It’s February, and that means that the Groundhog and Cupid vie for our attention. They seem to personify the challenge Canadians have with their fiscal balancing act: the ongoing lure to demonstrate love through wallets, with the fiscal obligations to spend and plan for our futures responsibility.
The spirits of the two, Groundhog and Cupid, make a great case for tax-efficient financial planning this month.
February 2: What did the Groundhog Bring? Groundhog Day, was apparently inspired by a Scottish saving to celebrate a Christian holiday: “If Candlemas Day is bright and clear, there’ll be two winters in the year.” This year the predictions for a continuing winter have been mixed from our furry friends – In Ontario, Wiarton Willie spotted his shadow; in Nova Scotia Shubenacadie Sam did not, and in Pennsylvania, Punxsutawney Phil agreed with Wiarton Willie, that Old Man Winter will hang around for another six weeks at least. Manitoba’s Groundhogs, Winnipeg Willow and Brandon Bob, meanwhile, saw no shadows and agreed, as a great Canadian couple, that spring will come sooner than later; good news indeed!
If you find it as difficult to predict your family’s economic future, take a stand: err on the side of tax savings. Sock that money away in an RRSP to increase your tax refund. If you want to be fully prepared for Black Swans that tend to arrive and plague us from time to time – things like lacklustre economic growth, currency fluctuations, increased taxes, inflationary costs to future plans and miserable or dangerous weather conditions – saving on taxes is smart.
How much can you contribute to your RRSP? Dig out your Notice of Assessment or Reassessment for your personal RRSP Contribution Room. The maximum contribution room you could have built in 2013 is 18% of earned income up to $23,820, but your room may be higher if you missed contributing in the past. Do so by March 3, 2014 to take a deduction on your 2013 return.
But don’t over-contribute. Excess contributions – that is, amounts over your RRSP Room plus $2000 – are subject to a 1% per month penalty tax, which must be paid by March 31. Form T1-OVP is a bit of a nightmare, so see a tax pro for help.
February 14: Preparing for Cupid. Take pause before you load up Cupid’s arrow and your credit cards. The only thing more loving than a chocolate-covered heart is the gift of a TFSA – one for every adult in the family. You’ll seal your family’s future from the dark side of tax and economic change, and that’s appropriate, in a month when the good vibes of Cupid provide a contrast to the often uncertain predictions of the Groundhog. Maximum TFSA Contribution room for adult residents of Canada is $5500 for 2014. Check out the unused TFSA contribution room while you’re at it and save as much as possible.
What we have to look forward to next week, is the February 11 Federal Budget, presented within a slump in Canadian economic growth. At a time when the only certainty is change, the most loving thing you can do for your family, is to batten down the hatches with your tax-efficient savings.
It’s Your Money. Your Life. See your tax and wealth advisor this month to start your tax filings, prepare you family’s net worth statements and set up succession and wealth management plans. Share the love for financial prosperity and you’ll be amazed: predicting the future will likely be much easier for you than for the poor groundhog.
Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. Her newest book Jacks on Tax: 2014 Edition is now available. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management” Follow Evelyn on Twitter at @EvelynJacks.