Archive for July, 2013

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Tax Refunds Take Big Bite Out of Retirement Savings

This year’s average tax refund of $1641 takes a big bite out of retirement savings for Canadian families.

If you do the math, that amounts to $137 a month. It’s serious money especially if you multiply the savings gap forward: over an average working life of 40 years, you’re giving the government an interest free loan of over $65,000.

Imagine, arranging your affairs to reduce your tax withholdings by putting the money into an RRSP instead. Here’s the math using an average return of 3%. The Knowledge Bureau’s Registered vs Non-Registered Calculator makes the illustration obvious:

 

It’s Your Money. Your Life. You’re on to something big when your tax pro recommends reducing withholding taxes by filing Form T1213 with CRA. For many average Canadian families, getting your tax refund with every paycheck can make a big difference in the worry about retirement savings.

To see more of the Registered vs. Non-Registered Savings Calculator in action, view this feature article here.

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.


Family Chats – Medical Expenses Can Be Claimed for Disabled Adult

To everything there is a season. . .and, unfortunately within a circle of life, illness may arise. This event may in fact require an inter-advisory team of financial professionals to help your loved one transition from capacity to incapacity.

Powers of Attorney, health care directives, and wills should be put in place, if there is time. The tax system can help, too. But often, guidance will be required on what documentation needs to be kept.

Did you know, for example, that caregivers can claim the medical expenses of adults they are supporting, if those incapacitated dependants do not need the amounts to reduce their taxes payable?

The medical expenses in this case are not based on family net income or the net income of the individual who is claiming the expenses. Rather, it is based on the net income of the disabled person, and that generally means a more significant tax reduction will result on your return.

Here’s an example: Pierre and Yvette care for and support Pierre’s mother, Sophia who lives with them. Sophia’s net income is only $5,000 for 2013. Her unreimbursed medical expenses total $9,000. Pierre can claim these medical expenses, reduced by 3% of Sophia’s net income to a maximum limitation of $2,152. This is calculated as follows:  $9,000 – ($5,000 x 3%) to equal a claim of  $8,850.

It’s Your Money.  Your Life. Be sure to involve a legal advisor for the completion of the will, the Power of Attorney, and a health care directive. A financial advisor can assist with the planning of investment withdrawals and insurance. A tax specialist is instrumental in helping with complex and often-missed tax provisions–especially in a year of change–and in ensuring that investment withdrawals don’t create financial hardship down the road. Those tax savings can help fund professional fees and set a family up financially for the honor and responsibility of giving care.

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.


Caregiving? Real Wealth Managers Can Help Minimize the Financial Impact

Planning for caregivers of the sick and the disabled is an important role for Real Wealth Managers™ who are well connected to their clients. Often the biggest concern for caregivers is the maintenance of income sources while they give care to their sick loved ones.

This can cause stress and burnout and financial pressure, particularly in a palliative care situation. The tax return may also be more complicated, but that can be a good thing because a bigger tax refund may result. Consider providing information services and advocacy for caregivers when illness strikes in the family:

Employer-paid leaves. Many employers are accommodating when their employees have to take time off to give care. Speaking to the HR department at work can uncover a host of assistance, including the opportunity to use up banked time or vacation time. However, if you must take a leave without pay, consider the following:

EI Compassionate Care Coverage. Employment Insurance will provide benefits for a maximum of six weeks of compassionate care benefits if the family member is at risk of dying in next 26 weeks. This can be used for psychological or emotional support; arranging for care by a third party or directly providing or participating in the actual care.

To qualify, there must be a 40% or more decrease in income, the caregiver must have accumulated 600 insured hours in the last 52 weeks and there is a two-week waiting period. The maximum assistance for 2013 is $501 per week.

Investment Accounts. The family may have to withdraw money to fund the non-working gap period. This is an important time for council from the investment advisor. Taking a tax-free return of capital from one of the family’s non-registered accounts can make sense. The same is true of a TFSA. A less attractive option from a tax viewpoint is to withdraw from a registered account as the amounts will be taxable in the year withdrawn. Use of the Knowledge Bureau’s Income Tax Estimator can help with “what if” scenarios to judge resulting tax liabilities.

Self-Employment. The business owner will suffer economic loss as well; possibly having to hire extra staff to cover workloads. If that results in a loss, other personal income of the year can be offset by the loss if the business is unincorporated. A tax professional will help to project income and losses and may be able to adjust quarterly instalment payment requirements as well.

 

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.