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HomeMy WebLinkAboutThe Citizen, 2001-02-07, Page 10Financi -f% gt., 0 ds 1,4 trt 41*4vp .5 REGAL CAPITAL PLANNERS LTD. GIC Rates Feb 5,2001 1 Year 5.25% 3 Year 5.25% 5 Year 5.55% rates subject to change Maitland Valley Financial Consultants Ltd. Susan E. Alexander, CFP, C.I.M. 453 Turnberry St., Brussels 887-2662 Betting on a lottery ticket to Finance your Retirement? Let CIBC help you design a financial plan to take the guess work out of your retirement! You can trust us for better advice, more options, on your terms. Call and make your appointment today. CIBC - BLYTH 523-4247 BRUSSELS 887-6521 CIBC JACQUIE GOWING ACCOUNTING SERVICE Computerized Accounting & Income Tax Preparation Monthly Bookkeeping Tailored To "YOUR" Needs • Reconciliations • Personal, Farm • Government Remittances Business & Corporate • Payroll • Electronic Tax Filing All services available on site or at our office RR 2 Bluevale (519) 887-9248 1-'AGE ICI THE CITIZEN, WEDNESDAY, FEBRUARY 7, 2001. Tips to understanding RRSP investing basics If you're like most Canadians, you are just now turning your mind to your annual Registered Retirement Savings Plan (RRSP) contribution. Before you act, make sure you understand the basics of RRSP investing, as well as changes affect- ing RRSPs this year. Why are RRSPs the cornerstone of a retirement plan? Pre-retirement, RRSPs lower your taxes because you can deduct the amount of your RRSP contributions from your taxable income. Meanwhile, your RRSP assets grow in value, without attracting tax, allowing you to save for retirement.. When you retire and draw funds from your RRSP, your income may be lower, so the withdrawals will be taxed at a lower rate. What is the RRSP contribution deadline? The deadline for RRSP contribu- tions is 60 days after the end of the year. The deadline for the 2000 tax year is March 1, 2001. How much can you put into your RRSP? "Generally speaking, you can con- tribute up to 18 per cent of your earned income in 1999, to a 'maxi- mum of $13,500," explains Sam Zuk, a chartered accountant in Toronto. However, adds Zuk, this amount will be lower if you have any pen- Did you know that almost half of your earnings last year went towards paying your total tax bill? According to the Fraser Institute, an independent Canadian economic research firm, Ontario's 2000 Tax Freedom Day was June 22. That means it took nearly_ six months for average Ontario residents to finally begin working for themselves. And while tax rates are finally falling, Canada is still one of the most heavily taxed countries in the world. It makes sense to try to min- imize the tax bite as much as possi- ble when considering your RRSP investing strategies. One effective way of tax-efficient investing is through retail venture capital funds, commonly known as labour sponsored investment funds sion adjustment and past service pension adjustment, and it will be higher if you have any unused con- tribution room from prior years or a pension adjustment reversal, which is reported on a T10 slip. "The best way to confirm your maximum con- tribution limit is to check your 1999 tax assessment notice from the Canada Customs and Revenue Agency (CCRA)," advises Zuk. You can also confirm the amount with the CCRA directly by calling the Tax Information Phone Service (TIPS) at 1-800-267-6999. When you call, you will be asked to pro- vide your social insurance number, your month and year of birth, and the total income you reported on line 150 of your 1999 tax return. What if you can't afford to con- tribute the maximum? "If you can't contribute the maxi- mum, the unused amount will be car- ried forward and can be used in any future year," says Brian Quinlan, a CA in Toronto. "But you should try to contribute the maximum allowed, particularly if you are in a high- income tax bracket." You may even want to consider borrowing to make your maximum RRSP contribution. "This may make sense if you are in a high marginal income tax bracket and are certain that you will be able to repay the loan in a relatively short (LSIFs). LSIFs offer attractive tax credits and are RRSP eligible. Ontario taxpayers are entitled to a tax credit of up to $1,500 or 30 per cent of the first $5,000 invested in this asset class each year. The feder- al and Ontario governments each offer 15 per cent credits. The tax savings are even greater if the investment is held inside a regis- tered retirement savings plan (RRSP). If you contribute $5,000 to an RRSP and use the proceeds to purchase an LSIF you will receive a $1,500 tax credit and an additional tax savings due to the $5,000 tax deduction. For example, if you earned between $52,000 - $60,000 in 2000, your $5,000 investment would end up costing just $1,675 once you take into consideration the period of time, say less than one year," says Zuk. "Don't forget that even though the interest paid on RRSP loans is not deductible for tax purposes, your contribution is likely to result in a tax refund, which could be used to help repay the loan." When should you claim your RRSP deduction? Most people claim their RRSP deduction the same year they make it, but that's not always the best thing to do, says Zuk. "If your taxable income is very low, it might make more sense to defer your deduction to a year in which your income and tax rate are much higher, meaning you will save more," he explains. Meanwhile, the funds you put into your RRSP will continue to com- pound, tax-free. What's new this year? Changes announced in the February 2000 federal budget and October 2000 federal "mini-budget" should be considered when you are selecting investments for your RRSP. "The changes mean that, effective Oct. 18, 2000, capital gains are taxed at half the rate of interest income," explains Quinlan. "As well, there are reductions to the tax on Canadian corporate dividends." Quinlan says these changes should be taken into account when review- ing your RRSP assets. "You will tax credits and RRSP tax savings.. You should be aware, however, that the tax credits must be repaid if the investment is not held for at least eight years. In addition, because LSIFs invest in primarily small and medium sized private companies they are consid- ered small business investments. This means the government allows you to boost your foreign content limit in your RRSP from the current regulatory limit of 30 per cent to a maximum of 50 per cent. Maximizing your foreign content offers you access to a wider choice of investments from countries -around the world, increasing your diversification. benefit most by keeping your high- est-taxed investments — such as Guaranteed Investment Certificates or Canada Savings Bonds — inside your RRSP, and the less-taxed invdstments, such as those yielding capital gains and dividends, outside your RRSP," he advises. Another change for this year relates to the limits on foreign con- tent in your RRSP. "For the 2000 tax year, foreign content can account for up to 25 per cent of the cost amount of all properties in a self-directed RRSP, compared to 20 per cent in past years," says Quinlan. "For 2001 and future years, the limit will be increased to 30 per cent." Still have questions about your RRSP? 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