How To Pay Less Tax On Your RRSP Income! -- LIFE LETTER for November reminds us that income splitting is a very effective tax-saving strategy. Please call me if you have any questions about how this works in your particular situation.

How To Achieve Financial Success -- Yet another set of reminders in the December issue of LIFE LETTER: We have heard this before, but each point brought out is well worth repeating. Please allow me to re-emphasize the importance of protecting your income against pre-mature death and disability. I invite you to call me for details about this kind of protection.

THE STOCK MARKETS - The markets keep going up! As of the end of November, the Major North American Indexes have year-to-date growth as follows: NASDAQ is up by 46.78%; Dow Jones has increased 17.27%; and the S & P 500 has grown 20.27%. The TSX Composite is up 18.82%. The European and Asian Indexes have also experienced very good growth.

In past commentaries, I've told you the return of two very conservative portfolios I'm in myself. Here are the latest results:
PORTFOLIO #1: March 7 to Nov. 28, 2003, the return is 13.3%
PORTFOLIO #2: April 28 to Nov. 28, 2003, the return is 14.1%

In case you decide to get back into the new bull market, I'll be pleased to show you which funds the above portfolios contain..

HAPPY INVESTING!
Sincerely,
Hans Mathisen

 

LIFE LETTER

How to Pay Less Taxes on Your RRSP Income

Dick and Jane are employees at different companies. He is a member of a pension plan at his work but she isn't. Dick had learned that business owners often split income with their spouses and was wondering if there isn't some way he and Jane can benefit from this tax-saving strategy, too.

A Spousal RRSP is one of the easiest and most effective income splitting methods available to Canadian taxpayers. Income splitting reduces income taxes by shifting income from a higher-taxed individual to a lower-taxed one.

The basic intent of a spousal RRSP is to equalize retirement incomes. When retirement incomes are approximately equal, the total amount of tax the couple would pay is generally lower than if all the money was received by only one spouse.

For example, if only one spouse had a retirement income of $70,000 in 2002, their income tax payable was between $14,039 and $20,052, depending on province or territory of residence (see table 1). However, if each spouse had retirement income of $35,000, their income taxes payable were between $10,184 and $17,080. Between $2,351 and $4,474 of income tax could be saved by the couple because of income splitting. Dick and Jane think it would be great to take a tropical vacation each year in retirement with their tax savings.

Dick can split his RRSP deduction limit for the year between contributions to his own RRSP and contributions to Jane's spousal RRSP. This can be in any proportion.

Table 1 $70,000 annual RRIF income (each age 65) with one person receiving all, and two people splitting 50% each. Figures obtained using QuickTax 2002 software.

Prov AB BC MB NB NF NS NT NU ON PE QC SK YK

Taxes for one $15,839 $16,227 $19,473 $18,999 $20,068 $19,319 $15,575 $14,039 $16,399 $19,052 $20,521 $18,606 $16,569

Taxes for two $13,488 $12,642 $15,522 $14,794 $15,594 $15,142 $12,070 $10,184 $12,654 $14,902 $17,080 $15,430 $13,184

Savings $2,351 $3,585 $3,951 $4,205 $4,474 $4,177 $3,505 $3,855 $3,745 $4,150 $3,441 $3,176 $3,385

 

Even if Dick makes a contribution to Jane's spousal RRSP, Jane can also contribute to her own RRSP. Separate RRSPs should be set up to accept spousal and personal contributions.
Even if an individual is over the age of 69 and no longer eligible to make regular contributions to his own RRSP, he can still make spousal RRSP contributions until the end of the year in which she turns 69. He must have earned income or unused contribution room to use this strategy.
By reducing net income, a couple may be able to reduce or eliminate having to pay back some of their Old Age Security (OAS) benefits.
Common-law couples can also qualify to make spousal RRSP contributions.

 

Copyright © 2003 Bowen Financial Inc. All rights reserved

Want to know more about reducing income taxes?
Call Hans Mathisen today at (306)242-7042.
or email - hans@mathisen.ca

 

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LIFE LETTER

How to Achieve Financial Success
It is possible for just about everybody to achieve financial success. Getting there is usually not a matter of financial wizardry. By following some basic principles, you can make your financial dreams come true:

Set Objectives. Goal setting is the foundation of achieving financial success. If you don't have a target to shoot for, how can you expect to hit it? By writing down your goals, you will clarify them and establish your personal and and financial priorities.

Be specific when setting goals. For example, instead of having a goal to reduce debt, set a goal to reduce debt by a certain amount by a certain date.

Pay Yourself First. This is the best way to build wealth. It simply means that your savings come off the top of your paycheque instead of from what little, if any, is left at the end of the month. A good starting point is 10% of your gross earnings monthly.

A good way to establish and maintain a savings plan is to have a set amount automatically taken from your bank account each month. Like a loan payment, you get used to the regular commitment.

Protect Your Income. Your most valuable asset is not your home, your business or your RRSPs - it is your ability to earn an income. If you are 35 and earn $60,000 per year, your total earnings, assuming a 5 annual salary increase, would be about $4.2 million by age 65.

Even a short-term disability, resulting in six months without income, can wipe out years of savings. Adequate disability insurance gives many peace of mind and provides an income when an injury or illness prevents you from working.

Protect Your Dependents. For most of us, nothing is more important than the security of our family. A top priority is ensuring they will be able to maintain a reasonable standard of living, even if you're not around to enjoy it with them. Life insurance provides a capital base to replace lost income when you die. It also allows for the proper winding down of your estate by eliminating all debts and paying all taxes.

After all, your debts should not last longer than you do.

Maximize RRSP Deposits. Your RRSPs are the cornerstone of your retirement financial plan. Not only do they offer a valuable tax deduction, the power of tax-deferred compounding interest can be dramatic. For example, $6,000 per year to an RRSP at 7.5 will grow to about $620,396 in thirty years.

Instead of spending your RRSP tax refund, use it to pay down your debts or invest it. This is one of the most powerful methods available for building wealth.

Avoid Personal Debt. Too much personal debt is the most serious obstacle to reaching your financial goals. Even modest levels of debt can put a drain on your cash flow, leaving less to invest. Since interest paid on personal debt, such as mortgages and credit cards, is usually not tax deductible, paying it off is one of the best investments you can make.

Copyright © 2003 Bowen Financial Inc. All rights reserved

Want help reaching your financial success goals? Call today:
Mathisen Financial, Inc. (306)242-7042 or email Hans at hans@mathisen.ca.