Articles for September 2010

Tax-efficient investing beyond RRSPs

Posted by Admin on September 29, 2010

The tax advantages registered retirement savings plans (RRSPs) offer make them the default choice for many Canadians. Investors often use them to save, and then roll the money into registered retirement income plans at retirement.

While typically the right strategy, RRSPs have restrictions that limit how much you are eligible to invest on a yearly basis when working towards your retirement goals. Many investors are not familiar with the options available to help them invest for retirement beyond their registered plans to further reduce taxes payable each year.

Whether you are in the process of deciding what products to use to save for retirement or are starting to consider from where you will take your income at retirement, there are many things you can do to help you reach your retirement income goals, while strategically deferring tax.

Increasing your savings

Tax-free savings accounts (TFSAs)

Many Canadians have considered TFSAs as short-term options. They allow funds to grow tax-free and withdrawals do not affect investor eligibility for income-based credits like old age security, age and certain tax credits. When used over the long term, they are a useful product for saving but should not be considered a normal savings account. A penalty of one per cent per month is levied for over contributions so speak to your financial security advisor about how to structure a TFSA within your financial security plan as to ensure you do not over contribute into the account.

Corporate class mutual funds

Corporate class funds are structured to provide maximum tax efficiency in non-registered accounts. The funds can reduce ongoing distributions and defer taxes when switching to other funds to rebalance portfolios. The funds are also designed so clients receive tax-preferred capital gains or dividend distributions from the fixed income and cash management funds.

Planning an income

Tax-efficient systematic withdrawal plans (TSWPs)

You can set up tax-efficient withdrawals from investment funds. They pay you tax-deferred monthly payments that consist primarily of your original investment – return of capital – plus any income. Return of capital isn’t immediately taxable when you receive it. TSWPs are also offered with corporate class funds, allowing clients to combine the tax-deferral benefits of both products.

Whether you’re saving for retirement or beginning to think of ways to draw income from your non-registered funds, there are tax-efficient solutions to help maximize the efficiency of your financial security plans. As your financial security advisor, I can help you determine what combination is most beneficial for you.

Understanding the new federal mortgage lending requirements

Posted by Admin on September 29, 2010

Earlier this year, the federal government introduced new lending criteria for government-insured (high-ratio) mortgages. The intent of the change is to help ensure homeowners can afford their home if interest rates rise.

With a conventional mortgage, you need a minimum down payment of 20 per cent of the purchase price. High-ratio mortgages are available that can reduce your down payment requirement to as little as five per cent of the purchase price. This type of mortgage requires mortgage loan insurance that is obtained through the Canadian Mortgage and Housing Corporation (CMHC) or private mortgage insurers.

What this means to you

Homebuyers seeking a high-ratio fixed rate mortgage with a term of less than five years or a high-ratio variable rate mortgage of any term must now qualify for a five-year fixed rate mortgage, even if they choose a mortgage with a lower interest rate and shorter term. Buyers would still pay the rate in effect for the mortgage selected.

For conventional fixed rate mortgages with a term of five years or longer, the actual contract interest rate would be used for qualification.

Find out how much you can afford

Pre-qualifying for a mortgage will help you set realistic expectations when shopping for a new home. The process also will tell you the maximum amount you can afford to pay for a home.

If you’re buying a home or renewing your mortgage, as your financial security advisor, I can refer you to a mortgage planning specialist who can help you find a mortgage that works for your individual situation.