How to get the biggest bang for your buck from your RESP

Eric Hadley and Alex Taman opened an RESP account for their 9-month-old daughter, Molly, in 2010. Contributing as soon as possible can reap significant financial rewards down the road.

Eric Hadley and Alex Taman opened an RESP account for their 9-month-old daughter, Molly, in 2010. Contributing as soon as possible can reap significant financial rewards down the road.

It seems like everywhere you look these days, there’s a back-to-school sale. Frankly, I’m somewhat skeptical as to whether returning students actually need a new home-theatre system to succeed, but electronics retailer Best Buy, in an online ad, claims that “Studies show great sound improves GPA.”

What could help even more, in my opinion, is a well-funded education savings plan, ideally, in the form of a Registered Education Savings Plan. While RESPs have been around for many years, and really took off in 1998 with the introduction of the matching 20% Canada Education Savings Grants (CESGs), my experience is that parents are not using them in the most strategic or optimal manner possible.

Reblogged from The Financial Post | Jamie Golombeck

Here’s a quick overview of the basic rules and then we’ll run through a couple of optimization strategies.

The RESP is a tax-deferred savings plan that helps an individual, typically a parent, save for a child’s post-secondary education. Similar to other registered plans, the RESP is in essence a wrapper in which you can hold various eligible investment products, such as GICs, mutual funds and even individual stocks and bonds. Unlike RRSPs, contributions to an RESP are not tax-deductible nor are they taxable when withdrawn.

 The main benefit of the RESP is the ability to have all earnings (capital gains, dividends and interest) on the investments inside the RESP accumulate tax-free until withdrawn. When the funds are paid out, they are included in the student’s income but presumably the child will be in a low- or zero-tax bracket, on account of the various tax credits available to them (including, most commonly, the basic personal amount and tuition, education and textbook amounts) that little, if any, tax will ever be paid on the earnings when withdrawn.

The other benefit is the CESG, equal to 20% of the annual contributions, to a maximum of $500 (or $1,000 if there is unused grant room from previous years). The maximum CESG entitlement is capped at $7,200 per child.

When funding an RESP, the first missed opportunity is that parents often only start thinking about contributing to their kids’ RESPs several years after their children are born. But contributing to an RESP as soon as possible can reap significant financial rewards down the road.

For example, take Alan, who starts saving for his daughter Amy’s education the year she is born. If he contributes the $2,500 maximum amount needed each year to maximize the CESGs until he hits $36,000 of contributions in the year Amy turns 14, he will have accumulated nearly $61,000 in Amy’s RESP by the time she is 18, assuming a 3% rate of return.

Contrast this with Zoe, who only starts saving for her son Zack’s education when he turns 10 by contributing $1,000 in that year and then $5,000 each year from age 11 to 17 to catch up on all prior years’ CESGs. By the time Zack is 18, assuming the same 3% rate of return, Zack’s RESP would only be worth $49,000, despite Zoe having contributed the same $36,000 that Alan contributed.

Finally, for those parents who can afford to do so, consider maximizing the tax-deferred (or, most probably, tax-free) compounding by contributing beyond the annual amounts needed to maximize the CESGs. This can be done by making an additional lump sum contribution of $14,000, bringing the total amount contributed up to the lifetime maximum of $50,000 per child.

Jamie.Golombek@cibc.com

Jamie Golombek, CA, CPA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Private Wealth Management in Toronto.

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Gardens go communal in Southeast False Creek

Let’s be clear here – communal sure, but more in the way that elite posh private schools are communal and their students are free to use the facilities. But not to fear – you too can have access to the gorgeous rooftop oasis of a communal garden, with the small one time investment of $438,000 which gets you exclusive use of 1 bed 1 bath 550 sq ft apartment on the second floor – and unlimited access to the rooftop and skylounge. Feel free to contact me for more information!!

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Reblogged from The Georgia Straight | Stephen Hui

FROM THE ROOF of the James in southeast False Creek, the 360-degree view includes downtown Vancouver, City Hall, and the North Shore mountains. The terrace atop the 155-unit condo building at 288 West 1st Avenue, built by Cressey Development Group in 2012, features a barbecue, kids’ play area, and lounge.

James residents Matt Cooke and Carlson Hui gave the Georgia Straight a tour of the three raised beds and six pots that comprise the communal garden that occupies the rest of the 14th-floor space. The largest bed is home to 12 plots named after nearby streets, the pots contain herbs, and there’s a compost bin, which will soon be joined by a rain barrel.

“We have all of our lettuces and tomatoes here,” said Cooke, who is a food, nutrition, and health student at the University of British Columbia. “Around the corner, we have mint.”

Although the typical community garden consists of plots maintained by individual users as well as common areas, this rooftop garden is a truly collective endeavour. Participating units pay $25 a year to join the provisionally named James Garden Club and then take part in scheduled planting and harvest days.

According to Cooke, the year-old communal garden has “brought the building together”. Residents have an incentive to help out on harvest days, because they get a share of the crops.

Hui, who works for Lululemon Athletica, noted that strata members approved the communal-garden concept at a meeting in early 2013. He maintained that the garden has been the catalyst for residents to organize events such as barbecues, bike rides, hikes, and potlucks.

“This year, what we found interesting is how this has provided a foundation for community for the entire building,” Hui said. “So, it’s sort of gone beyond gardening.”

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Questions for Property Transfer Tax (BC)

20140219-224133.jpgIf you are like me, then you probably have tons of questions about Property Transfer Tax. Do I have to pay it? What happens when I sell my house? What if I want to give my house to my children? Are there any rebates, discounts or first-time homebuyer benefits?  I’ve come across a nice article from David Simon – which is quite helpful in some of the odd particulars of Property Transfer Tax, like adding someone’s name to title – does that constitute a sale subject to property transfer tax? I’m by no means an expert nor a lawyer – should you consult your own lawyer if you have a particular situation or question? Yes. If you want to shoot me over a quick question, or get some recommendations on who you should really be speaking to, please hit up the comment section below or on my contact form.

For all you lucky Albertan’s, you’ve probably never encountered nor will you ever hear about this strange thing we call property transfer tax.

“I am often asked how a person can add someone to a title without paying property transfer tax. Usually that person contributed to the acquisition and has been helping paying the mortgage. Unless the person is a “related individual” as defined in the Property Transfer Tax Act and the transferor or the transferee has been living there as his/her principal residence for at least 6 months, then property transfer tax has to be paid. A related individual under the Act is a direct relative, e.g. son, daughter, parent grandparent. Siblings and aunts and uncles do not fall within the definition and the transfer tax has to be paid for transfers to them.

 I have been asked if a company can transfer its property free of property transfer tax to its shareholders. The answer is no as the company is a separate legal entity from its shareholders. Only if the company was holding the property in trust and the trust declaration was registered when the transfer to the company was registered, can the transfer be done free of property transfer tax.

 From an income tax point of view, the law is that on any disposition, or deemed disposition, of capital property, tax is payable on any capital gains. The main exception to this is for dispositions of a primary residence. There is no tax payable on the capital gains from a disposition of a primary residence.  A deemed disposition occurs when a person dies, there is a gift of property or there is a change of use of the property, e g. it goes from being your primary residence to a rental property, or from a rental property to being your primary residence. The gain has to be determined at that time and any applicable tax paid. So before anyone takes title to, or transfers title to, all or part of a primary residence or any other property, even if a family member is involved, they should consult with their tax advisor as to possible tax consequences. Once you do something it is difficult and potentially costly to undo it.”

Does your home office qualify for deductions against household bills?

If you were self-employed this past year, now is a good time to start gathering your paperwork to file your 2013 tax return. And remember some of the expenses you incur for your home may be deductible from business income if you have an office or other work space there.

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Reblogged from KPMG Enterprise

Your home office expenses may be deductible in two situations: First, if your home is your principal place of business — that is, you do not have an office elsewhere. Second, if you have an office outside your home, your home office must be used exclusively for your business, and must be used on a “regular and continuous basis” for meeting clients, customers or patients.

It’s not always clear how many meetings you need to have in your home office to meet the “regular and continuous” requirement, but it will depend on the nature of your business and your situation.

The Canada Revenue Agency provides an example of a doctor who has offices both outside and inside his home. He uses his home office to meet one or two patients a week. The CRA says this work space would not be considered used on a regular and continuous basis for meeting patients. However, a work space used to meet an average of five patients a day for five days each week clearly meets the requirements. This example clearly shows there is a large grey area in what the CRA considers to be regular and continuous.

If you have offices inside and outside your home and you want to deduct home office expenses, be prepared with enough information to support your claim that you use your home office on a regular and continuous basis for your business.

If your home office meets the requirements, the portion of your house expenses that can be claimed as business expenses will normally be based on the fraction of your home used. You can usually exclude common areas such as hallways, kitchen and washrooms when making the calculation.

For example, if your home office is a 200 square foot room (or 18.5 square metres) and the total area of living space in your house (bedrooms, living room, dining room and the office) is 2,000 square feet (186 square metres). As long as your home office qualifies, you can claim 10% of your eligible costs.

The expenses you can claim include rent, if you are a tenant, mortgage interest if you own your home (but not the principal portion of blended mortgage payments), property taxes and home insurance. You can also claim expenses for utilities such as electricity, heat, water and gas.

But there are also some less obvious expenses that can be claimed, such as garden service, driveway snowplowing and minor repairs. You will need to keep receipts on file; do not simply estimate your expenses.

You can claim capital cost allowance (CCA) on the appropriate fraction of your home, but this is often not advisable. If you do, the CRA will take the position  that fraction of your home is not part of your principal residence and it will disallow your claim for the principal residence exemption from capital gains tax for that portion of the home when you sell. Any CCA you claimed can also be “recaptured” into income when you sell your home.

Keep in mind home office expenses can only be claimed against income from your business. As such, you cannot use home office expenses to produce an overall business loss that is applied against other income. However, losses disallowed because of this rule can be carried forward and used against income generated from the same business in another year.

Of course, supplies that relate exclusively to your home office are fully deductible and not subject to these restrictions. Those expenses would normally include a separate business phone and Internet connection, printer paper, printer or photocopier toner cartridges, computer repairs (assuming your computer is used only for your business), and so on.

Since many of the requirements for deducting home office expenses depend on your individual circumstances, it’s important to carefully document your claims so you can back them up if the CRA asks you to.

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Why some homes struggle to sell (as illustrated by Legos)

Daniel Langevin

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Well the other issue is the design. This house can’t decide if it’s a castle or contemporary home. The right buyer will love it, but so far that buyer hasn’t shown up.

Enjoy this clever lego illustration of why some homes struggle to sell, by Sacramento appraiser Ryan Lundquist & sons!

Reblogged from Sacramento Real Estate Blog

Some houses simply struggle to sell. They sit on the market week after week and month after month with no bites. Here is an example of one house that has done just that. Take the lessons here for what they’re worth.  🙂

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Money hurdles for 2014: Kids need to learn about money

‘Resolve the make your kids more financially savvy than you were’

Motivational quote for your fridge: “Teaching kids sound financial habits at an early age gives all kids the opportunity to be successful when they are an adult.” —Warren Buffett

financial-literacy

Reblogged from Melissa Leong

Pep talk: Sure, we all want our children to be happy. But let’s be honest — what we’d rather be saying is: we all want our children to be rich. Well, you can point them in the right direction. Warren Buffett says his greatest inspiration was his father who taught him about the value of saving. This is your chance to give your kids something better than money. Teach them to fish, so to speak.

Peer support: When Naomi Mesbur’s son, Ciaran, was born, she was in debt.

She had helped fund her first husband’s business and supported them when he became ill. When he died, she had $40,000 worth of debt.

“I don’t want to leave debt for my kid,” the 43-year-old Toronto legal assistant says. “I also want to teach him so that he doesn’t end up in this mess.”

She looks for teachable moments. She talks to Ciaran who is seven, about prices at the grocery store. They play Monopoly. She brings him to dollar stores for treats. “[I tell him,] ‘You can get one thing…but it can’t be more than $1.50.’ So he chooses something and looks at the prices.”

Every week, his school has pizza day. They go to his piggy bank for the money to purchase a $2 slice and a $1 drink. If he wants an extra slice, he can help around the house for more money.

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Money hurdles for 2014: How to get out of debt ASAP

“According to a recent TransUnion survey, 47% of Canadians are committing to at least one financial resolution this year. That being said, 37% did not reach their goal in 2013.

Resolutions are easy to make, hard to keep. Goals can be more attainable if you have a coach in your corner. So let us help you tackle your financial resolutions for 2014.”

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Reblogged from Melissa Leong

‘We resolve to reduce our debt as speedily as possible’

Motivational quote for your fridge: “It always seems impossible until it’s done.” — Nelson Mandela

Pep talk: You are determined to tackle your debts. You’re not alone. Paying down debt was at the top of Canadians’ financial priorities last year, according to CIBC. And we ought to take action — TransUnion predicts that average Canadian consumer debt will rise by 4% to an all-time high of $28,853 by the end of 2014.

Debt is stressful but think of how awesome you’ll feel when you’ve got a plan to beat it, when you’re seeing it retreat, when you’re finally free and clear, when you’ve got all of that extra money, etc.

Peer support: At the age of 20, Mike Bremner moved to Whistler, B.C. He also got his first credit card. “By the time I was 23, I had $20,000 in credit card debt,” he says.

When he maxed out one $15,000 card, the company increased his limit to $45,000. That was the moment he realized that his situation wasn’t going to change without his own intervention. He cut up all of his credit cards except one.

“You have to change your lifestyle. I cut back on spending by not eating out and drinking as much. I shopped online instead of in stores. I got a second job,” he says. “This all sounds like a nightmare to some people, I know. But your life is going to be better in the future because of this.”

The 28-year-old independent contractor for a technology company in Chester, N.S., put more than $500 every month to his debts for four years. He became debt-free in March.

“I said once I was out of debt, I’d spend the money to go on vacation and get a new car; but I’ve been spending more wisely and I’ve been keeping the money to do nicer things,” he says.

“It is hard to see the end. When I made my first payment, it felt like nothing. But it’s like going for a car drive across the country. On the first day, you don’t look at getting to your destination. You look at driving across the province. You have to set realistic goals for yourself.”

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Getting rid of risky property play will improve retirement

Situation: Couple has retirement portfolio with high risk investments that could fizzle
Solution: Get out of speculative investments, then invest for reliable income

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Reblogged from Andrew Allentuck

In Alberta, a couple we’ll call Frank, who is 57, and Ella, who is 51, emigrated to Canada decades ago to find work and build secure lives.

Starting with nothing but their will to work, Frank in a municipal civil service job, Ella in health care, they have built up about $705,000 of net worth, most of it in their $490,000 home. They worry, however, that their income from about $184,000 of financial assets plus two civil service pensions at 65 plus CPP and OAS may not be enough to sustain their retirement. The irony is that their Canadian assets would make them very wealthy in their countries of birth. In Canada, though, they worry that their liabilities could sink their retirement.

It is a legitimate concern, for they have a $70,000 line of credit to pay off at $1,200 a month, about 18% of their $6,500 combined monthly take-home pay. The line of credit was taken out to buy into a speculative land development in which they are co-owners of undivided land rather than sole owners of a defined parcel. It is a risky investment that produces no current income. Moreover, they have $37,500 in a mortgage fund in their RRSPs which yields 10% a year. That yield implies the mortgages carry more risk than banks and credit unions accept.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Frank and Ella, who still have a daughter at home attending university.

“The good thing about the couple’s financial affairs is their dedication to their work and their home,” he says. “The not so good thing,” he notes, “is that they appear to have made investments in land and mutual funds on the basis of trust in advice.”

The interest on the loan to buy the property is not tax deductible, though it can be added to the adjusted cost base of the property, eventually reducing the taxable capital gain. Best bet: sell the land to pay off the line of credit and capture a capital gain which the couple believes to be about $30,000 or $20,000 after costs. We’ll assume they just get their money back, then invest in low fee mutual or exchange traded funds focused on producing dividends.

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Quick! Read this before you head off on Winter Holidays!

Five practical financial preparations for a long-term vacation.

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Reblogged from Financial Post, Melissa Leong

When that first cold wind or frost hits, I’m always surprised. I have no clue why — I’m Canadian, a Winnipeg native — and I’m well acquainted with this country’s winters.

If the chilling reminder of what’s in store this season has you thinking of going on an extended trip, here are five financial preparations to make before any long-term vacation.

Get travel insurance. Only half of Canadians, according to BMO, buy medical insurance before traveling. You don’t want to get caught with a $20,000 bill to treat a broken leg in the U.S. Check with your employer or your credit card company because you may have some coverage under their plans.

Check your home insurance policy. According to a recent TD Insurance survey, only 12% of Canadian snowbirds say they checked their home insurance policy to ensure their primary residence would be covered while on vacation. Often, insurance policies have specific “away” requirements, which, if not fulfilled, could void coverage if your home is left unoccupied and unattended for an extended period of time, TD Insurance says. Make sure you know what steps to take to keep your policy valid, for example arrange to have someone check your home every seven days to make sure heating is on and shut off the water supply.

While you’re renting a vacation home, if you have home insurance, your contents could be covered anywhere in the world and you may have liability coverage. It’s best to check your policy.

You want your home to have that “lived-in” look while you’re away.Suspend your newspaper subscription. Have someone shovel your snow. Get Canada Post to hold your mail. This service starts at $20 for the first 10 weekdays and is $8.50 for each additional week. So if you’re gone for six weeks, it will cost you $54 for Canada Post to hold your mail. To save money, enlist a friend who will come by and check up on the property and collect your mail.

Don’t forget to set up a budget before you leave. The wise thing to do would be to know how much you have to spend and try to play within your boundaries. The unwise thing to do would be to overuse your credit card and return home to a giant bill that will stress you out after a relaxing vacation.

Make sure that your bills get paid. A lot of bills can be paid online or prepaid with your credit card. Make a list of the bills that need to get paid and try to sort out the payment before you leave in case the sun and the beach makes you forgetful.

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Discount mortgages dry up as Canadian borrowers face tough test

Reblogged from The Globe and Mail, Tim Shufelt

The discount mortgages that stoked the Canadian housing boom are disappearing, increasing the likelihood of a correction in home values.

On Thursday, Royal Bank of Canada will hike its five-year fixed-rate mortgage to 3.89 per cent, one day after the Bank of Montreal raised its rate to 3.79 per cent. The other major lenders are all moving in the same direction.

The increases mean the cost of a new fixed-rate mortgage has climbed by more than a third in five months, signalling what could be the beginning of the end of ultra-cheap credit in Canada – and the start of fiscal pain for consumers who have overburdened themselves with debt.

“I think this is the real thing,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “This is the end of extremely low interest rates. They’re simply unsustainable.”

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