RRSP’s – What are they & Are they good or bad? Part 1

First of all we should start off with what is an RRSP?  The letters RRSP stand for Registered Retirement Savings Plan.  An RRSP is a trust account in Canada that allows you to hold investments in it, earning income tax free until you withdraw the money.  We must understand the concept and not get confused in that an RRSP is not an investment, but instead a way to hold investments. RRSP’ have been around since 1957 and still stand today in 2012, over 50 years!

Everyone has a different opinion on RRSP’s, but the key is to have your own understanding of RRSP’s, knowing the goods and the bads, and seeing if RRSP’s will work for your retirement plan.  Every one and every situation is unique, so while RRSP’s may work for some, they don’t work for others.  The key is not to take the facts and opinions of the people selling RRSP’s, form your own opinion!  Everyone should have an RSP (Retirement Savings Plan), but an RRSP is a choice.

Here is a statement by the CD Howe Institute, a very reputable research firm “Millions of Canadians accept the homogenous advice of governments and the financial community and put billions into RRSPs. However, for many lower-income Canadians RRSPs are a terrible investment. They are victims of a fraud, however unintentional. Only when more Canadians are aware of the perverse treatment of lower-income citizens’ savings will Ottawa be forced to develop measures that reward, rather than punish, their savings efforts.”  So we see clearly here that RRSP’s are not good for lower-income Canadians!  Other studies show that very few Wealthy people do RRSP’s, as there retirement plans are Real Estate, Businesses and other investments held outside of RRSPs.  So we can now see that the group of people in Canada that are eligible to do RRSP’s are the middle class!

Employee Profit Sharing Plans (EPSP’s), Part 1 of 4

This is a 4-part blog series focusing on Employee Profit Sharing Plans or EPSP’s.  I will discuss this in as much detail as I can.  But if you need further clarification, please feel free to contact me at info@kustomdesign.ca.  Thank you and I look forward to hearing from you soon! Here is the first part of our series:

The average person does not hear about things like EPSP’s. However, over the last number of years, with the increase of knowledge through the internet and other sources, many other smaller private Corporations are beginning to use them.  In fact between 2005 and 2009, the number of EPSPs has increased about fivefold, mostly among small, closely-held Canadian-controlled private corporations.

So what is an EPSP?  An Employees Profit Sharing Plan ("E.P.S.P.") is a trust that allows an employer to share business profits with some or all of its employees. The E.P.S.P. does not require registration.  Amounts are paid to a trustee to be held and invested for the benefit of the employees who are members of the plan.  The idea is to invest the funds for growth and future distribution. However, many EPSPs have not been investing the funds, but instead just flowing through the profits to the employees as a way to avoid CPP on the employee’s earnings.  The government is currently looking at changing the rules as they don’t want to see EPSPs used to simply avoid CPP (and EI). 

That being said, avoiding CPP can be a good thing particularly if you’ve maxed out your lifetime contributions.  To find out if you have maximized your CPP contributions, you must contact Service Canada.  Avoiding CPP is better achieved by paying dividends.  Dividends can only go to the shareholders of the corporation (which may also be employees), so you must structure your affairs accordingly.

Next week, we’ll discuss the benefits of EPSP’s.  

Tax Season ends today! It’s tax planning time!

It is officially the end of the tax season. Today is the last day for most Canadians to file their personal income tax returns. I do hope that I have provided you with all the information and tips that you may need to save on your 2009 taxes.

With the end of the tax season, I would like to remind you that now is the time to get your tax plan in place. As I’ve always mentioned before, it is best to consult a professional to make sure that you are offered the best possible tax saving strategies applicable to you.

Here are a few reminders to get you started on your tax planning:

• The key to successful tax planning is starting as early in the year as possible, well before committing to any large purchases or transactions.
• Tax planning is not a one time deal. It is a continuous and ongoing process.
• Every transaction we make has possible tax consequences. So whether you are purchasing a business or making an investment, having a tax plan in place is your best strategy to ensure that you do not lose any money in the end.
• Tax planning must be done as a couple if you are married or have a common law partner. Because spouses’ tax returns are related, and we can split income, deductions and credits between spouses, tax planning as a couple will ensure that you do not miss out on any tax savings.
• Do personal and business tax planning together if you own a business. If you do not plan personal and business tax together, you will not be able to have an accurate tax plan.

Remember, a tax plan is an ongoing process. Start early in the year to ensure that you maximize your tax deductions and credits. You will not regret it when it’s time to file your 2010 personal income tax returns!

Step 3: Legally Minimize Taxes Paid part 3

Here are more ways you can save tax.

• Trust Structures – Trust structures can protect your assets and pass them to the next generations. Trusts can be used for effective tax minimization through income splitting.
• Tax Shelters – Generate new tax credits and support humanitarian causes. Tax shelters help the less fortunate while helping you to save taxes at the same time.

Other Tax Saving Strategies include Tax Deferral Strategies and Flow Through Shares.

• A Tax Deferral Strategy is an arrangement where you get tax benefits immediately but will most likely pay it back at a later date. Aside from its tax benefits, the tax deferral strategy allows individuals to support Canadian humanitarian initiatives.
• Flow Through Shares are common shares of Canadian resource companies issued to finance the exploration an development of resource properties. To encourage investment by these companies, the federal government allows exploration and development expenses incurred to be flowed-through to investors and deducted for tax purposes.

It is more important now than ever to be able to find ways to save on your taxes. There may be a lot more ways for you to save on your taxes so make sure you consult with a professional. Consulting with a professional and having him help you set up a tax plan will ensure that you make use of all available tax saving strategies applicable to you.

Step 3: Legally Minimize Taxes Paid part 2

Let’s review the tops ways you can save tax.

Maximizing all tax deductions & credits – It’s common knowledge that all taxpayers are given the opportunity to take advantage of all tax deductions and credits applicable to them so let’s make use of them to help us save on our taxes! It is recommended to seek professional advice to identify all deductions and credits available.

For employees, consider opening a home based business – A small business is one of the best tax savings tool. We are talking about a simple sole proprietorship and not a big enterprise. The most significant benefit of full or part time self employment is that you will be able to increase the amount of deductions you are entitled to write off.

"Having a home based business allows the employed individual to write off part of the cost of running the business and part of the mortgage interest, heating, insurance and renovation bills and so on. Home Based Businesses can provide the opportunity to claim tax deductions in the beginning and give you cash flow later on." Read more at the www.kustomdesign.wordpress.com More tax saving strategies tomorrow!

Step 3: Legally Minimize Taxes Paid part 1

As we approach the deadline for filing taxes, I want to discuss the 3^rd Step to Financial Freedom, Legally Minimize Taxes Paid, in detail.

Let’s look at the basis on how Canadians save taxes – We do not look at tax evasion or tax avoidance which are illegal. Instead, we look for ways to minimize taxes legally. According to the Supreme Court of Canada, which super cedes the CRA – You have the right to arrange your affairs in ways to minimize taxes.

We’ll review the top ways people are saving taxes on my next blog!