Quality Accounting and Tax Services

FINANCING THE FIRST HOME PURCHASE Low interest rates and a relatively stable Canadian economy have contributed significantly to the booming real estate market here in Ontario. For a number of individuals the low rates have provided the opportunity to finance their first home purchase. Of course, the challenge in this process is coming up with the required down payment to qualify for the mortgage. What options are available for the first time buyer to do so? Family loans are o...ften a part of the source but for most it is a matter of building up a savings account over a period of time to achieve this goal-given that such a plan is done with after tax dollars it could take a number of years. he Canada Revenue Agency has established two programs that do provide assistance to individuals in creating the savings necessary for a down payment. The RRSP Home buyers plan, created in 1992 allows and the Tax Free Savings account (TFSA) created in 2009. Both programs have their pros and cons when it comes to accumulating the funds. For example an RRSP allows for quicker growth as it is done with pre-tax savings while the TFSA savings are accumulated using after tax savings. But because the TFSA uses after tax savings any withdrawal for a home purchase is completed with no future tax consequences. As well, the use of the TFSA entitles the investor to recontribute to the plan the year after the withdrawal. On the other hand the RRSP home buyers plan will affect future cash flows as the amount withdrawn must be repaid to the RRSP over a 15 year period. As well, the use of the RRSP for this purpose uses up available contribution eligibility and the repayments to the plan are not tax deductible. One must also consider the limits to each of these alternatives when deciding an which savings vehicle to utilize. At the end of 2015 the HBP withdrawal limit is only $25000 (there is speculation that it may be increased to $35000). When one considers the fact that house costs have increased by over 200% since 1992 the HBP limit has not kept up with price increases. On the other hand TFSA contribution limit now sits at $46500-this allows for a greater cash accumulation which in theory allows for a greater down payment and a lower mortgage requirement. Which method is better? When asked I lean toward the use of the TFSA for this purpose because of the points noted above. A combination of the two programs is definitely possible but I recommend that less emphasis be put on the use of the HBP. Please ensure to consult your financial advisor when it comes to determining the program that offers you the best results.

PRESERVING YOUR FAMILY WEALTH As an individual or entrepreneur you have worked long and hard to accumulate assets, investments and possessions. However, the accumulation of wealth brings its own set of problems, among them are larger income tax bills and the uncertainty of the treatment of wealth transfers upon death. We often don’t like to talk about death but the reality is that plans to preserve your legacy has to happen while you are capable of doing so. Taxes are payable... on death as the CRA dictates that a deemed disposition of assets has occurred. Accordingly, a tax liability may arise because of this fact. The use of life insurance to provide funds on death is an excellent plan to avoid having to liquidate family assets to pay this debt as insurance proceeds are made available very shortly after death. Another method of avoiding excessive tax bills upon death is the utilization of charitable life insurance. A life policy can be taken out that names an individual’s favourite charity as beneficiary. This results in the deceased individual receiving a large charitable receipt which can be used to defray taxes and also avoids using estate (and family) funds to provide for the charity. An excellent way of transferring wealth from one generation to another is, again, using life insurance. Life insurance can transfer wealth from one generation to the next on a tax advantaged basis. To make sure the children aren’t stuck with paying premiums after one dies the policy owner can purchase an annuity lasting the entire length of the life policy with payouts that cover the annual premium amounts. The key to preserving wealth involves extensive analysis that includes determining your desired future, committing to a plan that builds a solid wealth base and has features that will protect the assets from loss or erosion. Life insurance will provide these attributes. Bottom line, don’t wait until it is too late to put effective plans into effect. Consult with your advisor to determine what is best for you.

2015 YEAR END TAX STRATEGIES As 2015 winds down the inevitable task of filing ones annual tax return looms in the not too distant future. Taxpayers and those in business know that income tax has to be paid, but, having said that one would prefer to pay as little as possible. In that regard I have prepared a list of considerations to consider for helping out your bottom line this coming spring. 1. Pay your professional fees, union dues, alimony or maintenance payments, safe...ty deposit box cost and investment counsel fees prior to the year end. 2. If you plan to enroll your child in activity programs in 2016 you can obtain a tax credit this year if paid prior to December 31st. If you have reached your 2015 maximum defer the payment to 2016 as the credit can’t be carried forward. 3. If you have a segregated fund RRSP that is of the guaranteed minimum withdrawal type make your contribution before year end. Not only will you get your deduction you will receive contractual notional increase in the income base amount. 4. If you have a favourite charity you are thinking of helping make your monetary contribution before December 31st. If neither you or your spouse has not claimed the donation tax credit in the 5 preceding tax years you will be eligible for the Federal First Time Donors super credit on donations up to $1000. If you have stocks that have increased in value one can donate them to a charity before year end and there will be no capital gains tax on the gain. As well you will receive a donation receipt for the full market value of the gifted shares. Unlike tax loss selling the settlement date for the transaction is not a factor. 5. For those investors who, unfortunately, may have accrued capital losses one might want to sell the shares before year end. The realized losses can be used to offset capital gains earned in 2015, be carried forward indefinitely or carried back to the three previous tax years. It is noteworthy to mention that the settlement date for the trade must occur in 2015 which means the trade date cannot be later than December 24th. 6. A sole proprietor, business partnership or rental property owner should make purchases of equipment or supplies before year end. This will result in either additional write offs for direct costs or additional Capital Cost Allowance (at the half year rate) on capital expenditures such as vehicles or equipment. Other considerations are available depending on one’s circumstances but suffice to say take advantage of what is available to reduce that tax burden.

7 Tips to Help Plan for Financial Success Given that there is definitely a correlation between the overall quality of life and the state of your financial affairs is makes good sense to devote an adequate amount of time to your financial planning program. In that regard I have prepared a list of planning tips to assist you in reaching the goals you have set. 1. Set a budget and stick to it-review your monthly income and expenses and prepare a budget that includes saving fo...r investments. 2. Control Your Debt-Develop good spending habits and use debt wisely. Pay off credit cards and other high cost non-tax deductible debts promptly. 3. Maximize RRSP Contributions-for most Canadians investing in RRSP eligible plans has been the best long term savings builder. Make monthly contributions part of the monthly budget. By doing so the benefits of dollar cost averaging will result in a more successful return. 4. Review your insurance coverage regularly to match changing needs. As one’s life changes the need for income protection, illness coverage and estate planning also changes. Ensure the insurance program you have in place keeps pace with life changes. 5. Make tax efficient investment choices-certain investments are more tax efficient than others. For example interest income is taxed much higher than dividends and capital gains. It is better to hold dividend and capital gain producing investments outside an RRSP and the interest bearing products inside the registered plan. As well take full advantage of the Tax Free Savings Plan (TFSA). With investment limits now up to $25,000 meaningful tax savings can be achieved as your plan grows in value. 6. Minimize your income taxes-be sure to take full advantage of all the deductions and tax credits available to you. Consult a tax professional especially if you have rental properties or self-employed income to ensure you pay the lowest amount of tax. 7. Establish a diversified financial plan that complements the goals you have set. Ensure your portfolio includes assets from each of these categories-cash, fixed income products, equities and alternative investments such as mortgages and real estate. By doing so one can be certain that steadier long term growth can be achieved. Finally, and of most importance one needs to develop a financial plan and stick to it. Self-discipline combined with the guidance of a professional advisor will definitely result in a financially rewarding program.

Beware of fraudulent communications Important notice The CRA is aware of scams involving email e-transfers of funds. Canadians are reminded that the CRA will on...ly send payments by direct deposit or by cheque NEVER by INTERAC e-transfer. Occasionally, taxpayers may receive, either by telephone, mail, text message or email, a fraudulent communication that claims to be from the Canada Revenue Agency (CRA). In all these cases, the communication requests personal information, such as a social insurance, credit card, bank account, and/or passport numbers, from the taxpayer. These fraudulent communications typically insist that this personal information is needed so that the taxpayer can receive a refund or benefit payment. Other communications urge taxpayers to visit a fake CRA website where the taxpayer is then asked to verify their identity by entering personal information. These are SCAMS and taxpayers should NEVER respond to these fraudulent communications, or click on any of the links provided. To better equip taxpayers to identify those communications that do not come from the CRA, the following general guidelines are provided. If you have signed up for online mail (available through MyAccount, My Business Account and Represent a Client), the CRA will do the following: The CRA will send a registration confirmation email to the address provided once an individual or business has registered for the online mail service. The CRA will also send an email to the address provided to notify you when new online mail is available to view in the CRA’s secure online services portal. The CRA will not do the following: The CRA will not send emails containing any links. The CRA will not request personal information of any kind from a taxpayer by email or text message. The CRA will not divulge taxpayer information to another person unless formal authorization is provided by the taxpayer. The CRA will not send emails in English or French only: all communications are in both official languages. The CRA will not leave any personal information on an answering machine. When in doubt, ask yourself the following: Did I sign up to receive my online mail through MyAccount, My Business Account or Represent a Client? Did I provide my email address on my Individual Income Tax and Benefit return to receive my mail online? Am I expecting additional money from the CRA? Does this sound too good to be true? Is the requester asking for information I would not include with my tax return? Is the requester asking for information I know the CRA already has on file for me? How did the requester get my email address? Am I confident I know who is asking for the information? The CRA will continue to post notifications of fraudulent communications as we become aware of them and encourages you to check our Web site should you have concerns. Examples You will find examples of a fraudulent letter and online scams that may include, emails, text messages and online refund forms on the CRA's Web site. With respect to telephone calls, the CRA will occasionally leave messages for taxpayers on their answering machines. In these cases, a callback number will be provided along with a request to have the taxpayer's SIN available upon callback. However, it is important to note that not all telephone messages purporting to be from the CRA are genuine. Should taxpayers wish to verify the authenticity of a CRA telephone number, they should contact the CRA directly by using the numbers on our Telephone numbers page. For business-related calls, contact 1-800-959-5525 and for individual concerns, contact 1-800-959-8281.