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November 2014

UCCB Lucrative, But Complex

UCCB Lucrative, But Complex - www.aliko-aapayrollservices.com
 
 
 
 
 
UCCB Lucrative, But Complex
 
 
 
 
Effective January 1, 2015, the Universal Child Care Benefit will be increased from $100 per month to $160 per month for each child under the age of 6.
 
 
In 2006, the federal government implemented the Universal Child Care Benefit that provides all families for each child under the age of 6 with $100.00 per month. Effective January 1, 2015, the Universal Child Care Benefit will be increased from $100 per month to $160 per month for each child under the age of 6.  The Universal Child Care Benefit has also been expanded to include children aged 6 to 17. The amount to be paid for each such child will be $60 per month.  Remember, however, the UCCB is taxable.
However, in conjunction with this enhanced family payment, the Child Tax Credit, a non-refundable tax credit on Schedule 1 of the tax return will be replaced effective for 2015 and subsequent years.  Now all families – no matter the income level - will benefit from the new UCCB, including families whose taxable incomes were too low to benefit from the Child Tax Credit. The Child Tax credit was introduced in 2007 based on a fixed amount per child under the age of 18 years. For 2014 the fixed amount is $2,255, which provides tax relief of up to $338 per child.  However, this amount  helps only those families that pay taxes.  It won’t help those who didn’t.
As per the Department of Finance details released with the announcements, the net cost of enhancing the Universal Child Care Benefit and replacing the Child Tax Credit should be $0.7 billion in 2014-15 and $2.6 billion in 2015-16 (this is calculated as the increase in cost for the UCCB enhancement of $1.1 billion for 2014-15 and $4.4 billion 2015-16, less the savings the government reaps by replacing the CTC.  That amounts to $0.4 billion 2014-2015 and $1.8 billion 2015-16).
But, there is a third wrinkle. With the elimination of the Child Tax Credit, the Family Caregiver Tax Credit for infirm children would also no longer be claimable effective January 1, 2015.  This is not the intention of government and so amendments to the Income Tax Act will be made as required to ensure that a Family Caregiver Tax Credit for infirm minor children will be available.
Astute tax advisors will likely be in high demand, as a result of the multiplicity of changes coming to Canadian taxpayers and their families.  Scheduling early appointments might be a good defence in 2015.
 
 
 

Family Tax Cuts Could Fatten December Coffers

Family Tax Cuts Could Fatten December Coffers -www.aliko-aapayrollservices.com
 
 
 
Family Tax Cuts Could Fatten December Coffers
 
It’s always a good idea to re-evaluate the requirement to make the December 15 quarterly tax instalment payment (December 31 in the case of farmers) but this year end it’s even more important because the introduction of the Family Tax Credit for 2014, which has the potential to reduce family taxes by up to $2000.
Who has to pay taxes by instalment?  Those taxpayers whose net taxes owing is more than $3000 in 2014 and in either 2013 or 2012.  Net taxes owing include personal income taxes plus CPP and EI premiums owing on self employment.
What’s different this year is that couples with children at home (under age 18) where one spouse is in a higher tax bracket than the other are likely to benefit from the Family Tax Cut of up to $2,000.  The credit will be calculated on new form Schedule 1-A.
 
 
 

The New $2000 Family Tax Cut

The New $2000 Family Tax Cut - www.aliko-aapayrollservices.com
 
 
 
 
 
 
The New $2000 Family Tax Cut
 
 
 
 
 
This new federal non-refundable credit will provide up to a maximum of $2,000 in tax relief to benefit one-earner or two-earner couples where one spouse’s income is taxed at a higher rate.
 
 
The higher income spouse can transfer up to $50,000 to the lower- income spouse. To qualify for the Family Tax Cut the taxpayer must
• be a resident of Canada at the end of the taxation year;
• have a spouse or common-law partner;
• have a child who is under the age of 18 at the end of the year and who resided with the taxpayer or their spouse or common-law partner; and
• not be confined to prison or similar institution for 90 days or more during the taxation year.
To claim the Family Tax Cut credit, couples must file income tax returns. Either parent can claim the credit but not both. However, if the parents of a child are divorced or separated, and have remarried or have a new common-law partnership, one parent in each of the new family may claim the credit of up to $2,000. The child must reside with each couple during the year in that case. If the parents have joint or shared custody, there may be cases where it is the same child who resides with each parent.
The Family Tax credit cannot be claimed for a year in which the couple does not file an income tax return; elects to split pension income; or in cases where one of the spouses becomes bankrupt.
The Family Tax Credit will be calculated as the difference between
·         the combined taxes payable (after all credits are claimed) by the couple, and
·         the combined taxes that would be payable by the couple, if the higher income spouse could have notionally transferred taxable income to the lower income spouse.
If the difference exceeds $2,000, then the credit would be limited to $2,000.
 
 

Timeless investment wisdom from The Intelligent Investor

 
 
 
Timeless investment wisdom from The Intelligent Investor -www.aliko-aapayrollservices.com
 
 
 
Timeless investment wisdom from The Intelligent Investor
 
 
 
 
 
 
Written by Wayne Rothe
 
 
 
 
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” –The Intelligent Investor, Benjamin Graham
If you only read one investing book in your lifetime, it should be Benjamin Graham’s The Intelligent Investor. Perhaps the greatest investing book ever written, the book will make you a better investor, whether you’re a do-it-yourselfer or you use an advisor.
Graham was a mentor for none other than Warren Buffett, the greatest investor of all time, and his book is filled with the kind of folksy wisdom that Buffett has become known for. Here are some of my favourite quotes from The Intelligent Investor.
“The sillier the market’s behavior, the greater the opportunity for the business-like investor. The intelligent investor is a realist who sells to optimists and buys from pessimists.”
Most people are financially inept, making mistake after mistake, and it has dire consequences to their financial and retirement planning. When making investment decisions, they zig when they should zag. Buy low, sell high? If you can set your emotions aside and buy when things look bad, your returns should improve measurably. Good investors see opportunity amid the carnage. Buy low, not high as many do.
“How your investments behave is much less important than how you behave….The investor’s chief problem – and even his worst enemy – is likely to be himself. “
Our own behavior is, indeed, our greatest threat as investors. Investment markets don’t determine our success, but it’s how we react to them does. Make rational decisions, not emotional ones. Buy good companies and keep them as long as they remain good investments. Trade rarely, unless it’s to buy more of those good companies when their shares tumble. Buy and hold, the Warren Buffett way.
“It should be remembered that a decline of 50% fully offsets an advance of 100%.”
“Never buy a stock because it has gone up or sell one because it has gone down.”
I love good (emphasis on good) investments when they suck. The more they suck the more I like them. If Company A or ABC Growth Fund is a good opportunity at $10 a share, surely it’s a great opportunity at $5 a share as long as nothing has changed to its fundamentals.
Market declines are your greatest opportunity to buy into a rising tide at reduced prices.
“Even the intelligent investor is likely to need considerable will power to keep from following the crowd.”
The crowd is generally wrong. You’ll be more successful being a contrarian than a follower.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
It’s not the specific investments you buy that determine your financial success. Do you have a written, goal-based financial plan? Do you buy more of your good investments when times are bleak and your investments are under siege? These things will put you ahead of the guy who chases returns.
“Before you place your financial future in the hands of an adviser, it’s imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach.”
Do-it-yourself investors believe that they will be more successful by saving a little on their fees but having a pro guide your decisions can be far more important. I believe that most investors have neither the ability nor the interest in managing their own investments, and the mistakes they invariably make scuttle their retirement dreams.
“A defensive investor can always prosper by looking patiently and calmly through the wreckage of a bear market.”
As Sir John Templeton said, the best time to buy is when blood is running in the streets. We can’t predict the exact market bottom, but when markets are down 30 or 40 per cent, maybe it’s time to start buying. Or set up a systematic investment where money is directed monthly from your chequing account to your investment portfolio so you’re buying at all times – in up and down markets.
“Successful investing is about managing risk, not avoiding it.”
Market volatility is the friend of the intelligent, patient investor because it provides great opportunities to buy into a rising tide at sale prices.
Wishing you financial success.
 

Seniors, Retirement and Debt

Seniors, Retirement and Debt -www.aliko-aapayrollservices.ca
 
 
 
 
 
 
Seniors, Retirement and Debt
 
 
 
 
Written by Sarah Milton
 
 
 
 
“This idea that a mortgage is forever is a bad plan; this idea that debt is forever is a really bad plan. Debt will only steal your golden years away from you.” – Dave Ramsey
With the oldest of the baby boomers now in their late 60s, it’s hardly surprising that Canada has a higher proportion of seniors than ever before. Currently, more than 5 million Canadians are over 65 and that number will continue to increase as more “boomers” reach their senior years.
Throughout their lifetime, the sheer size of the boomer generation has transformed the world around them with every step: education, the workplace and society have all changed dramatically since the first boomer was born in 1946. Now, as they move into their 60s, it’s hardly surprising that the boomers are also transforming retirement. Many of these changes are positive but one change that is not so positive is the growing number of seniors entering their retirement years with debt.
Debt levels have been on the rise in Canada since the early 1980s when credit became more easily available. Living in a society which accepts and encourages debt as a means to acquiring everything our hearts desire has enabled many people to live their lives in a manner that past generations could never have dreamed of. The boomers were the first generation to take full advantage of the opportunities that credit provided and, consequently, they are also the generation entering retirement with more debt than any other generation before them.
According to a recent Canadian study:
·         12% of seniors entering retirement still owe money on mortgages
·         14% of retired seniors owe money on lines of credit
·         16% of retirees are making payments on car loans
·         21% of seniors entering retirement have credit card debt
It’s no coincidence that, while access to credit has increased over the last 30 years, the savings rate in Canada has decreased. Many seniors entering their retirement years with debts just haven’t enough in savings to cover their debt payments and their living expenses. They are also incredibly vulnerable to fluctuations in interest rates which might increase their payments. This may be the reason why bankruptcy rates among Canadians aged 65 and older are currently higher than for any other age group.
Entering retirement with large amounts of debt creates a number of challenges for retirees. Firstly, it increases the amount of money that is needed each month in order to cover the cost of living. Higher expenses mean that either you need a larger amount of savings to draw from or you need to cut expenses in other areas in order to be able to cover debt payments. Secondly, many seniors are also providing financial support to their aging parents as well as to their adult children and this often adds to their debt levels and/or hampers their ability to pay down debts. It’s not surprising that so many retirees caught in this “sandwich generation” identify finances as a major source of stress.
As with so many aspects of retirement planning, the seeds of success are sown long before your retirement date. Taking control of your financial health, focusing on building savings and reducing debts is always a good idea but it is especially important in the years leading up to retirement. Heading into your “golden years” with as little debt as possible gives you the freedom to build a lifestyle that focuses on your financial needs not the needs of your creditors.

How receiving a partial OAS pension affects GIS amounts

How receiving a partial OAS pension affects GIS amounts
How receiving a partial OAS pension affects GIS amounts -www.aliko-aapayrollservices.ca
 
Written by Doug Runchey
 
 
 
 
As you may be aware, seniors who have limited income aside from their OAS pension may be eligible for the Guaranteed Income Supplement (GIS), which is part of the Old Age Security (OAS) program.
If you have ever looked at the GIS rate tables on Service Canada’s website, you may have noticed that the rates shown apply only if you are receiving the “full OAS pension.” The rate tables don’t really explain how much GIS you will receive if you’re receiving only a partial OAS pension (due to having fewer than 40 years of residence in Canada after age 18).
Receiving a partial OAS pension affects the amount of GIS that a pensioner will receive in two ways:
1.       A pensioner receiving partial OAS will receive more GIS than someone receiving a full OAS pension, to make up for their lesser amount of OAS.
2.       A pensioner receiving partial OAS will receive GIS up to a higher income, compared to someone receiving a full OAS pension
Why does someone receiving a partial OAS pension receive more GIS?
The intent of the GIS program is to ensure that anyone who is eligible for OAS receives at least a minimum level of income on which to live. There are various minimum monthly income levels established, depending on a pensioner’s marital status
For example, as of October 2014, the minimum monthly income level for a single OAS pensioner has been set at $1,328.14. If someone is receiving a full OAS pension ($563.74 for October 2014) and they have no other source of income aside from their OAS pension, that means that they will be entitled to GIS in the amount of $764.40 ($1,328.14 – $563.74).
However, if they are receiving only a partial OAS pension, that means that they must receive more GIS in order to reach that same minimum income level of $1,328.14.
Let’s use the example of Peter to see how this works. If Peter has resided in Canada for only 25 years when he becomes eligible for OAS, he will receive a partial OAS pension of $352.34 (25/40ths of $563.74). If he has no other income aside from OAS, he will be entitled to GIS in the amount of $975.80 ($1,328.14 – $352.34).
Why can someone receiving a partial OAS pension have a higher income before losing eligibility for GIS?
 For the most part, the amount of GIS that someone is entitled to is reduced by 50 cents for every dollar of income that the person has from other sources (excluding the OAS). (The GIS rate tables actually function by reducing GIS by $1.00 monthly for every $24.00 of annual income.) If someone receives more GIS because they’re receiving only a partial OAS, it therefore follows that it requires a higher threshold before they lose all of their GIS entitlement.
Let’s use the above example of Peter to demonstrate how this works.
If a single pensioner receiving a full OAS pension has income of more than $17,088 annually from other sources, they won’t be eligible for any GIS. However, they will still receive their full OAS pension of $563.74.
If Peter has income from other sources totaling $17,088, he will need to receive GIS in the amount of $211.40 ($563.74 – $352.34), in order to be at the same overall income level as someone receive a full OAS pension.
Since his GIS will continue to be reduced by 50 cents for every dollar of other income that he has, that means that his GIS entitlement won’t be fully eliminated until he has a further $5,064 of income from other sources ($211 x 24). This means that the threshold for Peter to receive GIS is $22,152 ($17.088 + $5,064).
Is this situation fair?
It seems that the GIS top-up and higher income threshold for pensioners who have had their GIS topped up may put people who have lived their whole lives in Canada at a disadvantage, particularly since OAS payments are taxed and the GIS is not.
I have my own thoughts about the fairness of this situation, but I’m interested in hearing what other Retire Happy readers think.