Registered Retirement Savings Plan

Reasons to file a tax return even if you don’t have to pay taxes

April 20, 2017

By Sheryl Smolkin

Because you were not employed in 2016 or you earned less than the basic personal deduction ($15,843 in Saskatchewan) you may not be worried about meeting the May 1st income tax deadline. But there are many good reasons to file a tax return even if you don’t have any income to report. For example:

  1. Get a refund: If you worked for some period of time and your employer deducted income taxes you actually didn’t have to pay it is the only way to get a refund.
  2. TFSA contribution room: It is the easiest way to establish contribution room for a Tax-Free Savings Account although contribution room is not affected by taxable income.
  3. Earned income for RRSP purposes.  Even if you do not wish to contribute to an RRSP currently, “earned income” amounts can be carried forward indefinitely. For RRSP purposes, earned income includes net employment income, net rental income from real property, CPP/QPP disability benefits and taxable alimony received.
  4. Refundable tax credits: There are some federal and provincial refundable tax credits that may be payable to you even if you have no earnings and paid no tax. For example, see the federal Working Income Tax Benefit.
  5. GST/HST credit: Generally, Canadian residents age 19 or older are eligible to receive the federal GST/HST credit, which is paid quarterly to eligible recipients.  Those under 19 may be eligible, if they have (or previously had) a spouse or common-law partner, or if they are a parent and they reside with their child.
  6. Canada child benefit payments: You or your spouse or common-law partner want to begin or continue receiving Canada child benefit payments, including related provincial or territorial benefit payments.
  7. Non-capital loss: You have incurred a non-capital loss (see line 236) in 2016 that you want to be able to apply in other years.
  8. Education credits: You want to carry forward or transfer the unused part of your tuition, education, and textbook amounts. See line 323.
  9. GIS: You receive the guaranteed income supplement or allowance benefits under the old age security program. You can usually renew your benefit by filing your return by April 30.  However, if you choose not to file a return, you will have to complete a renewal form. This form is available from Service Canada,
  10. Provincial benefits: You want to be eligible, or continue to be eligible, for provincial benefit programs.  See the Government Programs, Benefits and Services information for your province.

Also consider having your children file a tax return reporting income from various types of part-time work (paper route, baby-sitting, lawn mowing, etc.), even if they do not have to pay income tax, so they can create their own RRSP contribution room.


April 17: Best from the blogosphere

April 17, 2017

By Sheryl Smolkin

In a guest post for the Financial Independence Hub, Certified Financial Planner Gennaro De Luca writes that based on his experience, men and women approach taxes and investing differently. For example, he says nine times out of 10 it is the woman who takes the bull by the horns to get the family’s taxes done. Women tend to be more involved and are much more apt to ask questions of their accountant or tax preparer about tax credits and government benefits the family may be eligible for.

Robb Engen on Boomer & Echo discusses which accounts to tap first in retirement with Jason Heath,  a fee-only financial planner. Heath says it may make sense for people who retire early to withdraw funds from their RRSPs first and defer CPP and OAS until age 70.

Retire Happy veteran blogger Jim Yih outlines the top 5 new retirement trends and how they will affect your retirement. For example: retirement is not about stopping work; many people are “phasing into retirement.” Furthermore, long term care is an essential component in a retirement plan.

10 simple ways to save money at the gas pump was recently posted by Tom Drake on the Canadian Finance Blog. Who knew that avoiding unnecessary weight in your car; using cruise control on highways and driving under 100 km/hour could save you money?

And Sean Cooper recounts the story of his unexpected $1,300 furnace repair bill in the depths of a Canadian winter. Luckily, he is mortgage-free, so he had the necessary money sitting in his savings account. But his experience shines a spotlight on the importance of saving up an emergency fund in advance.


Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.


Pension-income splitting rules can reduce total tax bill

April 13, 2017

By Sheryl Smolkin

I retired from my corporate job with a defined benefit pension before I turned 55 and I opted to begin receiving my CPP at age 60. And by starting my own business as a workplace journalist I also created another significant income stream.

In contrast, when my husband retired at age 65 he did not have a pension and he elected to defer receipt of CPP and OAS for a year. He also decided not to convert his RRSP into a RRIF until he is required to do so at age 71. Therefore, other than withdrawing funds from our unregistered investment account, he had no source of income.  As a result, when it came to filing subsequent income tax returns, the disparity in our income made us ideal candidates to benefit from pension-income splitting which has been available since 2007.

The way it works is that if you are receiving income that qualifies for the pension income tax credit you’ll be able to allocate up to half of that income to your spouse or common-law partner (and vice versa) each year. You don’t actually have to write a cheque because pension income-splitting is merely a paper transaction done via your tax return.

The type of pension income that qualifies for the pension income tax credit of up to $2.000/year and that is eligible for pension splitting differs depending on whether you were 65 or older in the year.

  • If you were under 65 as of December 31, 2016, “qualifying pension income” includes life annuity payments out of a defined benefit or defined contribution pension plan and certain payments received as a result of the death of your spouse or common-law partner.
  • If you were 65 or older in 2016, other defined payments such as lifetime annuity payments out of your RRSP, DPSP or RRIF also qualify for the pension credit. Qualifying pension income doesn’t include CPP, OAS or GIS payments.
  • It is worthwhile noting that pension payments from SPP qualify for the pension income tax credit.

The extent to which pension income-splitting will be beneficial will depend on the marginal tax bracket of you and your spouse or common-law partner, as well as the amount of qualifying income that can be split. In many cases, the optimal allocation will be less than the allowable 50% maximum.

If you opt to pension split, a special election form (Form T1032) must be signed by the parties affected and filed with the CRA. If you file your return electronically, you should keep the election form on file in case the CRA asks for it. Another result of pension splitting is that the income tax withheld from your pension income will be reported on your spouse or common-law partner’s return, proportional to the amount of income being split.

Pension income splitting may also reduce the Old Age Security claw back while transferring income to your spouse who is taxed at a lower tax rate. In addition, your spouse can access the pension income credit of up to $2,000 for federal tax purposes and $1,000 for BC tax purposes, which would otherwise be unavailable without pension income.

The pension income splitting rules do not make spousal RRSPs obsolete, since spousal plans still have income splitting benefits for the years before you turn 65 or if you have not yet converted your RRSP to a RRIF or annuity. In addition, taking advantage of spousal RRSPs can increase your potential for withdrawals under the Home Buyers’ Plan and the Lifelong Learning Plan.

In 2014 and 2015 the Family Tax Cut credit provided a version of income splitting that allowed an individual to notionally transfer up to $50,000 of income to his or her lower-income spouse or partner, provided they have a child who was under 18 at the end of the year. The credit was capped at $2,000 annually. However, that form of income-splitting was abolished by the new Liberal government for 2016.

Other permitted forms of income splitting with family members are described here.


April 10: Best from the blogosphere

April 10, 2017

By Sheryl Smolkin

Last week I couldn’t resist buying bright yellow forsythia, pussy willows and stalks of purple iris from the florist at one of my favourite grocery stores. It will be a few weeks before the flowering trees in my neighbourhood burst into bloom, but when I walked the dog this morning I heard the rata-tat-tat of industrious woodpeckers and crocuses were already pushing through the damp earth on the sunny side of the street.

If it’s spring, Alan Whitton aka the Big Cajun Man says its time to revisit the idea of a spring financial cleaning. A few of his ideas include:

  • Think about rebalancing if you are a Couch Potato investor.
  • Clean out and shut down any superfluous bank accounts.
  • Consider how many credit cards you really require and close extra accounts you don’t need.
  • Is your mortgage about to be renewed? Time to go shopping for a better rate.

Minimalist blogger Cait Flanders decided to move to back to her hometown in Squamish this spring. Although her rented condo is not small, she says she is living small in her not-so-tiny home. To Flanders that means living below her means with less stuff and making do, mending and prioritizing her life. Her list also includes getting involved in and supporting her local community.

“Living small is essentially not chasing ‘more’, but  learning to find the more in less,” she  notes. “It’s about utilizing the space you have, shrinking your carbon footprint and being an active member in your community (whatever that looks like for you).”

Kerry K. Taylor aka Squawkfox says our accomplishments are not just a matter of luck whether they be saving enough for the down payment on a house, paying down debt or scoring the winning goal in a soccer game. She reminds readers that “Luck is what happens when preparation meets opportunity,” and urges each one of us to own our successes and accept the kudos we deserve.

Why it’s NOT okay to be in debt when approaching Retirement by Douglas Hoyes was recently posted on the Financial Independence Hub. In the most recent Joe Debtor report issued two years ago by his firm Hoyes, Michalos & Associates Inc., the company reported that seniors are the fastest growing risk group for insolvency and that’s still the case today.

Hoyes says if you have more debt than you can handle, talk to a Licensed Insolvency Trustee about filing a consumer proposal or personal bankruptcy.  In most cases, you can keep your RRSP even if you go bankrupt.  Also, he suggests that if you own a home, you should discuss a consumer proposal as a viable alternative to bankruptcy. Both solutions will allow you to eliminate your debt, and preserve your RRSP.

And finally, on My Own Advisor, Mark Seed explores whether Financial Independence Retire Early (FIRE) is right for him. He reviews the financial and social implications for his family of retiring significantly earlier than his current target date of age 50 (which is still pretty early) and concludes that he and his wife are not ready to make any radical changes.

In his early 40s now, he concludes that more time and freedom would be great but instead of rushing towards this, they are more or less inching in that direction.


Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.


Burn your mortgage: An interview with author Sean Cooper

March 2, 2017

By Sheryl Smolkin

Click here to listen
Click here to listen

If you think you can’t possibly afford to buy a home or that paying off your mortgage is a pipe dream, Burn Your Mortgage is the must-read book of the year. Today I’m pleased to be interviewing author Sean Cooper for savewithspp.com.

By day, Sean is a mild-mannered senior pension analyst at a global consulting firm. By night he is a prolific personal finance journalist, who has been featured in major publications, including the Toronto Star, the Globe and Mail and MoneySense. He has also appeared on Global News, CBC, CP24 and CTV News Network.

Thanks for agreeing to chat with us today Sean.

My pleasure, Sheryl.

Q: As a 20 something, why did you decide to buy a house?
A: Well I guess a lot of people strive for home ownership. My parents were my biggest influence. We always owned a home growing up, so I thought that owning a home was kind of the path to financial freedom.

Q: How much did your home cost, and how much was your down payment?
A: I purchased my home in August 2012 for $425,000 dollars. My down payment was $170,000, leaving me with a mortgage of $255,000. I didn’t go out and spend the massive amount the bank approved me for. I could have spent over $500,000 dollars but I found a house with everything that I needed for $425,000 and because of that I was able to pay off my mortgage in three years.

Q: How on earth did you save a down payment of $170,000 dollars? How long did it take you to save it, and how many hours a week did you have to work to do so?
A: Yes, it was definitely a sizable down payment for one person. I pretty much started saving my down payment while I was in university. I was able to graduate debt free from university and while I was there, I was working as a financial journalist. I was also working at the MBA office, and employed part-time at a supermarket. When I got my full-time job I was saving probably 75%-80% of my paycheck. I wasn’t living at home rent free. I was actually paying my mother rent.

Q: Kudos for your determination and stamina. Do you think working three jobs is actually a practical option for most people, particularly if they have young families?
A: No. As I emphasize in the book, that’s how I paid off my mortgage as a financial journalist on top of working at my full time job. While for somebody like me who is single it makes sense, it’s probably not realistic if you have a spouse and children. But there are plenty of things you can do to save money.

Q: Many people again think they would never, never be able to save up enough for a down payment. Can you give a couple of hints or tips that you give readers in your book that will help them escalate their savings?
A:
Definitely. First of all, you absolutely have to be realistic with your home buying expectations. You can’t expect to be able to buy the exact same house that you grew up in with three or four bedrooms and two stories. But you can at least get your foot in the door of the real estate market by perhaps buying a condo, or a town house, and building up equity, and hopefully moving up one day. Think about creative living arrangements. Rent a cheaper place than a downtown condo. Find a roommate.

Q: How can prospective home buyers use registered plans like their RRSP or TFSA to beef up their savings and get tax breaks?
A: If you are a first time home buyer, I definitely encourage you to use the home buyers plan. The government allows you to withdraw $25,000 dollars from your RRSP tax-free (it has to be repaid within 15 years). If you are buying with your spouse, that’s $50 000 dollars you can take out together. That’s a great way to get into the housing market. The caution I can offer is when you withdraw the money, make sure that you fill in the correct forms so you are not taxed on the withdrawal. If you’re not a first time home buyer, then I would definitely encourage you to use a Tax Free Savings Account, because it’s very flexible, and although you don’t get a tax refund, the balance in the plan accumulates tax-free.

Q: After shelter, which means mortgage and rent, food is a pretty expensive cost. How can people manage their food costs while still eating a healthy, varied diet?
A: I offer a few tips in my book. First of all, try to buy items like cereal and rice in bulk and on sale. Another tip I offer is to buy in season. I probably wouldn’t buy cherries during the winter  because they would cost me a small fortune. Try to buy apples instead, and during the summer if you enjoy watermelon, definitely buy it then. Try to be smart with your spending, and that way you can cut back on your grocery bill considerably.

Q: I enjoyed the section in your book about love, money, and relationships. Can you share some hints about how couples can manage dating and wedding costs, to free up more money for their house?
A: People like to spend a fair amount on their weddings these days, and there’s nothing wrong with that, but you just have to consider your financial future, and how that’s going to affect it. Also, when it comes to dating, make sure that you and your potential partner are financially compatible and have similar financial goals. For example, one might be a saver while the other is a spender. Sit down and make sure both of you are on the same page financially, and then find common financial goals, and work towards them.

Q: How can prospective home buyers determine how much they can actually afford?
A: If you are ready to start house hunting, I would definitely encourage you to get pre- approved for a mortgage. Basically, the bank will tell you how much money you can afford on a home. That way you don’t waste time looking at houses out of your price range. However, just because the bank says you can spend $800,000 doesn’t necessarily mean you have to spend that much.

Also don’t forget you will have to pay for utilities, property taxes, and home insurance plus repairs and maintenance. Come up with a mock budget ahead of time, and see how that will affect your current lifestyle. I would say if over 50% of your month income is going towards housing, that’s too much.

Try to kind of balance home ownership with your other financial goals, whether they are saving towards retirement, or even going on a vacation. That way all of your money won’t be going towards your house, and you will actually be able to afford to have fun and save towards other goals as well.

Q: You’re living in the basement and you rented the first floor. Why did you decide to do that, instead of vice versa?
A: Well I’m just one person living on my own, and upstairs there are three bedrooms and two bathrooms. I wouldn’t know what to do with all the space, so it made sense to live in the basement, because to be honest I lived in basement apartments for several years before that, so it wasn’t really much of an adjustment. I mean, personally I’d rather rent out the main floor than get a second or third job. It’s all about kind of maximizing all of the space that you have, and looking for extra ways to earn income.

Q: We rented the basement in our first house. Why did you decide to write the book?
A:
When I paid off my mortgage, a lot of people reached out to me for home buying advice. In the media, there seems to be a lot of, I guess, negativity surrounding real estate and big cities.

I always hear that the average house costs over a million dollars in Toronto and Vancouver. It seems like for millennials home ownership is really out of reach. I wanted to write a book to really inspire them and show them that home ownership is still a realistic dream, and it is still achievable if you are willing to be smart about your finances.

Q: Congratulations Sean. It’s a great book. I’m sure people reading and listening to this podcast will want to run out and buy it. Where can they get a copy?
A: They can order a copy on Amazon. It will also be available in Chapters and other major book stores across Canada.

Well that’s very exciting. Good luck.

Thanks so much.

 

 

 

 

 

You can purchase Burn Your Mortgage by Sean Cooper on Amazon.

This is an edited transcript of a podcast interview conducted in February 2017.


10 things you need to know about SPP

February 23, 2017

By Sheryl Smolkin

I have been writing about the Saskatchewan Pension Plan for six years and a member of the plan for just as long. I thought I knew everything there was to know about the plan, but every time I review the website I learn something new.

Here are 10 things about SPP that you may find interesting.

  1. The 30 year old plan is the 25th largest defined contribution plan in Canada (Benefits Canada 2016).
  2. The plan is funded by member contributions and investment earnings. As of December 31, 2016 there was $479.5 million in assets under management administered by a Board of Trustees, some of whom are also plan members.
  3. If you are between age 18 and 71 and have available Registered Retirement Savings Plan room you are eligible to join the 33,000 other members who are saving for their future, whether or not you live or work in Saskatchewan.
  4. With an annual maximum contribution of $2,500, the plan has several payment options designed to suit your budget.
  5. You can also transfer up to $10,000 per calendar year into your SPP account from your existing RRSP or Registered Retirement income Fund (RRIF).
  6. You have two investment options for your funds. The default fund is the Balanced Fund (BF) which is a low to moderate risk/return investment option. Approximately 55% of the fund is invested in equities, 35% in fixed income investments and 10% in a real estate pooled fund.
  7. The Short-term Fund (STF) is a low risk/low return investment option. Its primary purpose is to preserve capital. It is suitable for members who are near retirement and have reached their retirement savings goal, or members who wish to have a cash equivalent component in their investment portfolio.
  8. You may retire from SPP between the ages of 55 and 71 regardless of your employment status. You must apply for SPP retirement benefits; the package to make this application is available by calling SPP.
  9. If you name your spouse as beneficiary of your account, Canada Revenue Agency allows death benefits to be transferred, tax-deferred, directly to his or her SPP account or to an RRSP, RRIF, or guaranteed Life Annuity Contract (LAC).
  10. In addition to spousal rollover of SPP death benefits, rollovers to an RRSP or Registered Disability Savings Plan for a financially dependent infirm child or grandchild are permitted.

For more information about SPP see the website or call the office at 1-800-667-7153.


Feb 20: Best from the blogosphere

February 20, 2017

By Sheryl Smolkin

Get out the popcorn! It’s time for our selection of monthly personal finance videos.

First of all, if you don’t have a company pension plan for your employees, you need to know about the SPP business plan. Find out why the Sutherland Chiropractic Clinic set up SPP for their employees.

Globe and Mail personal finance columnist shares some great ideas for protecting yourself from online scammers.

In Save Your #@%* Money with these RRSP, TFSA, and RESP recipes Melissa Leong brings you an amusing look at the ingredients it takes to successfully save in these registered vehicles.

Preet Bannerjee explains how disability insurance works and why it is so important in this Money School blog.

And finally, if you have made financial mistakes along the way, it doesn’t mean you have irreparably ruined your financial future. Blogger Bridget Casey (Money After Graduation) makes a case for forgiving yourself for financial regrets.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.


10 things you need to know about RRSPs

February 16, 2017

By Sheryl Smolkin

It seems like registered retirement savings plans have been around forever. They were initially introduced in 1957 to promote savings for retirement by employees and self-employed people.

Over the years since there have been changes to the program, primarily in the form of increased contribution limits both as a percent of earned income and as an increase in the maximum allowable deduction.

If you have an RRSP or are considering opening one, you may think you are well-informed about the program. However, here are 10 things about RRSPs you may find interesting.

  1. Contributions to RRSPs are deductible from total income, reducing income tax payable for the year in which contributions are made. Most withdrawals are taxed as income when they are withdrawn. This is the same tax treatment provided to Registered Pension Plans established by employers.
  2. No income earned in the account is taxed (including interest, dividends, capital gains, foreign exchange gains, mortality credits, etc.).
  3. You can set up an individual RRSP for yourself; a spousal RRSP using your RRSP room that will trigger income in your spouse’s name when funds are withdrawn; or, become a member of a group RRSP established by your employer or an affinity group.
  4. Contributing more than $2,000 over your deduction limit is subject to a significant penalty tax (1% per month on the overage amount).
  5. You can withdraw dollars or assets from an RRSP at any age. Withholding tax is deducted by the institution managing the account. Amounts withdrawn must be included in your taxable income for that year. The tax withheld reduces the taxes owing at year end. There are two exceptions to this process – the Home Buyer’s Plan and the Lifelong Learning Plan.
  6. Contributing to an RRSP is not enough. In order to meet your retirement savings goals you need to decide which of the myriad of investment instruments in which you will invest the money in your account and monitor results over time. Both independent financial advisors and advisors employed by financial institutions can help you come up with a plan.
  7. Almost all financial institutions and brokerage houses will be happy to set up a monthly automatic withdrawal program so you don’t have to come up with a big lump sum at the end of the year. They can also reduce your tax withholdings on an ongoing basis so the impact of monthly reductions to your salary is much less.
  8. If you have a defined benefit or defined contribution pension plan, your RRSP room will be reduced. However, if the expected pension you will receive from your company is lower than the income replacement you will require to live in retirement, you should still be saving additional amounts in an RRSP.
  9. Unused RRSP room is a great way to tax-shelter unexpected lump sums like an inheritance, an award for wrongful dismissal or a bonus.
  10. You may wish to borrow money to make RRSP contributions. However, if the interest rate on the loan is greater on the expected return in your RRSP and you can’t afford to pay the loan back on time this would likely not be a wise financial decision. See other possible strategies for borrowing to invest in an RRSP.

Romancing your sweetie on a budget

February 9, 2017

By Sheryl Smolkin

You are still paying off the credit card bills from Christmas. Your SPP and RRSP contributions have to be in before the end of February. You don’t have time to go to the mall and even if you did, you don’t have any idea what to buy.

Four years ago I posted Thrifty ways to romance your valentine. Since then I’ve had lots more ideas. So even if you were planning to stick with the traditional flowers and chocolates, consider some of these ideas as an add-on.

  1.  Sign up for a class he/she has suggested that both of you to take together. It could be for anything from cake decorating to ballroom dancing to couples’ yoga.
  2. Volunteer together at a local homeless shelter, food bank or even the SPCA. Doing something for others will help deepen your own relationship.
  3. Pack a lunch with all kinds of goodies including a beautiful cupcake for dessert. Add a personal, humorous, handwritten note.
  4. Load phone apps that will make life easier and teach your partner how to use them. Also add a romantic picture of the two of you as the wallpaper on his/her phone.
  5. Rerun romantic movies that one of you may never have seen or that you saw together at a special time. Classic examples are: When Harry Met Sally, Sleepless in Seattle, Love Actually and You’ve Got Mail.
  6. Binge watch on Netflix a season or two of a romantic show on a cold winter weekend and plan snacks that fit the theme. Tea and scones with clotted cream and strawberry jam would be a perfect fit for Downton Abbey.
  7. Clean the house, make the beds and do the laundry, all without having to be asked. Give your lover coupons that can be redeemed at a negotiated time for future cleaning services.
  8. Pick a pet together and bring the puppy or kitten home on Valentine’s Day. This assumes you both want a pet and it was just a matter of time until you added one to your family. A red collar and leash would be in keeping with the day.
  9. Plan an active adventure. Take a hike; go skating on an outdoor rink and drink hot chocolate. Snowshoe through the park or toboggan down a hill. Winter is much more bearable when you embrace it instead of constantly trying to avoid it.
  10. Arrange an unexpected visit with a loved one, i.e. a housebound senior, a new grandbaby or your youngest child who is away at college for the first time. Helping to bring lonely people together on or around Valentine’s Day will create unforgettable memories.

2016 RRSP countdown is on!

February 8, 2017

With the RRSP deadline a mere three weeks away, we’re providing you with some information that will make this time of year easier for everyone.

If you aren’t big on reading this early in the morning here is a video highlighting the same information. Links are below.

Wednesday, March 1 is the final day to contribute to your RRSP for the 2016 tax year. SPP contributions must be received at the office in Kindersley on or before that day.

There’s several fast convenient ways to make your SPP contribution in order to meet the deadline:

  • Use your credit card at saskpension.com;
  • Use your online banking service; or
  • Call our office (1-800-667-7153) during regular business hours.
  • Cheques can be mailed to our office; please make sure you mail them no later than mid February.
  • If you are in the Kindersley area come visit our office and make your contribution in person.

The SPP balanced fund returned 6.53% in 2016. The short-term fund return was 0.52% in 2016. You are can see returns from prior years here.

You can reach us at in**@sa*********.com or check out our website:  saskpension.com.  Our wealth calculator can help you determine how long your money will last in retirement.

Thanks for your continued support of SPP.