This is going to be huge for small and micro businesses. Now everyone who makes and sells something from home, or sells at conventions, flea markets, farmers markets and other odd places will have access to the electronic payment market they didn’t have before.
Imagine the artists, writers, home bakers, cleaning ladies, dog walkers and everyone else who can now participate in the real economy.
Huge.
Square: Now Available in Canada from Square on Vimeo.
Filed under Uncategorized
March 1 is the RRSP deadline. Every year financial advisors send out metric tonnes of paper advising customers to buy-buy-buy.
And if you don’t have the cash they will be very happy to assist you with securing an RRSP loan.
But is an RRSP loan the best idea?
The arguments in favour tout the instant tax reduction, the benefits of kick starting long-term growth and the positives of a healthy retirement nest egg.
The downside of RRSP loans? First you are borrowing money. Most RRSP loans have a one year repayment schedule, although you can get 2 or 3 year terms. That means you are adding on a monthly payment you may or may not be able to afford. If you could afford it why aren’t you already depositing that amount in your RRSP account?
The lender doesn’t care. If you don’t make your payments the lender will just cash out the RRSPs to repay the loan. And Canada Revenue Agency will make sure that they get repaid any taxes they refunded you.
So why are financial advisors so hot to push RRSP loans? Two reasons. Two commission cheques. Most of them get one small bonus when you take out the loan, and then they get commissions on the sale of the stocks, bonds or mutual funds in your RRSP.
On a $20,000 RRSP loan the bonus may not be much more than $50, but the commissions on the sale of $20,000 worth of mutual funds at 4% will be $800.
“But my bank has no commissions,” you say.
Nonsense. Even if you work with one of the big banks who proudly claims to provide Fee Free services, the person sitting across the desk from you has quotas to make and annual bonus cheques riding on the outcome of this meeting. And you can bet that if they don’t make their numbers during RRSP season the manager is going to be asking a bunch of hard questions during their next quarterly review.
I recommend that you suck it up. If you decide that you absolutely must make an RRSP contribution this year, and you have already maxed out your TFSA, then I suggest setting up a monthly contribution plan and plan on getting that tax refund next year.
The sneaky little secret of the RRSP loan industry is once you head down that path it is very hard to get out of the rut. Kind of like getting in credit card debt.
Let’s say you took out that $20,000 RRSP loan. If you have a top marginal tax rate of 40% your tax refund would be in the range of $8,000 (all other things being equal). If you take that $8,000 and pay it down on the loan you will now have a monthly payment of $626.43 for the next 1 3/4 years. Ten years from now your $20,000 might have grown to $35,815.95.
The problem is that $626.43 monthly payment. Because next year, come RRSP season, you will still be paying that $626.43. I am going to guess that you won’t have saved up any money during the year to contribute. And I will also assume that you can’t afford to take out another loan and make another (bigger) payment.
If you can afford to pay more than $600 a month on a loan, why can’t you afford to make a $600 monthly contribution directly to your RRSP? If you did that for 10 years you should have around $103,851 in ten years. And all the way along you have kept your $2,800 annual tax refund in your own pocket instead of using it to pay down a bank loan.
If you can’t afford that $600 a month, it’s okay. First, always make sure you have maxed out your Tax Free Savings Account, then sign yourself up for whatever size RRSP contribution you think you can comfortably afford. Even $25 a payday is a place to start.
Filed under How It Works, Investing, Mutual funds, RRSP, Saving, Tax Free Savings Accounts, Taxes, Uncategorized
Taxpayers Beware
For the past couple years there have been stories circulating around the internet claiming that you don’t have to pay income taxes.
Most of these stories seem to have originated from American conspiracy theorist websites. Their basic argument is that you are in fact two people; first the “natural” person you were born as. Second; the “legal” person the government created when they issued you a social insurance number.
According to these theorists, a “natural” person does not have to pay income tax.
False.
Canada Revenue Agency (CRA) has sent out notices warning taxpayers against these schemes.
There is no such thing as a “natural” person. You need to know that Canada Revenue Agency has won every single one of their court cases against these people. As a Canadian, you do have to pay the income tax you owe.
You should also know that these “tax protesters” as they call themselves, are usually raking in the cash by inviting you to attend expensive seminars that pretend to teach you how to avoid paying taxes. They will try to sell you books, dvds and consulting services containing the same false information.
In 2012 Russell Porisky, the main Canadian proponent of this scheme, was sentenced to 4 1/2 years in jail for tax evasion and fraudulently counselling other people to do the same.
“It is difficult to set out his line of argument with cogency because it lacks logic, coherence and consistency,” the judge wrote. “Mr. Porisky’s theory not only does not bear any legal logic, but it also fails to accord with common sense. It is a failed attempt at word magic and has no validity.”
The Canadian Constitution allows the government to raise money by any “mode or system of taxation.” The penalties for tax evasion are up to 200% of the taxes owing plus up to 5 years in jail.
Even if you don’t owe any taxes, Canadians need to file a tax return in order to qualify for HST refunds and Trillium grants.
Filed under How It Works, Taxes
If you have ever been confused by how our illustrious leaders act, and the seemingly stupid decisions they occasionally make you might want to take a look at Daniel Ben-Ami’s excellent review of The Darwin Economy: Liberty, Competition and The Common Good by Robert H Frank. The Spiked Review of Books.
Filed under Economics, Economy, How It Works, Recession, Recovery, Regulation
I recommend that everyone sit down once a year and figure out their net worth. Around the time you do your taxes seems to work out best, since that’s when you’ve already got all your financial documents spread across the dining room table, and a calculator at your elbow.
Net Worth is simply the total of what you own, minus what you owe. The idea is that each year you should see a gradual increase in your net worth. If not, you have to stop and yourself why.
Sometimes there’s a darned good reason. You got laid off from your job. Or you’ve got three kids in University.
But if the reason for the decline is because of an increase in non-productive spending, then it is time to assess your priorities. Perhaps a trip around the world is a priority, and you are willing to take the hit for it. You just need to be clear in your mind what the consequences of your financial decisions will be.
Net Worth Calculator
|
Assets |
|
| Bank Accounts | $ |
| Savings | $ |
| Stock Market Accounts | $ |
| RRSPs | $ |
| TFSAs | $ |
| Company Pensions | $ |
| Real Estate | $ |
| Vehicles | $ |
| Art & Collectables | $ |
| Investments | $ |
| Companies you may own (net) | $ |
| Other Valuable Assets | $ |
| Total | $ |
|
Debts |
|
| Credit Cards | $ |
| Lines of Credit | $ |
| Outstanding Bills | $ |
| Overdrafts | $ |
| Student Loans | $ |
| Car Loans | $ |
| Mortgages | $ |
| Investment Loans (like for RRSPs) | $ |
| Business Loans | $ |
| Other Loans & Debts | $ |
| Total | $ |
| Net Worth | |
| Total Assets minus Debts | $ |
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Filed under Uncategorized
For economics buffs out there (is there really such a person?) and those of you who are really just trying to figure out why the world is so messed up, I have to recommend a paper by Dan Ciuriak and John Curtis called What if Everything We Know About Economic Policy is Wrong?
Ciuriak and Curtis take a look at the current global economic situation and examine how Economic Policy has failed. They contrast the promises of Trickle Down Theory with the actuality of recession, high unemployment and government debt.
Download the pdf here for free.
I recommend that you print off a copy and hand deliver it to your local member of parliament, congressman or other favourite member of the political beau monde.
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Filed under Economics, Economy, Employment, Finance, How It Works, Inflation, Regulation, Uncategorized
The US government is in the process of learning one of the key lessons of the debtor.
The Creditor calls the tune.
The Chinese who hold trillions of dollars in US are not happy, and they are not afraid to let the US know that they need to shape up and fly right. Let’s hope that this credit downgrade is treated as a wake-up call, and the US uses the opportunity to get their fiscal house in order.
But don’t count on it.
The disfunctional houses of congress are too busy stabbing each other in the back in a pointless and self defeating series of internecine battles.
If the US doesn’t sort this out, expect more dire consequences in the future.
In the meantime, use this dip in the Dow to snap up any high quality blue chips while they are on sale. Just make sure you go for quality, look for income in the form of dividends to tide you over until the markets recover.
Filed under Dow Jones, Economy, Finance, How It Works, Inflation, Investing, Recession, Stock Market, Uncategorized, US Debt
Ask a question time again.
If you have a question, just leave send it to me in the comment box. All comments are private. I’ll see if I am able to answer it for you.
Filed under Uncategorized
What happens when you inherit money? or a house? or stuff?
It depends on how you treat the money when it first arrives. If you put an inheritance into a joint bank account, or into a joint trading account, in the future the money will be treated as a joint asset. This means if you get divorced down the road you could lose half of your inheritance. So as a general principle, inheritances should always go into a separate account.
Houses are treated specially. If you put a house you inherited from grandma in both names, then it will definitely be split in a divorce. Even if you don’t put both names on the house, your partner could claim that it was the primary marital residence and make a claim for a share.
Alberta operates under the dower act, which is designed to ensure that a spouse cannot be disenfranchised from their share of marital property. The western provinces also have the homestead act which ensures that a spouse can make a claim on the family farm.
This is especially important for someone who inherits a farm or a family business outright. It is very important to discuss the future of this asset with your lawyer and financial advisor before it is even transferred to you.
If you keep the money separate, the original inheritance will probably not be included in any future divorce settlement or separation agreement. However, it is possible that income produced by the asset or the increased value of the asset might be.
So what do you do? Pre-nup. Or co-habitation agreement. Or post-nup. Talk to your significant other, spousal equivalent or current bed-buddy about money, who owns what, who gets what, and how it could play out if things don’t work out.
Talk to your lawyer. A simple pre-nup/co-habitation agreement shouldn’t cost more than a couple hundred bucks, and can save you thousands of dollars and tons of heartbreak down the road. Define who gets what, and where the money goes if something happens.
Although it’s pretty common for someone to leave that inheritance to their own kids, or grandkids, nothing says that you can’t keep the asset separate, and subject to a pre-nup/co-hab agreement in the event of a couple separating, and yet leave the asset to your significant other in your will later.
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Filed under Estate Planning, Estates, Finance, How It Works, inheritance, pre-nuptial agreement, Saving, Wills
I’ve been getting a number of questions lately about how RRSPs are treated during a divorce.
Although every province has slightly different divorce laws, they all treat RRSPs in a similar way.
It doesn’t matter who the RRSP or Spousal RRSP belongs to, and it doesn’t matter who actually contributed the money in the RRSP or Spousal RRSP. All RRSP contributions made during the years you were married (but not before) are considered marital property, just like your house. So they can be divided up between the two of you, or traded off against another asset.
For instance, say one partner has both an RRSP and a company pension, while the other doesn’t. If the money is close to equal, the partner with the pension could offer to give up the RRSPs in order to keep the pension for themselves.
In my own situation, I traded my share of the RRSPs for his share of the house.
Spousal RRSPs can be contentious during divorces because they belong to the spouse who’s name is on the account, not the person who contributed the money. But! Because you are getting divorced, all the money has to be counted in the communal pot.
So the contributor may, or may not, get some of their contributions back. Although, in practice, the higher earning spouse who has contributed to their wife’s or husband’s RRSP usually has a lot of RRSPs and Pension credits in their own name, so the chances of that happening in real life are pretty slim.
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Filed under How It Works, Pensions, Retirement, RRSP, Spousal RRSP, Uncategorized
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