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Six Uses For Your Tax Refund

May 8th, 2012 by Evelyn Jacks

As of April 30, the deadline for filing your taxes, the Canada Revenue Agency (CRA) had already processed 17-million tax returns. And for the 66% of those filers who got money back, the average refund was $1,570. If you are on the receiving end, you want to be sure to put your refund to work for you. Consider the following six strategies for spinning your refund into gold:

Put it into a Tax-Free Savings Account (TFSA). Withdrawals from a TSFA are tax-free – meaning investment returns can accumulate inside your TFSA without generating taxes – making a TFSA tomorrow's tax-free pension. So, do maximize this opportunity.
Put it into an RRSP. It's the next best thing to a TFSA, if you have contribution room. It will not only increase your tax refund next year, but it will also add to your tax sheltered savings and, in some cases, increase social benefits such as the Child Tax Credit. Given that the median annual RRSP contribution is about $2,800, Canadians can increase total sheltered retirement savings by 56% just by contributing the average refund.
Pay down non-deductible debt. Debt that is not business- or investment-related – and, therefore, tax deductible – such as credit card debt, home mortgages and lines of credit erode your potential for savings. You can't effectively optimize saving room if you are paying down debt, particularly debt bearing high interest rates.
Shore up risk management. Every family should be able to go six months without earning income, in case of job loss, illness or caregiving responsibilities. How have you managed your risk? Do you have an emergency fund or insurance? Your tax refund can help.
Reduce your withholding taxes at source. Next year, reduce that tax refund. Instead of loaning money to the government interest-free, it could be funding your future. You are obligated to pay only the correct amount of taxes – no more. So, review the amount of taxes withheld from your pay cheque. Reducing the deduction at source allows you, rather than the government, to maximize the time value of money.
See a professional advisor. If you expect a major life event – such as a marriage or a divorce, a birth or a death – professional help can be a good use for at least some of that refund.

It's Your Money. Your Life. Remember, Canadians under the age of 54 will now wait two additional years, until age 67, to receive their $6,500 annually in Old Age Security. By taking control of your tax refund and investing it tax-efficiently, you are taking a giant step toward financial freedom: $1,570 invested each year for 11 years (age 54 to 65) amounts to slightly more than $17,000 – which means you can retire at 65 after all!

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File a Tax Return – Even If You Can't Pay

April 25, 2012 by Evelyn Jacks

The tax-filing deadline is midnight April 30 – unless you are self-employed, in which case the deadline is midnight June 15. But even if you qualify for the June 15 deadline, you still have to pay the Canada Revenue Agency (CRA) any amount owing on your 2011 taxes by April 30.

So, filing by April 30 is the best and only way to avoid expensive late-filing penalties and interest on this year's taxes. The CRA charges a penalty of 5% of the unpaid balance plus 1% for each full month the amount remains unpaid to a maximum of 12 months. The penalty is higher if you repeatedly file late.

Nor does it pay to use the CRA to bankroll accumulating unpaid taxes: it charges interest on the amount owing based on the "prescribed rate" of interest, set quarterly by the CRA, plus 4%. This interest compounds daily – it can add up quickly.

So, if you have savings, cashing out to pay overdue taxes could pay off. But seek the advice of your tax and financial advisory team before you take action. From a tax planning point of view, you will want to tap into tax-paid savings such as a guaranteed investment certificates or Tax-Free Savings Accounts before withdrawing money from your RRSP or RRIF – that will only result in a tax liability next year.

What happens if you can't pay? If your balance is not paid within 30 days of the receipt of your Notice of Assessment or Reassessment, you will receive a letter or a phone call from the CRA. This is your opportunity to arrange a payment schedule with the CRA. If the CRA is satisfied you have exhausted all other means of paying – cashing in savings, borrowing or arranging lines of credit – it will work with you. Speak to a payment agent or ask your tax advisor do so for you.

Promptly clearing up your bill with the CRA is to your advantage. Indeed, interest will be charged on the outstanding balance but you'll avoid receiving what the CRA calls the "final letter." This will advise you that if you don't make arrangements that are satisfactory to the CRA within 90 days of the Notice of Assessment, the CRA can take legal action, such as garnishing your income or directing a sheriff to seize and sell assets.

Also, don't expect a refund from any other statute administered by the CRA, such as your GST/HST account if you are self-employed. The CRA will use those amounts to pay off your income tax bill.

It's Your Money. Your Life. Filing an income tax return on time and paying balances promptly will save you time, money and the stress of dealing with legal action. So, do make the time to see your tax advisor this week.

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Tax + Inflation = Investor Loss

April 18, 2012 by Evelyn Jacks

Tax time is a good time to evaluate the tax-efficiency of your investment strategy. This is especially true if the market volatility of recent years has spooked you into replacing the equities in your portfolio with “safer” investments that guarantee your principal and interest.

In the Knowledge Bureau Report of April 4, I promised you a look at the eroding effects of both taxes and inflation on your investment returns. The picture is not pretty.

Recall that reporting interest on your income tax return follows two basic tax rules:

You report interest in the tax year in which it is actually received or receivable.
You report interest accrued from compounding investments on the debt's anniversary date, even though you haven't received the cash.

What effect do those rules, and the annual inflation rate, have on your real returns? Consider the following chart, which analyzes the real return on a $1,000 Canada Savings Bond. In this scenario, we are assuming a 1.8% interest rate, 3% annual inflation and a 10-year hold period. The taxpayer is in the 31% tax bracket. Amounts shown are in current-year dollars (i.e. adjusted for inflation from year 0).

After 10 years, your return after taxes and inflation is actually a loss of 14.41% in real dollar terms. Was this a safe investment? At the outset, you may have said “Yes” because the principle is guaranteed. Unfortunately, your principle has lost purchasing power because it could not compete with the eroding factors of annual taxes and inflation.

It's Your Money. Your Life. Both time and money are precious. Always consider the real rate of return — after taxes, after inflation and after taking into account the costs associated with the investment — that you must earn to create purchasing power when you need it. And be sure to discuss the role of interest in your overall portfolio with your advisors.

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Reporting Interest Income

April 11, 2012 by Evelyn Jacks

It really is time to do that income tax return, with the April 30 deadline for individual filers fast approaching. And reporting interest income deserves particular attention this year, if you are among the worried investors who exchanged stocks for the “safe” havens of interest-bearing debt obligations such as guaranteed investment certificates (GICs) and Canada Savings Bonds.

Indeed, the guaranteed return of principal and income resulting from the government using your money is attractive. But it is not all it appears to be: these interest-bearing investments are neither tax-efficient nor inflation-proof. If you take taxes and inflation into account, over time, you will actually lose both principal and purchasing power.

Consider the tax filing rules. Interest reporting follows two basic tax rules:

You must report the interest in the taxation year in which it is received or receivable.
Compounding allows you to earn interest on interest during the term of the contract. On your income tax return, you must report all interest income that accrues in the year ending on the debt's anniversary date. So, you pay taxes on income you haven't received as you've effectively reinvested the pre-tax interest at the same rate as the principal pays.

The issue date of the debt instrument is important because reporting stems from that date rather than the date of ownership. For example, because of the annual reporting rules, which apply to investments acquired after 1989, an issue date of Nov. 1, 2011, does not require interest reporting until the following year, that is 2012. In other words, the accrual of interest for the two-month period of Nov. 1 to Dec. 31 is not reported in the 2011 tax year.

Things get even more tricky when investment contracts have unique features, such as:

they do not bear interest and are sold at a discount to their maturity value;
the interest rate of the instrument is adjusted for inflation over time;
the rate of interest may increase as the term progresses;
interest payments may vary with the debtor's cash flows or profits;
if the instrument is transferred before the end of the term, a reconciliation of interest earnings must take place.

It's Your Money. Your Life. Interest received or accrued each year must be reported as investment income on Schedule 4 – Statement of Investment Income and Line 121 of the tax return. Remember: you must report interest income earned even if you did not receive a T slip. Get help from your tax advisor in the trickier situations.

Next time — Evaluating CSB returns: Taking inflation into account

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Family Tax-Efficient Investment Strategies

April 3rd, 2012 by Evelyn Jacks

If the federal budget brought home one lesson about our post-crisis reality it is the importance of being financially self-reliant. If you were born on or after Feb. 1, 1962, you will not qualify for Old Age Security (OAS) benefits until you are 67. That means you need to create another $13,000 in retirement savings to replace those benefits.

Yet, economists forecast negligible net returns after inflation and taxes over the next five years — and that's going to make filling the gap more challenging. Fortunately, your tax return is one vehicle that can propel your efforts forward.

That begs the question: are you taking tax rules into account when you are planning your family investment strategies? Tax-efficient investment-income planning uses available tax rules to shift income among family members to equalize the amount reported by each family member, thereby reducing taxes for the unit as a whole. That helps your family create more “redundant income,” allowing you to save more money for the future. Done well, an effective tax strategy will also temper future tax erosion on the accumulated capital pools dispersed among family members' hands.

The first goal is to create taxable income in the hands of each family member, thereby using the progressive nature of the tax system — that is, all the tax credits and deductions you are entitled to as a family unit — to average down the tax burden for the family as a whole.

Be sure to discuss the following elements of a successful and tax-efficient family investment plan with your tax and investment advisors:

Recover errors and omissions. First and foremost, always use the Taxpayer Relief Provisions to recover taxes owing to each family member as a result of errors or omissions on previously filed returns. This includes filing omitted returns, which is critical if you are to maximize RRSP contribution room as well as carry forward investment provisions such as capital losses which can reduce future taxes payable. Errors and omissions that end in recovered tax refunds also provide new capital for investment purposes. However, be audit-proof, as opening prior returns invites a check-up by the taxman.
Maximize access to family tax-free zones. Begin with the Basic Personal Amount by taking advantage of family income-splitting opportunities. Also, by transferring important tax credits from one family member to another — such as tuition, education and textbook amounts — those tax-free zones are increased, reducing taxes for everyone. Again, leverage those tax savings by investing refunds in the right tax-exempt or tax-deferred investment vehicle.
Put capital in the right hands. Know how to transfer assets among family members. Inter-family investment loans, for example, can shift money to the lower-income family member from a higher income-earner during lifetime and at death. To do so legally, however, you'll need to transfer income and capital within the confines of the Attribution Rules, which can allocate investment income back to you on certain assets transferred to family members. You can avoid the Attribution Rules by putting money into tax-exempt assets for family members, such as Tax-Free Savings Accounts or a principal residence.
Use tax-deductible debt. Understand what debt is tax deductible and how to shift capital losses from one spouse to another. In addition to interest expenses, other deductible carrying charges include safety deposit box fees, investment counsel fees as well as accounting fees for investment-income calculations.

It's Your Money. Your Life. Tax-efficient investing increases income, which leads to the more effective accumulation, growth, preservation and transition of family wealth. Tax-filing time is a great time to educate yourself and family members: ask your tax and investment advisors the questions for which you need answers. They can help you set up your 2012 tax year to benefit from tax-efficient investing.

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An Historic Budget - Charting a New Course

March 30th, 2012 by Evelyn Jacks

Every so often a budget makes historic changes; the March 29, 2012, federal budget or Economic Action Plan 2012 is such a document. It will be remembered for three milestones:

Moving the age eligibility for Old Age Security (OAS) to age 67 from age 65 starting in 2023,

Eliminating the penny,

Celebrating Canada as a world leader. Indeed, today Canada leads the G-7 countries — the U.S., UK, Germany, France, Italy and Japan — in economic growth, and has the distinction of being voted the “#1 Best Country for Business” by Forbes Magazine (2011) among 134 countries.

Certainly, the most important provision from the point of view of tax and financial advisors and their clients is the age eligibility for OAS. This is a “heads up” change for the 45- to 54-year-old crowd and one that is hugely unpopular, judging from the 77% of Knowledge Bureau Report poll respondents who were against the move.

However, if we are to understand the full effects of the changes, there are substantive details to explore, including one provision that starts soon. Effective July 1, 2013, Canadians will be able to participate in a voluntary deferral of the OAS pension for up to five years in order to receive a higher annual pension later. Healthy seniors, therefore, may be able to supplement the returns on their investments by postponing the OAS.

It speaks to the need for a highly skilled retirement income planner well versed in tax efficiencies. The phase-in of the age eligibility of 67 is a good decade away and this allows for a savings period in which to fill the gaps left by the OAS. However, today's budget forecasts continued low interest rates and increasing inflation for at least half that period. Achieving the shortfall may be difficult, given the investment climate predicted by private sector economists in the budget.

The size and effect of that OAS capital gap will also depend on who you are:

(a) The highest-income earners will not be affected at all. If your income is more than $69,562 in 2012, for example, your OAS is already being clawed back.

(b) Clearly low-income pensioners will suffer the most; for this constituency, an alternative to the OAS and Guaranteed Income Supplement (GIS) will need to be developed. Like the OAS, the eligibility age for the Allowance and the Allowance for the Survivor will also gradually increase, from 60 today to 62 starting in April 2023.

(c) Middle-income earners — those with incomes today that fall under the claw-back threshold of $69,562 — will need to plan now. They may plan to work longer before retiring. If they work until 67, this will give them two additional years to compound savings and earn pension credits. However, if they decide to retire at age 65 or before, they will need to withdraw more money from private savings. Those withdrawals will come at the beginning of the retirement period, which has a big impact on capital accumulations for the entire period.

The budget tells us that those who were born on or after Feb. 1, 1962 will have an age of eligibility of 67. Those who were born between April 1, 1958 and Jan. 31, 1962 will have an age of eligibility between 65 and 67. Someone born in April 1960 will be eligible for OAS/GIS at age 66 and one month, as illustrated below:

Note: mon. = months

Source: Table 4.2 March 29, 2012, Federal Budget

So, how do you fill the gap? Consider the following case: a pre-retiree who will have $500,000 in savings when he retires at age 65 by which time the new rules are fully phased in. He will not receive OAS until age 67. That requires $6,500 more be withdrawn (using today's dollars and OAS pension levels) in each of first two years of an average 20-year retirement period. Here's what this means to you:

If your plan is to live off the return earned on the capital and protect the $500,000 for your heirs, the loss of $6,500 in the first two years of retirement will result in a depletion of capital of about $26,5001 – you'll only have $473,500 at the end of the 20 years instead of the planned $500,000.
Alternatively, if you were not withdrawing but rather saving your $6,500 OAS receipts each year in the two-year period and the money was invested at 3% return for 20 years, you would be giving up after-tax growth (taxes at 22%) of $23,767. For a couple, that amounts to $47,534. This is not small change.

The run-up time is also going to be plagued by low interest rates. So, just how much you need to save depends on how much time you have to do so, and the rate of return. The young have it easier: to recover the full $13,000 over a 20-year period and assuming a constant rate of return, compounding and no adjustment for inflation, the chart below speaks for itself.

Formula: Future value/(1+R)t = $13,000/(1.01)20 = $10,654

A Tax-Free Savings Account (TSFA) is the logical place to turn. Astute investors will be developing a completely tax-free pension plan for themselves, propelling their wealth much further than the heavily taxed generations of the 1990s, for example. How much can a TFSA help? This depends on the rate of return in the TFSA.

What do retirement savers today need to know? (A special thank you to Robert Ironside's finance class at Kwantlen Polytechnic University, Vancouver, B.C., for these calculations). Assume that:

You are currently 40 years old;
The average annual inflation rate is 2.5% over the next 25 years;
The real rate is 3% a year that time frame;
The nominal rate is 5.5% a year.

Then:

a) To replace $6,000 of today's purchasing power will require $11,124 of income in 25 years;
b) To replace the lost two years of OAS, you will need to save an additional $21,285;
c) The 40-year-old will need to save an extra $416 a year (or $35 a month) for 25 years (based on a nominal yield of 5.5%).

The additional savings will drop as the current age of the future retiree drops. For example, a person who is 20 today will need to save an extra $189 a year to replace the lost OAS of $18,227 a year for two years starting 45 years from today.

However, if economic forecasts are accurate, achieving those required rates of return will not be easy, particularly on interest-bearing investments:

Interest rates will remain relatively low over the next five years: three-month Treasury bills are expected to pay 0.9% in 2012, 1.3% in 2013 and an average of only 2.3% a year in the period 2014-16. Ten-year government bond will pay only 2.2% in 2012, 2.8% in 2013 and 3.5% on average in that same period.

Inflation, however will exceed those returns in the near future: consumer price index inflation is expected to be 2.1% in 2012 and 2% in 2013, averaging 2% for the period. GDP inflation is higher: 2.4% in 2012 and 2.0% in 2013 leveling off to 2.1% for the period 2014-16. In other words, real returns, for investors will be nil.

The growth in the Canadian economy will fall behind that of the U.S.: for the period ending 2016; Canada's average growth is expected to be 2.3%; for the U.S., the number is 2.6%.

1 Calculation based on return rates of 1% in the first year, 2.5% in the second, 3.5% in the third year and 4% in subsequent years. The original plan for $14,518 withdrawal in the first year increased by 2.7% annually. The original plan results in maintenance of $500,000 investment. By removing $6,500 extra in the first two years to cover missing OAS payments results in a reduction in ending capital to $473,300.

It’s Your Money. Your Life. There many decisions to be made about your retirement savings, no matter what your age, as a result of this historic budget. Looking for rates of return that exceed taxation, fees and inflation will become a more important issue for Canadians as they save for retirement and attempt to accumulate, grow, preserve and transition purchasing power into the future.

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Budgets, Tax Reforms and Wealth Management

March 27th, 2012 by Evelyn Jacks

With every federal budget, we anticipate the continued reform of personal and corporate tax systems. The March 29 budget is no different. If the age of eligibility for Old Age Security (OAS) is pushed back, Thursday's budget could be both historically significant and hugely unpopular (or so indicates Knowledge Bureau's polling).

You will do well to pay close attention to this budget and project the effects it will have onto your retirement and estate planning.

In the aftermath of the global financial crisis, governments are forced to reign in spending and reduce deficits. So, you should be prepared for possible tax increases — such as social benefit clawbacks, increased user fees or changes to our taxing framework, which is based on another significant tax reform introduced in 1969.

Canada's then-minister of finance, the Hon. E. J. Benson, not only proposed increases to personal and corporate taxes but also, most significantly, brought capital gains into taxable income. His reasons were interesting in the context of today's choices.

“The needs of the federal and provincial governments for money to do useful and important things are so great,” he began his proposed reforms, “that we cannot now afford to reduce the over-all revenues from personal and corporate income taxes.”

Over time, inclusion of net capital gains in taxpayers' income has added extensively to government coffers. In the first year — the reforms took effect Jan. 1, 1972 — it was estimated that single provision generated net government revenue of $60 million; by its fifth year of existence, it produced $245 million. Those were large sums for the times.

But Benson did something else: he recognized the punitive effect of including in income “irregular” sources of income that would push taxpayers into a higher tax bracket and cause taxes to be paid at a higher tax rate that year than in a normal year. The “General Income-Averaging Option” — which averaged out income and taxes payable over five years — was introduced to help taxpayers avoid tax-rate spikes. Unfortunately, that provision was abolished years ago.

Benson's reforms were effective in their mission. They redistributed the income-tax burden and increased government revenue from personal and corporate taxes. The burden, however, landed squarely on the large, baby-boomer taxpayer base that was just graduating from university and beginning its work life.

Yet, despite high tax rates on both income and capital, boomers were incented to work in this country, rather than leave for more competitive tax jurisdictions. Most attempted to save for retirement, despite high taxation in the 1990s (which was needed to reduce previous governments' deficits and debt) and the debilitating effects of the recent global crisis.

Retiring boomers now need to count on what's left of their private savings, the Canada Pension Plan and the OAS to make it in a very different world. Unfortunately, heavily indebted federal and provincial governments once again face great needs to do important things.

The federal government will have to make significant choices come Thursday's budget. So may you, too. In fact, engaging with well-informed tax and financial advisors to mitigate any losses with sound tax and financial planning is a good first line of defense.

It's Your Money. Your Life. The degree to which the March 29, 2012, federal budget changes your tax burden will be of special interest. To find out what it means to you and your savings, please join the Knowledge Bureau Report team at http://www.knowledgebureau.com/ for our Special Budget Report. We'll be there to help you decipher Budget 2012.

Investing Tips for Young Adults

March 20th, 2012 by Evelyn Jacks

Once all the members of your family — including minors and young adults — have filed their tax returns, you can turn your attention to teaching the next generation the long-term benefits of investing their returning social benefits and refunds wisely.

Contributing up to $5,000 to a Tax-Free Savings Account (TFSA) each and every year is one way young adults can build a tax-free pension for retirement. Investment income earned in a TFSA accumulates tax-free, which means that future withdrawals from the TFSA are not taxed. This is extremely powerful. Imagine, future generations not needing to pay taxes on their retirement savings! But to make this a reality, your young adults must make maximum TFSA contributions part of disciplined annual savings program.

Contributing to a RRSP is also very important and may, in fact, come before a TFSA in order of investing if your adult children have net or taxable income and sufficient contribution room. An RRSP deduction reduces net income, which increases refundable tax credits (such as the GST/HST credit) and enables the transfer of tuition, education and textbook amounts. Putting money into an RRSP early not only helps your young adults reduce taxes but will also create a three-part savings plan — for home ownership, life-long learning and retirement — all within the same vehicle.

If you wish to add to your child's nest egg, you can generally loan funds for investment purposes to your adult child without invoking the Attribution Rules in Section 74.1 of the Income Tax Act, which attribute resulting interest and dividends back to the lender. But beware of Section 56 (4.1) of the Act, which can attribute income back to the lender if it is reasonable to assume that the lender made the loan, or the recipient incurred the indebtedness, to reduce or avoid taxes. The Section 56 (4.1) rules are broader than the Section 74.1 rules and relate to all income earned on transferred property. It's important to stay clear of the tax auditor. So, be sure to structure your affairs properly.

It's Your Money. Your Life. By filing audit-proof tax returns for all family members at the same time, starting with the lowest-income earner and moving to the highest, you can increase after-tax results for the family as a unit. Then, leverage any tax windfalls by teaching young adults the proper order for investing, so that they can maximize their opportunities to build tax-efficient, million-dollar futures with their tax-sheltered accounts.

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Claiming Tax Benefits For Disabled Adults

March 14th, 2012 by Evelyn Jacks

If you are supporting an adult who is dependent on you because of mental or physical impairment, the Canada Revenue Agency (CRA) offers tax relief on this year’s federal tax return in the form of several, important, non-refundable tax credits.

• Amount for an Infirm Dependant Over 18. (Line 306) If an adult is dependent on you because of an impairment in mental or physical functions, you may be eligible to claim this amount. The dependent adult’s net income — including social assistance and world income — in 2011 must be less than $10,358.
• Caregiver Amount. If the dependant lives with you in your home, you may also be able to claim the Caregiver Amount. The dependant’s net income threshold is higher in this instance than the infirm-dependant amount. The tax credit begins to be clawed back around the $14,600 mark, making this credit accessible to more taxpayers, particularly seniors who are receiving public and private pension benefits.
• Disability Amount. If that adult child is markedly restricted in daily living activities and a medical practitioner completes form T2201 Disability Tax Credit Certificate, you can also claim the Disability Amount — provided the disability is expected to last for a continuous period of 12 months or more. This amount is not income-tested; if the dependant does not have enough taxable income to absorb it, you — as the supporting individual — may claim it.
• Medical expenses. Medical expenses for the dependent adult, too, may be claimed. Note that as of 2011, there is no longer a $10,000 ceiling on the amount of these expenses.
• Child-care costs. Working parents note: you are also eligible for a lucrative tax deduction for infirm adult children who qualify for the Disability Amount. If you incur child-care costs at your expense, you may be able to claim those child-care expenses, up to a maximum of $10,000 a year.

It's Your Money. Your Life. If you are supporting an infirm adult, claim your tax credit. Or, if you know of a family that is taking care of an infirm adult, pass along this information. Often, these tax preferences assist greatly, especially if the caregiver’s ability to earn is curtailed because of the responsibilities of care. In fact, knowing about these tax opportunities can create important new money for investments such as a Tax-Free Savings Account or RRSP, which can bring further tax-advantaged cash flow into the family.

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Help Your Adult Children Build Wealth

March 6th, 2012 by Evelyn Jacks

Over time, taxes erode both your income and capital more than any other factor, making tax literacy an important part of financial literacy. So, it makes sense that those who have the most to gain by being tax-astute are the young; they have more time to benefit from the positive effects of investment compounding.

As a parent, you play a significant role in introducing basic tax and investing rules to your children. Here are some tips for the young adults in your family:

File tax returns for adult children. Young adults — those who have reached the age of 18 in the tax year — should file a return regardless of income.

Filing a return creates eligibility for refundable tax credits such as the GST/HST credit, available to taxpayers 19 years of age or older, or the Working Income Tax Benefit. (The latter, however, is not available to individuals whose annual income is less than $3,000 or who are students for more than 13 weeks a year, unless the student has an eligible dependent). Filing also gives young adults access to a variety of provincial tax credits.

Because young adults often have more than one part-time job, employers may withdraw more income taxes from their earnings than necessary. Likewise, if young adults contribute to the Canada Pension Plan before the age of 18 or if their total income is less than the $3,500 basic exemption, they may over contribute to CPP. Similarly, they may pay too much to Employment Insurance. By filing a return, these young adults not only recover overpaid source deductions — and get a refund — but they also create RRSP contribution room based on their earned income, even if they are not taxable.

Then, there are lucrative non-refundable tax credits, including the tuition, education and textbook amounts. If your young adult is a student at a qualifying educational institute, claiming these amounts on a return can reduce his or her taxes to zero. And, if unabsorbed on the student’s return, these provisions can either be carried forward for use in reducing future income taxes, or up to $5,000 can be transferred to a supporting individual, in this case, you.

Your adult children, if 19 years of age or older at the end of the tax year, should also claim Public Transit Amounts for money paid for public transit passes.

It’s Your Money. Your Life. Help your children become more tax-astute. Also, introduce them to your tax advisor. They will benefit from having a professional answer their tax questions. Today’s efforts will pay off handsomely in the future.

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Making Claims For Minor Children On Your Return

February 28th, 2012 by Evelyn Jacks

Raising children is a costly business and Canada Revenue Agency acknowledges this with deductions and tax credits available when you file your annual income tax return. Here are claims for your minor children that you and your tax preparer should be considering for 2011:

• Child-care expenses. Assuming you have child-care expenses, remember to claim the lucrative child-care expense deduction, which reduces your net income. (Click here to download the form). But this claim is often audited; so, be sure to keep your child-care receipts.

Reducing your net income is important because it is the base on which many benefits and refundable tax credits and benefits are calculated. The lower your net income, the greater your ability to access those credits and benefits. The Canada Child Tax Benefit (CCTB) is one of those benefits that are based on net income, in this case, family net income. It is a tax-free monthly payment made to eligible families and includes the National Child Benefit Supplement and the Child Disability Benefit.

• Child Amount. When it comes to non-refundable tax credits, be sure to claim the Child Amount for each eligible child under the age of 18. The $2,131 claim is not income-tested and either parent can claim it; in fact, unused amounts can be transferred from one parent to the other.

• Children's fitness and arts activities. Check private activity receipts to see if you can claim the Children's Fitness Amount and/or the new Children's Arts Amount.

• Disability Tax Credit. If you have a disabled child, you'll want to claim the $7,341 Disability Amount, which, in the case of minor child, is increased by a supplement of $4,282 for a total claim of $11,523. This supplementary amount, however, can be reduced by the amount you claim as a child-care deduction. You will need a Disability Tax Credit Certificate, form T2201 completed by a doctor.

• Public Transit Amount. Finally, be sure your young ones keep all public transit passes for a possible claim for the Public Transit Amount.

Investing Tips for Minors. Establish an in-trust account for your minor child. But be sure to deposit into the account only funds from the child's part-time jobs, CCTB received for the child and the capital gains earned on principal transferred to the child. (The Attribution Rules, which generally prohibit the transfer of assets from higher-income earners to lower-income earners in the family, requires that interest or dividends earned on principal transferred is attributed back to and reported by the adult transferor.)

By having his or her own in-trust account, eligible earnings — interest and dividends earned on "untainted accounts" — are taxable in the child's hands. Because of the tax-free zone, the basic personal amount of $10,822, this usually allows the earnings to accumulate tax-free.

Over time, planning around these rules but within the framework of the law will build assets in the hands of multiple family members, resulting in future income-splitting benefits.

It's Your Money. Your Life. File tax returns for all family members together, including minor children. If you think strategically about family income splitting, you will be able to accumulate capital in many family members' hands. The objective is to unleash the potential each taxpayer has to maximize the tax-free zone of $10,822 and save significant sums over time.

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The Benefits of Filing Tax Returns For Minors

February 21th, 2012 by Evelyn Jacks

The arrival of T4 and T5 slips — by the end of February — signals the official start of the annual tax-preparation rush. One important rule you and your tax preparer will want to follow is completing all family tax returns together, starting with the lowest-earning family member and progressing to the highest. This will allow you to take advantage of provisions for transferring income to children and provide savings opportunities for the young.

Filing returns for minors. There are many reasons to file a tax return for minors. First of all, your minor child is taxable and required to file a return if he or she earned $10,822 or more in 2011, be it income from employment (for example, working at a local restaurant) or self-employment (babysitting and lawn-care services).

But even if your minor's income doesn't meet that threshold, filing a return is important. Each year, 18% of his or her earned income will go toward creating RRSP contribution room; in time, when the child does become taxable, he or she will be able to contribute to an RRSP creating a RRSP deduction that will reduce income and taxes.

This is important planning tool if you are going to be the one supporting your child when he or she attends post-secondary school. Before unabsorbed educational credits can be transferred to you, the student must first claim tuition, education and textbook credits to reduce his or her taxable income to zero. An RRSP deduction will reduce the student's income, allowing you to transfer more of the credits to your return.

Your minor child also needs to include in income any survivor and/or disability benefits from the Canada Pension Plan. This will boost his or her net income. If you are a single parent, this could be particularly significant because the claim for “eligible dependent” or spousal equivalent for tax purposes will be reduced or eliminated.

But there is a tax special provision for minors available only to single parents: you can transfer taxable Universal Child-Care Benefits (UCCB) to the child, and he or she can include it in income. This will be of advantage to you if you are in a higher marginal tax bracket than the child.

It's Your Money. Your Life. File tax returns for all family members together, including minor children. The objective is to maximize the tax free zone of $10,822 and, if necessary, reduce income levels further with an RRSP deduction. What's required is that the minor has eligible RRSP room, which is created by filing a return. This filing strategy can create savings on a supporting parent's return as well, with the transfer of certain available tax provisions — to the benefit of the entire family unit.

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Tax & RRSP Treats From Cupid Taxman

February 14th, 2012 by Evelyn Jacks

We don't often think of the taxman as cupid, but this month, you may have received a Valentine's Day treat: the timely delivery of your 2011 RRSP Deduction Limit Statement. Canada Revenue Agency dropped this simple, one-page form — complete with easy-to-read definitions — into the mail early in February, to remind eligible Canadians of their correct RRSP deduction limits.

This very useful information arrived in the usual fearsome, brown, CRA envelope. If you trembled and hid it at the bottom of your burgeoning pile of unopened mail, go dig it out. By noting the important information on this form and making the correct RRSP contribution, you'll reduce your net income (line 236 of your income tax form) which is the number used to generate a host of tax goodies:

Refundable tax credits such as the federal GST/HST Credit, Canada Child Tax Benefits and Working Income Tax Benefit. Many provinces have refundables, too, so RRSP-reduced net income can influence cash flow throughout the year.
Non-refundable tax credits, such as the Spousal Amount, Age Amount, Caregiver Amount, and Tuition, Education and Textbook amounts, to name a few.
Social benefits such as the Old Age Security and Employment Insurance benefits, which are clawed back at certain net-income ceiling thresholds.

Moreover, a lower net income can also decrease provincial pharmacy deductibles and per diems at nursing homes.

So, take a peek at your RRSP Deduction Limit Statement. It is easy to read and tells you in very plain terms:

Your RRSP deduction limit for 2010 and how much of that you used on last year's tax return. That leaves you with your unused RRSP deduction limit at the end of 2010.
Your RRSP deduction limit for 2011, which may include a variety of adjustments related to your employer-sponsored pension plan, if you have one. Those adjustments might increase or decrease your RRSP deduction limit.

This second figure is next to a prominent figure (A). Find it and circle it. For most people, this is the exact amount you can contribute to your RRSP and you should do so by Feb. 29, 2012, if you are to get the deduction that will reduce your 2011 net income. It is very helpful to show the statement to your financial advisor, or the person at your financial institution who will sell you the RRSP.

That's because this form also notes whether you have any unused RRSP contributions available for 2011. This is labelled, albeit not as noticeably, as Amount (B). That's the amount you previously invested in your RRSP, but have not yet deducted on your tax return.

It's important to pay attention to this number because sometimes too much of a good thing — an excess contribution — can attract a 1%-a-month penalty. That happens when your unused RRSP contributions (B) are more than your deduction limit (A) plus a $2,000 “buffer zone.” (Note: minors aren't allowed the buffer zone.)

If that's too much information and the dreaded tax tremors are back, visit your tax advisor, who will know what to do about your over-contribution and excess contribution. Just between you and me, tax pros tremble at the thought of having to complete the dreaded 1% penalty form, a T1-OVP, so they're motivated to keep you out of the penalty zone!

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What Should Be Taxed More - Current or Future Income?

February 8th, 2012 by Evelyn Jacks

Governments getting their fiscal houses in order are asking taxpayers to depend less on government services and take more responsibility for the future. But those same taxpayers are wrestling with two layers of taxes: taxes on income, which erodes current income, and taxes on capital appreciation, which erodes future income.

This seems counter-productive to the concept of self-reliance.

That begs questions about our tax system. Should current income be taxed more than the future income that capital appreciation provides, as happens now? Should they be taxed equally? Or should capital appreciation — often seen as the purview of the wealthy — be taxed more than current income? These are very important considerations, especially in these volatile times, and there are arguments to be made on both sides.

On the side of lower taxes on current income is the time value of money.Thanks to high taxes on current income, taxpayers have fewer after-tax dollars to put into the tax-advantaged savings vehicles at their disposal: Tax-Free Savings Accounts, which create tax-exempt income from after-tax dollars, and tax-deferred registered accounts such as Registered Retirement Savings Plans or employer-sponsored pension plans.

When governments take tax dollars off the top of taxpayers' employment income, they remove important wealth-compounding opportunities. At the outset, savings balances are lower, and the advantage of whole dollars compounding over time is lost. The most important defence a responsible taxpayer can have is the ability to keep more of the first dollar he or she earns and invest it promptly in a tax-protected account. Then, he or she is in a position to create the self-reliant income desired by cash-strapped governments. (After all, governments still have an opportunity to tax future income.)

Unfortunately, millions of Canadians are using their after-tax dollars to fund non-discretionary needs and do not have enough “redundant income” to save, so they cannot be self-reliant (see “Contribute to your RRSP,” Knowledge Bureau Report, Feb. 1).

But if you are saving and accumulating wealth, you come up against a second erosion of wealth — the tax on accumulated capital.

Many think the asset-rich should pay more and government taxes at the time of actual sale or “deemed disposition” (death or emigration, for example) should be higher. We want to be very careful here. If governments are encouraging self-reliance, they don't want to rob future generations of the ability to earn income on that inherited capital — or future governments to tax it.

As the large, baby-boom generation moves into retirement, boomers will pay less personal income taxes — the largest line of revenue for governments in recent years — and their contribution to federal coffers will decline accordingly. That presents a challenge for overcommitted governments. If future government revenues are to be maintained, that capital, intact, must be available for both future generations and governments.

Yet another factor affects capital accumulation: because the adjusted cost base of a capital asset is not indexed to inflation, any increase in inflation subjects the value of capital to a powerful and hidden tax, one that's based on inflated values rather than real values. Government coffers win in times of high inflation; investors lose on a net basis.

Together, inflation and taxes quickly erode the real value of wealth — that is, purchasing power — and that risk is inherent in capital appreciation.

So, which should be taxed more — current or future income? There is no easy answer. Both the performance of the investments you choose and their ability to grow your capital, and the time value of money are important. And you can't discount current market risks or the risk future taxation and inflation pose to your capital and income. All affect the sustainability of family net worth. Your best strategy is knowledge.

It's Your Money. Your Life. Do you understand how your current income and future income from accumulated assets are taxed? If you are not sure, ask your tax and financial advisors. Given that we are in the midst of a long period of volatility and low returns, you should protect your capital from the eroding effects of tax and inflation and manage it — on an individual, family and community basis.

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In a Fragile World, Tax abd Pension Entitlements are Linked

February 4th, 2012 by Evelyn Jacks

This week, a friend in business lamented the shocking loss of a key employee. The unanticipated death closed down the firm for several days as fellow employees absorbed this traumatic loss. It was the tenth death within this circle of employees, suppliers and clients and their respective families. When it rains, it often pours.

Although very difficult emotionally, conceptually we understand the consequences of human frailty and demise. As humans, we do our best in times of great change: we rally around those who are vulnerable. Again and again, we cope with the stages of grieving — moving from shock and denial to pain and guilt to anger and bargaining and, finally, to the beginnings of acceptance: reflection, re-organization and re-construction.

People around the world are reacting to the disruptive and sometimes devastating effects of the extended global financial crisis with this same shock, denial and anger. And the challenge for governments is to manage these global economic threats to our fiscal health while keeping cherished social benefits in place.

In Canada, there are big issues ahead for the large, baby-boom generation and the government that counts on boomers' continued contribution to its tax coffers. For their part, boomers are at the front door of retirement and are facing significant changes to Canada Pension Plan benefits and, possibly, access to Old Age Security. This comes after a decade of zero returns on their savings or, worse, the reduction or demise of their employer-sponsored or private pension plans.

For its part, the federal government is already seeing interest charges on our public debt and support to the elderly eat up 11¢ and 13¢, respectively, of a dollar of government revenue. On the revenue side, the federal government counts on personal income taxes to provide 48¢ of every dollar of revenue collected. This source of revenue will be difficult to grow as this significant group of taxpayers heads into retirement.

Fortunately, Canada is in a good position to balance global economic threats and preserve social benefits. According to the federal Department of Finance's Fiscal Monitor, released last month, the budgetary deficit for the first eight months of the government's 2011-12 fiscal year was $17.3 billion, vs. $26 billion a year earlier, a 35% improvement. Net tax revenues were up; program expenses were down. Public debt charges, however, increased and that is a threat for retirees. Higher deficits cost more money to service and, should interest rates rise, the ability to maintain or increase existing social benefits will be squeezed. It's important to anticipate that now so you can chart an alternate course if required.

And so it goes: the burden of the healthy is to manage the consequences of decline and loss with grace and strength and to take the very best possible care of those who are vulnerable.

It's Your Money. Your life. Things change. This tax season, take the time to find ways to save more of your income, so you can build and grow family wealth. Challenge your tax advisors to dig for every tax deduction and credit to which you are entitled, so you can reduce non-deductible debt and invest more tax-efficiently. This is one of the best ways to build your pensions and investments so you'll be ready for unexpected personal and/or economic shocks.

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The importance of good record keeping

January 27th, 2012 by Evelyn Jacks

If you are like most, keeping tax records is not your forte; in fact, it's difficult, frustrating and exasperating if you haven't been vigilant about keeping things all year long. We know that people who do, usually get better results on their tax returns come filing time. Therefore, January is a good time to organize not just last year's records, but this year's too.

You need to know that under the Income Tax Act, you are required to provide books and records to the tax department, if asked, over a period of at least 6 years which starts at the end of the tax year to which the records relate. (That means, 2011 records must be kept until December 31, 2017.)

In some cases, records and supporting documents that relate to certain transactions must be kept indefinitely. This can include the acquisition and disposal of property, share registries, capital loss balances and other important historical information that can affect future tax returns, or have an impact upon the net tax results from the disposition or wind-up of a business.

Look to Information Circular 78-10 for the consequences. For example, if a person fails to provide any information or documents requested by the tax man, including books and records, Section 231.2 of the Act gives the government the power to require you to provide the information or documents requested.

If you fail to maintain adequate books and records or provide the information or documents CRA can prosecute you. If they win, on a summary conviction, and in addition to any penalty otherwise payable, you may be subject to imprisonment and/or a fine not less than $1,000.

Alternatively the CRA may apply to the court for a Compliance Order in which a judge would order you to provide any access, assistance, information or the document sought by the CRA.

It's Your Money. Your Life. Recordkeeping for tax purposes is not optional. It's also a very astute way for you to make better financial decisions for your family. You're the CEO of your own money. Make sure you have all the documents to verify your personal net worth, not just for the taxman, but because that makes sense from a wealth management and estate planning point of view too. Your professional tax and financial advisors can help.

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Pension Reform 2012: CPP and PRPP

January 19th, 2012 by Evelyn Jacks

Having escaped a -40 day in Calgary yesterday on our nationwide T1 Tax Update Workshop Tour, the beautiful sunrise over Vancouver today reminds me why this lovely province is a retirement haven; a lifestyle many Canadians work years to save for. Yet for many, saving for retirement has been more difficult recently, and certainly more expensive.

We may therefore look back at the significance of the pension reforms being introduced in Canada in 2012 for many years to come. This month a multitude of changes to the Canada Pension Plan begin; as well, we look forward to the passage of federal and provincial legislation that will bring life to a new pension savings opportunity–the Pooled Retirement Pension Plan (PRPP).

Currently 16.5 million people contribute to the CPP; with 6.5 million drawing benefits from it. While that number of pension recipients will increase dramatically as baby boomers retire over the near short term, the CPP is in good shape–sustainable for the next 75 years at current contribution rates–according to the Finance Department.

The PRPP fills a gap for the self-employed as well as employees whose employers do not provide an employer-sponsored fund. That trend has been increasing. . .the proportion of working Canadians who have access to such plans has declined from 41% in 1991 to 34% in 2007; leaving a gap in discretionary retirement savings opportunities for about 2/3 of Canadians, which the PRPP will help to close.

The PRPP is also a particularly attractive new option for small business owners, who may have found participation in the existing Registered Pension Plans–defined benefit or defined contribution–too expensive. The PRPP will provide access to a large-scale, professionally administrated and lower cost pension plan, together with an opportunity to split retirement income with the spouse sooner, than under current RRSP rules.

According to background information provided by the Department of Finance, Canada’s retirement pension system is already a world model recognized by the OECD (Organization for Economic Co-operation and Development) for its success in reducing poverty and providing high levels of income replacement for retirees. These new pension reforms should help make retirement even better for disciplined savers in the "gap" categories.

It's Your Money. Your Life. This tax season, be sure to ask your tax and financial advisors about these new retirement savings and income replacement changes and what they mean to you and your family in 2012 and beyond.

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Sustainability: An Important Word In 2012

January 10th, 2012 by Evelyn Jacks

Our family had a wonderful Christmas in Asia this year; reuniting with our son who has been working in Cambodia. The Cambodia Daily news ran an interesting article written by Al Gore and David Blood while we were there; a reprint from the Wall Street Journal, on the subject of “Sustainable Capitalism in a Global Economy”. In it the authors made several important observations:

It's important to abandon short term economic thinking in favor of “sustainable capitalism”.
We face a rare turning point in history when dangerous challenges and limitless opportunities require clear, long-term thinking to solve disruptive threats like climate change, water scarcity, poverty, disease, growing income inequality, and massive economic volatility, to name just a view.
Companies and investors will ultimately be the ones to mobilize the capital needed to overcome these challenges.

Sustainable capitalism is defined as a framework for the maximization of long-term economic value by reforming markets to address real needs, all-the-while integrating environmental, social and governance metrics throughout the decision-making process.

I found that extremely interesting. At the Knowledge Bureau, we have pioneered the development and implementation of a framework for the sustainability of family wealth. We call it Real Wealth Management™ and thousands of students—most of them tax and financial advisors from across Canada–have taken certificate training programs over the past eight years in order to facilitate joint decision-making between the client and his or her professional advisors following a strategic framework for accumulating, growing, preserving and transitioning wealth with future purchasing power—after taxes, inflation and fees.

Authors Gore and Blood argue that integrating sustainability into business practices enhances profitability, helps companies save money by reducing waste and increasing efficiencies throughout their supply chains; it also improves human relations to increase employee retention and therefore reduce the costs of employee training. Sustainability modeling also helps companies achieve higher compliance standards and better manage risk, because they have a better and more holistic understanding of the issues that affect their businesses.

This is entirely true of the Real Wealth Management framework for family wealth sustainability. It challenges those who have trouble managing their income and creating capital to better understand how they use their money; trading in short-term, reactive financial responses for a future-oriented approach. This involves following a consistent strategy and a measurable process in building individual and family net worth over the long term.

Taxation is a large factor in this endeavor because it is one of the biggest eroders of both income and capital over time. As tax season is upon us, it makes sense to begin now to plan to increase after tax income for 2012 and accumulate and grow intact capital that will reliably produce income for the future.

It's Your Money. Your Life. In a volatile economic environment, it may make more sense than ever before to learn more about the Real Wealth Management framework so you can better accumulate, grow, preserve and transition wealth. Given that it's the start of a brand new year, you may find yourself creating new opportunities for a brighter, more secure financial future. Wouldn't it be good to replace financial worries with peace of mind? Happy New Year!

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Year End Tax Planning Checklist

December 20th, 2011 by Evelyn Jacks

Need a little extra cash for Christmas? Want to start on a good financial footing in 2012? Your family's tax returns are a great place to start, because you may just find a lump of gold hiding in year end tax planning opportunities. In a volatile investment environment, being tax astute can add double digits to your cash flow and investment portfolios. Following are seven tax tips to discuss with your tax and financial advisors before year end:

Recover taxes owing your clients from prior years. It is everyone's legal right to arrange affairs within the framework of the law to pay the least income taxes possible–especially if cash flow is tight. Lots of people put off filing their returns because they think they may owe money, but in fact, the tax department may owe them (Always nice when that happens!). Tax refunds resulting from errors and omissions may be recovered over a ten year period; so if you're a delinquent filer or you missed an important tax saving provision be sure to adjust your tax returns by December 31. After this the 2001 tax return is statute-barred. Remember, by filing a return you can also create unused RRSP contribution room, and capital loss carry forward or carry back opportunities.

Don't overpay your quarterly installments: If you have a quarterly tax installment due on December 15, or in the case of farmers, December 31, and you haven't yet paid it, be sure to calculate your estimated income the current tax year first. If your income will be lower than in past years, you may be able to reduce that payment, or not make it at all. To use the optional “current year” or “prior year” methods of calculating your installments, check out the CRA–Canada Revenue Agency's publication P110 Paying Your Income Taxes by Installment. This is also a nice way to create new capital for investment purposes, or, that much needed vacation!

Compute your family RRSP Advantage: Most Canadians do not maximize their opportunity to contribute to an RRSP—and that's a shame. It can truly save you a lot of money if you do, yet the time to plan to put the money aside is now. To be most effective it should be made earlier rather than later according to your available RRSP room.

The RRSP deduction reduces net income — that line on the tax return upon which refundable and non-refundable tax credits are based. A reduced net income increases those credits and therefore cash flow, leaving more money for investment opportunities. Planning now to contribute to an RRSP for each family member who has RRSP Contribution Room (check last year's Notice of Assessment for this figure) is smart: it can affect family net income and increase tax credits and deductions that are transferrable. The RRSP makes a great Christmas present too: and helps couples split retirement income later under a spousal plan. Also, if cash flow is scarce, consider which assets held in non-registered accounts could be flipped into an RRSP. Talk to your tax and financial advisors about that to superficial loss rules.

Consider tax loss selling activity. Year end is a good time to consider selling portfolio losers to offset winners. Capital losses generated by the sale or transfer of stocks and bonds in a non-registered portfolio before year-end will first offset other capital gains incurred this year. Unused losses can be carried back to offset capital gains you reported in any of the previous three years — a great way to reach back and recover taxes previously paid. Or, you can carry unused capital losses forward, indefinitely — an important way to manage taxes on your next winning investments.

Split income and transfer assets. The current low interest rate environment is opportune if you wish to borrow money to increase your portfolio or split income with family members. In the former instance, interest on your investment loan will be tax deductible, provided your assets generate a reasonable expectation of income from property in the future, i.e., interest, dividends, rents or royalties. (Note: capital appreciation is not considered income from property.) For family income splitting purposes, draw up a bona fide loan with your lower earning spouse and charge the prescribed interest rate, to enable the reporting of investment income in that person's hands. The interest, however, must actually be paid to you by January 30 following each taxation year and you must, of course, report it on your tax return.

The TFSA is a must. Give your adult children a valuable Christmas gift: open a Tax Free Savings Account and make sure you and/or they maximize the opportunity to invest up to $5000 in it each year. The earnings will be tax free and the opportunity to use this valuable savings room will build family millionaires—when you consider the annual opportunity.

Donate Securities. Capital gains can be avoided entirely when qualifying securities with accrued gains are transferred to a family's favorite charity before year end. In addition, a receipt for the donation will offset taxes payable. That's a win-win, and worth a portfolio review in the last three months of the year.

Other tax saving tips to consider and discuss before year end include how to:

Maximize medical expenses
Annualize tax on bonus payments
Buy that car or computer before year end to maximize CCA deductions
Finalize the auto log for 2011; then qualify for “ logging” only 3 months next year
Move before year end—if your new job or business is in a lower taxed province
Avoid Clawbacks on OAS and refundable tax credits with net income planning
Avoid promotional expense claim restrictions for rookie commission sales reps
Plan for early retirement with new CPP changes starting in 2012
Start receipt sorting early: this year, be on time and be audit-proof

It's Your Money. Your Life. A tax-wise investor becomes wealthier over the long run, no matter the current economic cycle. Most people leave tax savings on the table. Maximize your potential to reduce your after-tax income in the last quarter of this year!

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Redundant Income: How To Get More

December 14th, 2011 by Evelyn Jacks

I have been blogging about how individuals and businesses can work hard to reduce debt. At a macro level, that may be at the expense of spending to stimulate Canada's economic activities in the short term, but it may well be a very good plan for shoring up your personal financial stability over the longer term.

Without a focus on more aggressive savings, it's possible that your continued debt, rather than your wealth, will sadly become the legacy of your retirement. Getting your financial house in order sooner, rather than later, will help you build new "redundant income" with which to save in a variety of tax efficient investments including your RRSP or TFSA.
Savvy debt management will also help you get ready to protect your savings from two additional wealth eroders you may have to slay in the future: taxes and inflation.

You may be aware that governments' biggest source of revenue is taxes on personal income. If governments are to continue spending to stimulate the economy in the short term, and future if sluggish economic activity expected over the next little while further reduces those tax revenues, an important recourse is raising taxes to meet the demands for government services.

That potential scenario puts all the more emphasis on the need for your to manage your personal finances with tax savvy. To minimize personal income taxes in your future, begin your tax recovery plan and create new resources for savings by knowing your marginal tax rate on every source of income you or your investments will generate in the future. You can then tweak your income and cash flow plan with tax efficiency.

It's also important to take a family approach and employ income splitting techniques wherever you can. When you split and diversify your sources of income, you will pay less. Finally don't forget the ideal order of investing. . .what should come first: your RRSP, your TFSA, an RESP, etc?

It's Your Money. Your Life. It's the tax savvy steps you can take now that can help you build real sustainable wealth. Speak to your tax advisors soon about creating new strategies to "average down your taxes" with income diversification, income splitting and the deferral of taxes on your investing activities.

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Moving From Critical To Stable Condition

December 6th, 2011 by Evelyn Jacks

We have recently been told that the Federal Government anticipates that the result of a more prolonged economic slow down is a reduction of anticipated tax revenues. This will delay deficit reduction by at least a year to 2016. If you were born in 1951, that's the year you turn 65.

All of this scares already-spooked individuals, who are trying to build up their savings and reduce their debt after the financial crisis. But in particular the plentiful boomer generation, many of whom are already delaying their retirements by an extra year or two, must weigh the serious effects of continued poor investment returns on their future.

It is a vicious circle-debt, debt repayment, poor returns, fewer services–yet, the outlook is may not be so grim. We may in fact be moving from critical to stable condition.

Where in this is there reason for cautious optimism? If recognizing the problem is the first step, then we are well on the road to financial recovery, despite the recent sharp decline in economic activity throughout the G-7 nations.

In Canada, labor markets have performed well and private credit remains strong, while the economy is projected to grow by just under 2% in 2012. Domestic demand, though weaker than anticipated in 2011, continues to be a catalyst for growth.

The biggest threat, according to the International Monetary Fund (IMF), is that Canadians need to be vigilant on the housing front, given the level of household debt in Canada. Domestic consumption could slow more, if there is a drop in housing prices, and so paying down that mortgage is important.

There are numerous ways to do so. Consider making an RRSP contribution to generate new tax savings with which to then pay down your mortgage. Consolidate your consumer debt, and reduce expensive credit card fees. Use your savings to bump up mortgage payments. Take the money from your TFSA to reduce your mortgage upon renewal. Or, take advantage of the strong housing market today to downsize.

It's Your Money. Your Life. It may be a good idea to discuss your options for managing your mortgage debt now before the end of the year so you can start 2012 with greater financial stability.

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Wrestling Debt, the Enemy, With Tax Efficiency

November 29th, 2011 by Evelyn Jacks

In writing Financial Recovery in a Fragile World, my co-authors and I have concluded that if there is any thing the world has learned from the recent financial crisis it is the significant role debt has played in causing the turbulence.

Today, many developed countries are left with a debt-to-GDP ratio that is well in excess of 85%, the point at which, researchers tell us, debt becomes a drag on economic growth. In Canada, we tow the line at 84%.

Mired in debt, it is very difficult for governments to continue to spend their way out of the crisis. Debt, has tied the hands of government leaders looking for resolutions to today's malaise, and worse, has threatened their ability to fund the cherished services many have counted on for their future.

So, we have a triple whammy to contend with in our collective financial recovery. Governments awash in debt cannot spend their way out of the downturn; concerned individuals – worried about jobs, asset values and rising personal debt – are pulling in their horns to save rather than spend. And, this fear is not unwarranted: about 30 million people have lost their jobs globally. Put in perspective, that's just under the entire the population of Canada.

Private businesses, to which we look for new economic growth, are obviously effected by this. In Canada a slowdown of economic growth stems in particular from the U.S. recession, and more broadly from the negative effects of global economic weaknesses, which have reduced exports and manufacturing activities.

Always a challenge, businesses must work hard to restore equity to balance sheets and continue to innovate into a new and unpredictable world economy, all the while credit and venture capital is increasingly hard to come by . If revenues vanish, they are forced to react quickly to reduce production, cut spending and employment.

It's Your Money. Your Life. In this time of sluggish growth, it is important to manage your personal debt. On way to do so is to correct errors and omissions on prior filed tax returns before the end of December. An additional and unexpected refund could help with Christmas spending or better, an RRSP contribution.

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Financial Stability A Must Today

November 22nd, 2011 by Evelyn Jacks

Where do you invest your money? That's likely the most salient question of the times. There are so many ways to go wrong. A recent article in The Economist, summarized the historical fury of bear markets that have substantially wiped out wealth:

1. In 1946 when bond yields were at their current 2.5% level, 75% of their value was lost in the following 25 years in Britain.
2. When investors hurried into gold in its last peak in 1980, the price fell by 2/3 in the next 20 years that followed.
3. By the year 2000, when the world was highly exuberant about the internet, the dividend yield on American equities was just one per cent; and the annual real equity return over the next 10 years just under that, .08%.
4. In 2011, despite strong growth in India and China, emerging equity markets fell 23% in the third quarter; resulting in those shares trading on a discounted valuation compared to developed-market counterparts.

In Canada, we are comforted by strong banks and a strong, stable real estate market. Today residential housing development represents about 20% of the domestic economy, according to the Canada Mortgage and Housing Corporation, and rising real estate values continue to drive consumer confidence. What's noteworthy, however is that residential mortgages are the biggest single asset on Canadian bank balance sheets, according to an October 15 article by Postmedia News. What happens if the real estate bubble bursts? What could make it burst?

Demographics, for one thing. Will baby boomers downsize out of their empty nests? Will their 20 and 30-something children stop buying homes with all the uncertainty? Will they default on mortgages if we enter a deeper recessionary phase? How will that affect the balance sheets of Canadian banks? My co-author Robert Ironside says this:

"The issue with respect to the banks, should we have a major real estate correction, is of great concern. The banks are shielded somewhat by the existence of mortgage insurance on their high ratio mortgages but their income and asset growth would be significantly affected."

Wealth preservation seems to be the name of the game today, but an additional issue is this: even if we are great savers, what will our current dollars buy in the future? If we hold on to the wrong things; we face the winds of financial erosion. Those winds include the potential for recession, deflation, inflation and taxes. Continuing to make new money is a strong defense, and then carefully investing it into the future, to offset that erosion, is also a must.

This is easier if you have a stable income from employment or self-employment; much more difficult if you are living on a fixed income in retirement, although a savvy eye to investing in income-producing assets is important; so is an indexed pension plan. Managing tax and debt loads is an important part of every strategy because it preserves capital today, maximizing returns on investments. It is also something we can directly control.

Where do you invest the money? In writing Financial Recovery in a Fragile World, my co-authors, Robert Ironside, Al Emid and I have attempted to provide a macro overview of the causes for the dilemma we find ourselves in, and how investors and advisors can use a framework for thinking about preserving and building wealth going forward. We continue to be of the belief that financial recovery begins at the micro level; with financially stable households.

It's Your Money. Your Life. It makes sense to get your financial affairs in order in this climate. We are not out of stormy seas yet, so we need to manage as much risk as possible as we tack carefully forward. Managing debt loads, especially mortgage debt, is important. So is tax efficiency.

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Internet Investment Decisions Could Be Costly

November 21st, 2011 by Evelyn Jacks

Where should your investment advice come from? According to a recent survey by Cisco's Internet Business Solution Group, (March 30, 2011), half of those under age 50 use social networking for their investment advice. That's a staggering number. Yet using the internet to make important financial decisions and then execute them without proper assistance could be a costly solution to your investment questions.

It makes no sense to take investment advice from anyone you don't know and trust especially if they don't understand your investment needs and objectives. That's the response to the question "Should I accept investment advice offered over the internet: by The Canadian Securities Administrators, who have published a booklet on the subject, entitled "Investing and the Internet", (http://www.osc.gov.on.ca/documents/en/Investors/res_investing-internet_en.pdf).

Fraud, in fact, is an increasing problem. Stats Canada reported on a 2009 General Social Survey on Victimization. Seven percent of adult Internet users in Canada, age 18 years and older, reported that they had been a victim of cyber-bullying at some point in their life. Seventy-three percent of those people reported receiving threatening or aggressive emails or instant messages and 8% had their identity assumed by someone sending threatening emails.

In addition, the survey showed that amongst those who used the Internet in the 12 months prior to the survey, 4% reported being the victim of bank fraud; that is, reporting incidents where credit or debit cards (or information from them) were used from an Internet source to make purchases or withdraw money without authorization from the cardholder.

It's Your Money. Your Life. Why take a chance? When it comes to making financial transactions of any kind over the internet, it's prudent to speak to your banking representative, or in the case of your investment transactions, a registered dealer or licensed investment advisor.

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Cash Flow Plan: September 15 Instalment Can Be Avoided

August 19th, 2011 by Evelyn Jacks

Not only do tax season blues manifest themselves into very costly gaffes at tax filing time, prepaying too much tax quarterly, too, takes a toll on cash flow and on your investment strategy, too: Nothing worse than having to take the money out of the marketplace at exactly the wrong time, for no reason.

It appears, though, that neither extreme volatility in the marketplace, warnings of imminent recessions and a debt-laden households can stop this wealth eroding phenomenon: every year millions of Canadians pay too much in taxes. They fail to file tax returns, they pay late filing penalties, they miss using all the deductions and credits that are available to them. And the next time this happens is just around the corner: September 15, when the third quarterly tax instalment is due.

Good news: If you made quarterly instalment payments over the past couple of years, and you expect your income will drop again this year, do know that you can switch from the "billing method" CRA uses to remind you to send money, to the optional instalment calculations using either a prior year or current year estimate. Make sure you see your tax or financial advisor about this and let them do what you are paying them for: advise you on the correct amount of taxes owing next month. This could really enhance your winter vacation planning if you find you don't owe a December 15 instalment either.

Remember too that missed deductions can reduce lucrative Child Tax Benefits, or cause a clawback of Old Age Security payments. You'll need to save receipts now to enable a better result. Another lost opportunity arises when you miss making RRSP contributions that could in fact, increase both those amounts–which could turn into much needed monthly cash flow when income from investments or jobs are at risk.

It's Your Money. Your Life. Remember, you are required to arrange your affairs within the framework of the law to pay the least amount of taxes possible. You are not required to overpay your taxes. In these difficult financial times, you'll want to pay yourself first.

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August Could be a Hot Month - For Taxpayers in Particular

July 26th, 2011 by Evelyn Jacks

It may be the middle of a hot sleepy summer in some parts, but this year's relatively cool summer in BC may soon heat up politically, as residents get ready to vote in the HST Referendum on August 5. That very contentious issue, which caused the resignation of long time Premier Gordon Campbell, will result in a shift in the way the province had planned to raise tax revenues. But over time, it could also significantly impact unemployment, as it erodes competitiveness for the province's business community, in a volatile time.

Today, the harmonized HST is 12% — 5% for the federal portion and 7% for the provincial portion. BC residents have received some relief from the regressive nature of this tax with point of sale rebates, new housing rebates, energy credits, partial rebates for public service bodies, and for individual taxpayers, HST credits on the personal tax return and an increased basic personal amount. In addition, corporate taxes were scheduled to go down.

BC corporations have two tax rates levied on their net income. The lower tax rate, used to compute tax on corporate income under the Small Business Limit, which currently is $500,000, was scheduled to drop from 2.5% to 0% on April 1, 2012.

The higher rate of British Columbia income tax, which applies to all corporate income not eligible for the lower tax rate, has also dropped over the past several years, as follows:

10% effective January 1, 2011.
10.5% effective January 1, 2010; and
11% effective July 1, 2008;

Depending on the outcome of the HST referendum, the province is planning to increase the higher rate of income tax from 10% to 12%, effective January 1, 2012, if voters elect to maintain the HST, but at a rate that will be reduced from 12% to 10%.

Should the August 5 referendum result in a rejection of the HST, the old PST regime will return, at a rate of 12% (5% GST + 7% PST). This will be accompanied by the above scheduled reductions in corporate tax, which should help with competitiveness in a global economy, something BC business will count on to offset the negative effects of the old sales tax structure. This is particularly important as it continues to increase exports to the Chinese market.

Should the voters say no — don't eliminate the HST — but rather reduce it by 2% in the future, corporations will also lose their tax breaks. The scheduled reduction to the small business rate (0% by 2012) will not go ahead for now and the higher corporate rate will go up by 2% to 12%. . .1% higher than in 2008! However, in this case, businesses will be able to claim input tax credits on HST they have paid to produce goods and services for sale.What's really at stake in the referendum is the billions the HST is expected to bring in down the line. This is much needed cash for government trying to pay down its deficit and manage costs. Reporting this past July 18 that BC's deficit was close to a Billion dollars less than forecasted a year ago, Finance Minister Kevin Falcon noted growth in BC's economy as a key reason for increased revenues, together with savings in health care and of course the new HST revenues, which included money received from Ottawa for implementing the hated tax.

But going forward, things aren't quite that rosy, according to recent private sector forecasts for the province. According to the Royal Bank's economic outlook for BC, published in June 2011, “economic activity has lost much of its momentum since the fall. . .British Columbia's unemployment rate remains above its average of 7.6% in 2010, a clear indication that job prospects have not become any brighter this year.” In fact the same report anticipates unemployment rates of 7.9% in 2011. Further, the rate of population growth weakened in BC, taking it from the second fastest growing city in 2009 to the slowest amongst the provinces west of Ontario. New income tax bases, at least for the time being, are not moving to BC.

Either way, the changes anticipated to the HST in the referendum will negatively affect retained earnings for some business owners in the short term. And, with tax reductions off the table should the HST survives at a lower rate, it's quite possible, there may be higher prices at the checkout or worse, higher unemployment, too, as part of the fall out.

The department has released its own measure of the outcomes in this presentation: http://www.hstinbc.ca/media/Minister_Presentation.pdf

In a complicated global economic environment, a fragile recovery from the worst financial crisis in modern history is taking place. The net effect of the introduction of the HST in BC is perhaps not completely understood. The Fraser Institute explains this tax is in fact revenue neutral in 2010 to 2012; however, it also points out perhaps the more significant issue: that there is no guarantee it will remain revenue neutral after 2012 under current legislation.

It's Your Money. Your Life. Jobs are important at all times—but particularly in fragile economic times. They produce tax revenues for governments and financial independence for families. Will a combination of higher taxes, higher interest rates and higher inflation, which may be on the horizon, increase unemployment? Taxpayers in BC may wish to use the referendum as an opportunity to ask this important question of their politicians, together with accountability for tax increases in the future.

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Essential Tax Facts. Take a free trial of the Real Wealth Management course to think with focus on how to take better control.

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Retirement Planning Starts with Dollar One

July 20th, 2011 by Evelyn Jacks

When is the best time to do retirement planning? My word to my adult children: with the first dollar you invest in retirement savings plan. Fortunately there are such good tax efficient vehicles to choose from today. Really there is no excuse for not taking control of your future.

Make no mistake, failing to launch financially while you are young has lifetime repercussions. If you are wondering why you should care about retirement—so far away from now—consider this: you are not entitled to any guarantees on public pension benefit levels many years from now. However, you are in a position today to guarantee your own future lifestyle, by being financially astute.

Here are the issues:

First, compounding time. The later you start to save the more you will have to save. Use any compounding calculator to prove it to yourself. Let's say you invest $100 a week each and every week for 40 years at a 3% interest rate. You'll save over $335,000 on an after tax basis*. But if you cut your savings time in half—starting at age 45 for example instead of age 25—you'll accumulate only $131,000. That's 61% or $204,000 less. That difference can buy a lot of lifestyle in your retirement.

Second: Rate of Return. It makes a big difference whether you earn 3% or 6% on your invested dollars, so make sure you have the right investment products with the least costly fees attached to them. Doubling your interest rate from 3% to 6% in the example above produces $569,000 in savings after tax, in the same 40 year period; yes that's $234,000 more.

Third: Tax Efficiency is Most Important. Tax efficiency and deferral can add many points to your rate of return. You need to pay attention to this. When you invest a hundred dollars into a TFSA, for example, instead of a non-registered account, your $100 per week (at the 3% interest rate for 40 years) turns into $398,000; that's $62,000 more just be putting the money into a tax sheltered account. However, with double the interest rate, you'll have over $829,000 in your TFSA account over 40 years; that's $260,000 more than if you saved your money in a non-registered account.

So remember, if you are at least 18 years of age, you can invest $5000 each year (that's $96 15 each week) in a TFSA each and every year. You should do so to take advantage of the powerful compounding time, and try to get the best rate of return you can every year.

Where does the RRSP come in? To contribute to a Registered Retirement Savings Plan, you must have earned income from employment or self-employment last year, and you must be under age 72. If this fits, you can invest 18% of that earned income in an RRSP. Remember, the RRSP investment differs from the TFSA in that you will receive a tax deduction for your RRSP contribution; (this is not so with the TFSA, which uses after-tax money). However, upon withdrawal of your RRSP later, you will pay tax on both principal and earnings, unless you use the money to buy a home or go back to school.

With the RRSP, however, you do get the power of a pre-tax deposit, compounding on a tax deferred basis over time, and often the allowed deposit is higher. Used in combination with the TFSA, these two tax-preferred investment vehicles could make you a millionaire.

If this is all Greek to you, consider taking a basic tax efficient investing course. We have an excellent computer-based one available 24/7 by e-learning at the Knowledge Bureau. That knowledge will really pay off for you handsomely.

It's Your Money, Your Life. If you are 20 or 30-something, still living at home, and not saving a penny for retirement, you are making a choice in the quality of your lifestyle later in life. If you feel you are entitled to a comfortable retirement, make a commitment to learning, earning and saving now. You're entitled to your choices, after all. Learning more about your retirement savings and withdrawal options, with the first dollar you invest, will make you rich later in life.

*Assumes a combined federal and provincial marginal tax rate of 25%. All calculations performed using The Knowledge Bureau's Retirement Savings Calculator.

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Inflation Rates Triple

June 28th, 2011 by Evelyn Jacks

It's not just your imagination. Retail prices are up significantly, according to the latest measure of CPI inflation (total CPI) produced by Statistics Canada. In fact, the rate has tripled according to the latest data reported by the Bank of Canada. As at the end of April 2011, total CPI was a whopping 3.3%!

The Consumer Price Index (CPI) is used to estimate how the purchasing power of money changes over time. The CPI measures inflation by comparing the retail prices of a representative “shopping basket” of goods and services at two different points in time.

Here's how this year's figures compare to prior years: at the end of the second quarter of 2009, total CPI was 1.2 %. At the end of the same period in 2010, it was 1.4%.

How is that affecting Canadians? The many respondents of the Knowledge Bureau Poll in June concur that they are spending more, citing food and gas prices as main culprits.

Respondent Pat Harris says “We are seeing a huge decrease in discretionary spending as people struggle to pay for basic necessities such as food, electricity, heating fuel and gasoline. As people who live in rural Ontario with NO access to public transit, many are finding it difficult just to get to work.”

Over on the West Cost, Peter McG states: “Gasoline, fresh fruits & vegetables, meat and grains all significantly up in price. Government reaching into our pockets for ever more money. House prices are ridiculous (Vancouver)! Been to Dairy Queen lately? They want $5.00 for a Sundae and $3.00 for a simple Ice Cream Cone. Ridiculous. Really feel for young families who would like to buy a home to raise their family. Not even a dream for most!”

This bears out when you look at core inflation, the year-over-year growth in a variant of the CPI that excludes the eight most volatile components —which account for 19 per cent of the CPI basket—(fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation, and tobacco products). That figure rates core inflation at only 1.6% at the end of April, while core inflation excluding food, energy and the effect of change in indirect taxes was only 1%.

It's Your Money. Your Life. Now is the time to take a hard look at Real Wealth Management as a process to kill wealth eroders like taxes, inflation and investment fees. It's not that difficult. You need to know some basic terms and work with a professional advisory team who knows your objectives and concerns to help you make decisions about your spending and savings.

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Financial Education Builds Self-Esteem

June 8th, 2011 by Evelyn Jacks

Have you ever met a successful person with poor self esteem? They are on such a difficult road. We all need to feel safe, secure and part of a family, yet that's not a reality for many. Self-esteem matters. When you know yourself, you know your values and your principles. You stand for something, and that's something those around you can count on. This is especially true when you have developed disciplined values and principles about family wealth.

It's incumbent upon parents to raise strong, resilient children to pass the torch to, particularly if there is much responsibility in their futures. That great responsibility can include the care of significant wealth. From a financial point of view, strong families expose their children to scenarios in which knowledge and skills about money management result in confident, responsible decision-making for life.

That's all very important when it comes to family wealth management. It all happens so quickly: children grow up and leave home, parents and siblings die, and for so many boomers—so busy caring for the young and the old alike—the time to counsel their heirs about future responsibilities regarding personal and financial stewardship has somehow slipped away.

Failure to find time for teachable moments is rooted in procrastination for some. That's because it takes courage to talk about money, particularly if its accumulation has affected relationships. But it's important to get those conversations on track.

When are you going to talk to your children about the insurance policies, residences and financial assets they will inherit? Do your children view money as a resource tool to help them maximize their potential? Do they have any skills to manage it? For example, do your adult children know:

How to read their tax return
How to construct a personal net worth statement
Principles to save by (should that be 10%, 18% or 25% of income?)
Principles to borrow by (paying off the credit card minimum every month is not such a sound financial plan!)
How to preserve income and capital from taxes, inflation and fees

Have you introduced those adult children to your professional advisory team for help with taxes, financial and wealth planning? They could very well be on the road to exceeding the income you have made in your lifetime—especially if they are better educated than you are. They could also be quite shocked to know that they will inherit a lot of money from you.

It's Your Money. Your Life. Financial education is a life skill that builds self esteem. Are you talking to your adult children about their money and the wealth you will pass down to them? Would your child consider it a devastating breach of trust if this were a surprise later? That's risky, if your goal is a strong family with strong self-esteem. Taking the time to guide young people pays off in building and sustaining strong financial dynasties. Are you reaching out to help them? Would your child consider it a devastating breach of trust if this were a surprise later? That's risky, if your goal is a strong family with strong self-esteem.

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Master Your Taxes. She was a member of the Federal Task Force on Financial Literacy.

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Stable Retirements Depend on Guiding the Young

June 1st, 2011 by Evelyn Jacks

Good to know: Canadian retirees are a financially stable lot. Throughout their lifetimes, those with higher levels of education earned more and generally saved more for retirement. Good for them and the financial advice they received along the way!

But wait: higher education, better financial knowledge and higher income have also led to higher debt, according to the fascinating 2009 Canadian Financial Capabilities Survey from Statistics Canada. Those retirees with debt had median household incomes of $42,000 and median net worth of $295,000. Their debt was well under control, though: only 7% of total assets. More good news: 7 in 10 retirees with debt reported they had no trouble keeping up with bills and other financial commitments.

Digging even deeper, here is another startling fact: turns out that financial stability in retirement is also very much dependent on the way you manage your personal relationships along the way. Divorced people who are retired have the highest incidence of debt, and the lowest annual median income and net worth, compared with all other groups.

And so it appears that commitment to the right education, and the right conjugal relationship, can make all the difference to the quality of life, affluence and peace of mind you will have when you really need it. Yet, who must make those very important decisions about money and life? It’s the very young.

It’s Your Money. Your Life. Taking the time to guide young people pays off in building and sustaining strong financial dynasties. Are you reaching out to help them?

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Post-Tax Season Debrief: Sleep Matters

May 25th, 2011 by Evelyn Jacks

When I reflect on some of the mistakes I have made in the past, I can usually draw a straight line of fault directly to my state of fatigue at the time. Turns out, rats have the same problem.

CBC News reported on April 28—typically a high stress time for tax practitioners in particular–that sleep deprivation can cause groups of brain cells to fall asleep in rats who appear to be awake. . .and rats with sleeping neurons make more mistakes, according to new research by Giulio Tononi, a neuroscientist at the University of Wisconsin-Madison and his team (see story: Sleep deprivation makes brain cells turn off).

For professional advisors, it pays to spot check files in the post-tax season and in particular to review with clients those last minute activities that may require some audit-proofing. It’s always better to file an adjustment to a return that is error-prone than face gross negligence or tax evasion penalties later. Most pros will take the time to do that at this time of the year.

But, further reflection is required on the personal wear and tear we ignore and suffer, when we push ourselves to meet deadlines. Important practice management decisions need to be made before next tax season. Should you really have had more staff? Was it difficult to find qualified people you could count on to provide highly accurate service?

If that’s a problem for you, now is the time to study, train and improve the professional development of everyone in the office. We can help at the Knowledge Bureau; with professional development consultations.

It’s Your Money. Your Life. Remember, it’s about coming back next year. . .your clients would be so disappointed if you ruined your health, or your reputation, because you were just too tired to avoid mistakes! Make next tax season a healthier one by getting more sleep. . . plan well now.

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Winning: It Requires Goal Achievement

May 1st, 2011 by Evelyn Jacks

Last week it was the rabbit; this week it’s a freak snowstorm on the first day of May. Measured against my thwarted attempts at a tulip garden, I must concede: Mother Nature is winning! She is, in fact, the only force I know who can succeed, randomly. For the rest of us, (including the infamous Mr. Sheen, I might add) “winning” requires the achievement of a goal, not just once, but as often as possible.

If Mother Nature’s mischief is any indication, the stage is being set for an interesting week of winning results. An election will be won, several hockey playoffs will be won and despite all three of those distractions, many of you will have won the annual tax season challenge; having once again filed a tax return on time, before midnight May 2.

Goal achievement is paramount in winning. Pat Williams, Senior Vice President of the Orlando Magic, noted in opening the 2009 Emerson Global Users Exchange, that specificity in goal setting is paramount. One needs short-term, mid-term and long range goals and a deadline for achievement of those goals to be a consistent winner. That’s really important. When you add self-discipline, integrity and perseverance, your chances of winning against adversity greatly improve.

Mr. Williams correctly points out that adversity, as much as we like to try and avoid it, is a constant in life: at any point in time we’ve likely just emerged from a storm, we’re in one or we’re heading into one. That reality requires a vision, a process and a positive attitude for navigation to a successful result. It also requires perseverance: the only way to lose is to quit.

Yet, in the end, it’s all about how you win that’s important. When you pay attention to detail and act with integrity, you will win well, and you will position yourself to win again and again in the future.

It’s Your Money. Your Life. If you missed your tax filing deadline—for whatever reason—do persevere: you can get your refund sooner or minimize penalties and interest by doing so immediately. That’s a tax win, even if it comes late.

In the meantime, I’m going to focus on the best way to bring glory to the next bloom—the potentially spectacular summer growth currently shivering in my snow-laden flower garden—and set a goal to thwart the bunny next spring with less tasty selections in the fall plant. Not sure what to do about Mother Nature, yet, but I trust she’s already reconsidering her actions: apparently it’s going to be +18C by Wednesday!

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