much.
4. Determine your wants. Make a full list of your wants and if you are married, have your spouse do the same and agree on all wants.

March 1, 2010 by KustomDesign · Leave a Comment

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