I’m going to see other Banks

I’m going to see other Banks

At Henley Financial and Wealth Management we are here to help you save money wherever we can, we want to help you save money being spent unknowingly and unwillingly.

So, let’s start with something we know that everyone has… a bank account.

Why do you pay a monthly fee just to keep your money in a bank account?  Canada’s big 5 banks have been raking in the profits from monthly chequing account fees and additional transaction charges. We’ll even go out on a limb and say you do most if not all of your transactions online.

We have all fallen into this category once we got out of school and were no longer eligible for a free student chequing account. We use debit cards for everything, so our banks recommended that we sign-up for the “unlimited” chequing account for $14.95 per month. Again, we ask why do you pay to keep your money at the bank when you do all the work? You put your pay check in the bank and take it out of the bank without any assistance from them and you pay for that service – but there is no service.  Spending money Unwillingly because this is not an option. We will come back to that “option” part later.

Since most of us lived paycheque-to-paycheque in the first few years out of school we didn’t even realize how much money we were wasting on fees. You can have those monthly fees waived by always carrying a minimum balance, but how many people could do that on a fixed start up budget.

You probably pay up to $179 a year for the privilege of using your own money in your chequing account at your bank.  So, think of that as a household, your Husband/Wife, and children also have accounts so as a family (of four) you are paying over $717 a year in bank fees! That is the Unknowingly because you never stopped to do the math. Now it does not seem like much but remember you are doing all the work and it’s your money that was put in their hands.

So now that you know and are willing to save the money, would you stop paying the bank fees and switch to no fee bank account?

Here is the “Option” part we spoke of earlier, Manulife Bank has an advantage checking a online account (personal or business) that pays you an interest percentage to keep your money with them. Now that’s a service that makes sense to us, you get paid to keep your money in your own account with no penalty for using your own money. A bank with several unique features such as listed below:

  • no fee daily chequing
  • pays interest
  • 24/7 live support
  • free email money transfers
  • free ABM access through the banking network
  • mobile banking

Now that free chequing accounts are becoming more popular in Canada, there are many more non brick and mortar banks with high interest savings accounts than Manulife. We like Manulife because of their willingness to help with other financial needs we all need as adults, such as Mortgages, Credit cards, lines of credit, with the emphasis on keeping the money in your hands. No more Fees Lost Unknowingly or Unknowingly!!!!

Contact Us at Henley Financial and Wealth Management and we will help you set up a No Fee, High Interest Paying, Account with Manulife Bank.

How do you reduce your personal Income Tax Rate when filing your tax return?

How do you reduce your personal Income Tax Rate when filing your tax return?

Henley Financial & Wealth Management posted on our blog information regarding 2020 new Tax Rates and New Limits. But what does one do with that information?  As Canadian taxpayers you have until April 30th 2020, to file your personal 2019 tax return. However, as the calendar turns over on to a new year many of our clients want to know how best to maximize their tax refund or minimize what they owe the government.

So, we thought we would share the two main ways to reduce taxes owing. It is always important to seek professional advice from your accountant regarding personal taxes. We are not the tax experts we are just simply stating the rules around taxes as they exist today.

What are tax deductions or a tax credit? Which on there own are the answers to reducing one’s taxable position for the average person in Canada.

Tax Deductions:

A tax deduction reduces your taxable income. The value of a deduction depends on your marginal tax rate. So, if your income is more than $210,371, you’d be taxed at the federal rate of 33 percent and a $1,000 tax deduction would save you $330 in federal tax. On the other hand, if you earn less than $47,630, you’d be taxed at the federal rate of only 15 percent and a $1,000 tax deduction would only save you $150 in federal tax.

Two of the most valuable tax deductions are:

RRSP contributions

Your RRSP contribution is an example of a tax deduction, and is likely the best tax saving strategy available to the majority of Canadian taxpayers. The contribution reduces your net income, which in turn reduces your taxes owing. An added bonus for families who contribute to RRSPs is that the resulting lower net income will likely increase their Canada Child Benefit.

You have until 60 days of the current year to make a contribution to your RRSP and apply the deduction towards last year’s taxes. One tip for those who know in advance how much they’ll be contributing to their RRSP is to fill out the form T1213 – Request to Reduce Tax Deductions at Source.

You can contribute 18 percent of your income, up to a limit of $26,500 (2019). Watch out for RRSP over contributions – there’s a built-in safeguard where you can over contribute by $2,000. Excess contributions are taxed at 1 percent per month.

Child-care expenses

Day care is likely one of the largest expenses for young families today. Child-care expenses can be used as an eligible tax deduction on your tax return.

Typically, child-care expenses must be claimed by the lower income spouse. One exception is if the lower income spouse is enrolled in school and cannot provide child-care, the higher income spouse can claim the child-care costs.

 

The basic limit for child-care expenses are $8,000 for children born in 2012 or later, $11,000 for children born in 2018 or earlier, and $5,000 for children born between 2002 and 2011.

Note that most overnight camps and summer day camps are also eligible for the child-care deduction.

Tax Deductions checklist:

  • RRSP contributions
  • Union or professional dues
  • Child-care expenses
  • Moving expenses
  • Support payments
  • Employment expenses (w/ T2200)
  • Carrying charges or interest expense to earn business or investment income

Tax Credits:

There are two types of tax credits – refundable and non-refundable. A non-refundable tax credit is applied directly against your tax payable. So, if you have tax owing of $500 and get a tax credit of $100, you now owe just $400. If you don’t owe any tax, non-refundable credits are of no benefit.

For refundable tax credits such as the GST/HST credit, you will receive the credit even if you have no tax owing.

Three of the most valuable tax credits are:

Basic Personal Amount

The best example of a non-refundable tax credit is the basic personal amount, which every Canadian resident is entitled to claim on his or her tax return. The basic personal amount for 2019 is $12,069.

Instead of paying taxes on your entire income, you only pay taxes on the remaining income once the basic personal amount has been applied.

Spousal Amount

You can claim all or a portion of the spousal amount ($12,069) if you support your spouse or common-law partner, as long as his or her net income is less than $12,069. The amount is reduced by any net income earned by the spouse, and it can only be claimed by one person for their spouse or common-law partner.

Age Amount

The Age Amount tax credit is available to Canadians aged 65 or older (at the end of the tax year). The federal age amount for 2019 is $7,494. This amount is reduced by 15 percent of income exceeding a threshold amount of $37,790, and is eliminated when income exceeds $87,750.

The Age Amount tax credit is calculated using the lowest tax rate (15 percent federally), so the maximum federal tax credit is $1,124 for 2019 ($7,494 x 0.15).

Note that the age amount can be transferred to the spouse if the individual claiming this credit cannot utilize the entire amount before reducing his or her taxes to zero.

Tax Credits checklist:

  • Volunteer firefighter or Search & Rescue details
  • Adoption expenses
  • Interest paid on student loans
  • Tuition and education amounts
  • (T2202, TL11A), and exam fees
  • Medical expenses (including details of insurance reimbursements)
  • Donations or political contributions

The Verdict on Tax Deductions and Tax Credits:

Tax deductions are straightforward – if you earned $60,000 and made a $5,000 RRSP contribution your taxable income will be reduced to $55,000. Deductions typically result in bigger tax savings than credits as long as your marginal tax rate is higher than 15 percent.

A non-refundable tax credit, on the other hand, must be applied to any taxes owing and is first multiplied by 15 percent. That means a $5,000 non-refundable tax credit would only result in about $750 in tax savings.

 

The most overlooked tax credits and tax deductions (the ones most likely to go unclaimed) are medical expenses, union dues, moving expenses, student loan interest, childcare expenses, and employment expenses.

That’s why it’s important that Canadian tax filers make a checklist of every tax deduction and tax credit available to them at tax-time and take advantage of all that apply to their situation.

 

A New Year means New Limits and Tax Rates

A New Year means New Limits and Tax Rates

A new year means new limits and data. Here’s a list of new financial planning data for 2020 (In case you want to compare this to past years, I’ve included old data as well).

Pension and RRSP contribution limits

  • The new limit for RRSPs for 2020 is 18% of the previous year’s earned income or $27,230 whichever is lower less the Pension Adjustment (PA).
  • The limit for Deferred Profit Sharing Plans is $13,915
  • The limit for Defined Contribution Pensions is $27,830

Remember that contributions made in January and February of 2020 can be used as a tax deduction for the 2019 tax year.

Tax Year Income from RRSP Maximum Limit
2020 2019 $27,230
2019 2018 $26,500
2018 2017 $26,230
2017 2016 $26,010
2016 2015 $25,370
2015 2014 $24,930
2014 2013 $24,270
2013 2012 $23,820
2012 2011 $22,970
2011 2010 $22,450
2010 2009 $22,000
2009 2008 $21,000

TFSA limits

  • The annual TFSA limit for 2020 is the same at $6,000.
  • The cumulative limit since 2009 is $69,500 (assuming you were over the age of 18 in 2009)

TFSA Limits for past years

Year Annual Limit Cumulative Limit
2020 $6000 $69,500
2019 $6,000 $63,500
2018 $5,500 $57,500
2017 $5,500 $52,000
2016 $5,500 $46,500
2015 $10,000 $41,000
2014 $5,500 $31,000
2013 $5,500 $25,500
2012 $5,000 $20,000
2011 $5,000 $15,000
2010 $5,000 $10,000
2009 $5,000 $5,000

 

Canada Pension Plan (CPP)

Here’s some of the key planning data around CPP.

  • Contribution amounts for 2020
    • Employee contribution = 5.25%
    • Employer contribution = 5.25%
    • Self employment = 10.1%
    • Maximum contributory earnings = $55,200
  • CPP Benefits
    • Yearly Maximum Pensionable Earning (YMPE) – $58,700
    • Maximum CPP Retirement Benefit – $1175.83 per month
    • Maximum CPP Disability benefit – $1387.66 per month
    • Maximum CPP Survivors Benefit
      • Under age 65 – $638.28
      • Over age 65 – $705.50

Reduction of CPP for early benefit – 0.6% for every month prior to age 65. At age 60, the reduction is 36%.

CPP rates for past years:

Year Monthly Annual
2020 $1175.83 $14,109.96
2019 $1154.58 $13,854.96
2018 $1134.17 $13,610.04
2017 $1114.17 $13,370.04
2016 $1092.50 $13,110.00
2015 $1065.00 $12,780.00
2014 $1038.33 $12,459.96
2013 $1012.50 $12,150.00
2012 $986.67 $11,840.04
2011 $960.00 $11,520.00
2010 $934.17 $11,210.04
2009 $908.75 $10,905.00

 

Old Age Security (OAS)

  • Maximum OAS – $613.53 per month
  • The OAS Clawback (recovery) starts at $79,054 of income. At $128,137 of income OAS will be fully clawed back.

OAS rates for past years:

Year Maximum Monthly Benefit Maximum Annual Benefit
2020 $613.53 $7,362.36
2019 $601.45 $7,217.40
2018 $586.66 $7,039.92
2017 $578.53 $6,942.36
2016 $570.52 $6,846.24
2015 $563.74 $6,764.88
2014 $551.54 $6,618.48
2013 $546.07 $6,552.84
2012 $540.12 $6,481.44
2011 $524.23 $6,290.76

New federal tax brackets

From 2019, the tax rates have changed.

Lower Income limit Upper Income limit Marginal Rate Rate
$0.00 $12,298.00 0.00%
$12,298.00 $48,535.00 15.00%
$48,535.00 $97,069.00 20.50%
$97,069.00 $150,473.00 26.00%
$150,473.00 $214,368.00 29.00%
$214,368.00 33.00%

 

What is the Best Way to Insure Your Mortgage?

What is the Best Way to Insure Your Mortgage?

 

If you have a mortgage it makes good sense to insure it. Owning a debt free home is an objective of any sound financial plan. In addition, making sure your mortgage is paid off in the event of your death will benefit your family greatly.

The question is should you purchase this coverage through your lending institution or from a life insurance company?

It might be convenient when completing the paper work for your new mortgage to just sign one more form, be aware that it might be a costly decision.

 

8 reasons to purchase your mortgage coverage from a life insurance advisor

1) Cost

Term life insurance available from a competitive life insurance company is usually cheaper than mortgage life insurance provided through the lender. This is especially true if you qualify for non-smoker rates.

2) Availability

If you have some health issues, the lenders mortgage insurance may not be available to you. This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.

3) Declining coverage

Be aware that the death benefit of creditor/mortgage insurance declines as the mortgage is paid down. Meanwhile, the premium paid or cost of the coverage remains the same.

With term life insurance the death benefit does not decline. You decide how much coverage you want to have. This gives you the flexibility to reduce the amount of coverage and premium when the time is right for you. Or keep it should another need arise or in the event you become uninsurable in the future.

4) Portability

Term Life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to requalify and possibly pay higher rates.

5) Flexibility

Unlike creditor/mortgage insurance, term life insurance can be for a higher amount than just the mortgage balance so you can protect family income needs and other obligations but pay only one cost-effective premium.

When you pay off your mortgage you will no longer be protected by creditor/mortgage insurance but term life insurance may continue. Also, unlike mortgage insurance, you are able to convert your term life insurance into permanent coverage without a medical.

6) The beneficiary controls the death benefit

With creditor/mortgage insurance there is no choice in what happens to the money when you die. The proceeds simply retire the balance owing on your mortgage and the policy cancels.

With term life insurance your beneficiary decides how to use the insurance proceeds. For example, if the mortgage carries a very low interest rate compared to available fixed income yields, it might be preferable to invest the insurance proceeds rather than to immediately pay off the mortgage.

7) Can your claim be denied?

Often creditor/mortgage insurance coverage is reviewed when a death claim is submitted. Creditor/mortgage insurance allows for the denial of the claim in certain situations even after the coverage has been in effect beyond that 2 year period.

Term life insurance is incontestable after two years except in the event of fraud.

8) Advice

Your bank or mortgage broker can advise you on the best arrangement to fund your mortgage but advice on the most appropriate way to arrange your life insurance is best obtained from a qualified insurance advisor who can implement your life insurance coverage according to your overall requirements.

Your mortgage will probably represent the single largest debt (and asset) you will acquire. Making sure your mortgage doesn’t outlive you is the most prudent thing you can do for your family.

Contact me @ Henley Financial and Wealth Management  if you think it is time to review your current insurance protection.

 

The First RRSP

The First RRSP

The first RRSP — then called a registered retirement annuity — was created by the federal government in 1957. Back then, Canadians could contribute up to 10 per cent of their income to a maximum of $2,500. RRSPs still remain one of the cornerstones of retirement planning for Canadians. In fact, as employer pension plans become increasingly rare, the ability to save inside an RRSP over the course of a career can often make or break your retirement.

The deadline to make RRSP contributions for the 2018 tax year is March 1st, 2019.

If you need help or advice with you tax planning or investments we are always available to help @henleyfinancial.ca

Anyone living in Canada who has earned income has to file a tax return which will create RRSP contribution room. Canadian taxpayers can contribute to their RRSP until December 31st of the year he or she turns 71.

Contribution room is based on 18 percent of your earned income from the previous year, up to a maximum contribution limit of $26,230 for the 2018 tax year. Don’t worry if you’re not able to use up your entire RRSP contribution room in a given year – unused contribution room can be carried-forward indefinitely.

Keep an eye on over-contributions, however, as the taxman levies a stiff 1 percent penalty per month for contributions that exceed your deduction limit. The good news is that the government built-in a safeguard against possible errors and so you can over-contribute a cumulative lifetime total of $2,000 to your RRSP without incurring a penalty tax.

Find out your RRSP deduction limit on your latest notice of assessment clearly stated.

You can claim a tax deduction for the amount you contribute to your RRSP each year, which reduces your taxable income. However, just because you made an RRSP contribution doesn’t mean you have to claim the deduction in that tax year. It might make sense to wait until you are in a higher tax bracket to claim the deduction.

When should you contribute to an RRSP?

When your employer offers a matching program: Some companies offer to match their employees’ RRSP contributions, often adding between 25 cents and $1.50 for every dollar put into the plan. Take advantage of this “free” gift from your employers.

When your income is higher now than it’s expected to be in retirement: RRSPs are meant to work as a tax-deferral strategy, meaning you get a tax-deduction on your contributions today and your investments grow tax-free until it’s time to withdraw the funds in retirement, a time when you’ll hopefully be taxed at a lower rate. So contributing to your RRSP makes more sense during your high-income working years rather than when you’re just starting out in an entry-level position.

A good rule of thumb: Consider what is going to benefit you the most from a tax perspective.

When you want to take advantage of the Home Buyers’ Plan: First-time homebuyers can withdraw up to $25,000 from their RRSP tax-free to put towards a down payment on a home. Would-be buyers can also team up with their spouse or partner to each withdraw $25,000 when they purchase a home together. The withdrawals must be paid back over a period of 15 years – if you do not pay one fifteenth of the borrowed money, the amount owed in that calendar year it will be added to your taxable income for that year.

Unless it’s an emergency then it’s generally a bad idea to withdraw from your RRSP before you retire. You would have to report the amount you take out as income on your tax return. You won’t get back the contribution room that you originally used.

Also, your bank will hold back taxes – 10 percent on withdrawals under $5,000, 20 percent on withdrawals between $5,000 and $15,000, and 30 percent on withdrawals greater than $15,000 – and pay it directly to the government on your behalf. That means if you take out $20,000 from your RRSP, you will end up with $14,000 but you’ll have to add $20,000 to your taxable income at tax time. This is done to insure that you pay enough tax upfront for the withdrawal at the source so that you are not hit with an additional tax bill (assessment) when you file your tax return.

What kind of investments can you hold inside your RRSP?

A common misconception is that you “buy RRSPs” when in fact RRSPs are simply a type of account with some tax-saving attributes. It acts as a container in which to hold all types of instruments, such as a savings account, GICs, stocks, bonds, REITs, and gold, to name a few. You can even hold your mortgage inside your RRSP.

If you hold investments such as cash, bonds, and GICs then it makes sense to keep them sheltered inside an RRSP because interest income is taxed at a higher rate than capital gains and dividends.

For more information regarding investments and RRSP’s contact us at Henley Financial and Wealth Management

 

 

A new year means new financial limits.

A new year means new financial limits.

Here’s a list of data for 2019 

Pension and RRSP contribution limits

  • The new limit for RRSPs for 2019 is 18% of the previous year’s earned income or $26,500 whichever is lower less the Pension Adjustment (PA).
  • The limit for Deferred Profit Sharing Plans is $13,615
  • The limit for Defined Contribution Pensions is $27,230

Remember that contributions made in January and February of 2019 can be used as a tax deduction for the 2018 tax year.

Tax YearIncome fromRRSP Maximum Limit
20192018$26,500
20182017$26,230
20172016$26,010
20162015$25,370
20152014$24,930
20142013$24,270
20132012$23,820
20122011$22,970
20112010$22,450
20102009$22,000
20092008$21,000

TFSA limits

  • The TFSA limit for 2019 is $6,000.
  • The cumulative limit since 2009 is $63,500

TFSA Limits for past years

YearAnnual LimitCumulative Limit
2019$6,000$63,500
2018$5,500$57,500
2017$5,500$52,000
2016$5,500$46,500
2015$10,000$41,000
2014$5,500$31,000
2013$5,500$25,500
2012$5,000$20,000
2011$5,000$15,000
2010$5,000$10,000
2009$5,000$5,000

Canada Pension Plan (CPP)

Lots of changes are happening with CPP but here’s some of the most important planning data.

  • Yearly Maximum Pensionable Earning (YMPE) – $57,400
  • Maximum CPP Retirement Benefit – $1154.58 per month
  • Maximum CPP Disability benefit –  $1362.30 per month
  • Maximum CPP Survivors Benefit
    • Under age 65 – $626.30
    • Over age 65 – $692.75

Reduction of CPP for early benefit – 0.6% for every month prior to age 65.  At age 60, the reduction is 36%.

CPP rates for past years:

YearMonthlyAnnual
2019$1154.58$13,854.96
2018$1134.17$13,610.04
2017$1114.17$13,370.04
2016$1092.50$13,110.00
2015$1065.00$12,780.00
2014$1038.33$12,459.96
2013$1012.50$12,150.00
2012$986.67$11,840.04
2011$960.00$11,520.00
2010$934.17$11,210.04
2009$908.75$10,905.00

Old Age Security (OAS)

  • Maximum OAS – $586.66 per month
  • The OAS Clawback (recovery) starts at $77,580 of income.  At $125,696 of income OAS will be fully clawed back.

OAS rates for past years:

YearMaximum Monthly BenefitMaximum Annual Benefit
2019$601.45$7,217.40
2018$586.66$7,039.92
2017$578.53$6,942.36
2016$570.52$6,846.24
2015$563.74$6,764.88
2014$551.54$6,618.48
2013$546.07$6,552.84
2012$540.12$6,481.44
2011$524.23$6,290.76

New Federal Tax Brackets

For 2018, the tax rates have changed.

Lower Income limitUpper Income limitMarginal Rate Rate
$0.00$12,069.000.00%
$12,069.00$47,630.0015.00%
$47,630.00$95,259.0020.50%
$95,259.00$147,667.0026.00%
$147,667.00$210,371.0029.00%
$210,371.0033.00%

Remember these rates do not include provincial tax. For new provincial rates, visit the CRA site.