Canada Pension Plan Changes for 2012
If you were wondering whether the Canada Pension Plan has enough funding the 2012 changes might just provide that answer.
Canadians who are receiving CPP benefits did not used to have to continue to pay into the plan if they were still working. In 2012 those rules have changed, starting this month.
Do you have employees who are receiving CPP and still working for you?
Any employee who is not 65 years old as of yet must make CPP contributions based on employment income earned in 2012 whether or not they are already receiving CPP. There are no other options. And as an employer, you have to match the contribution.
If your employees are over 65 and yet not 70 there is an election that can be filed with Canada Revenue Agency to avoid CPP contributions. The form should be filed this month. This is the link.
http://www.cra-arc.gc.ca/E/pbg/tf/cpt30/cpt30-11e.pdf
Questions? Let us know!
Three Things To Do At Year End
With year end just days away – and since I may be the only person still working – I thought it would be a good time to remind business owners that there are a few things that should be done at year end to make your life simpler in 2012 ….
Count Inventory – If you sell a product, you need to know how much inventory you have on hand at the end of your year. The only way to know the answer to this question is to actually count it. This is something for you to do New Year’s Eve or potentially on New Year’s Day. The question being do you count before the hangover? Or after?
Read Your Odometer – if you use your vehicle for business and your business is not incorporated, or you claim vehicle expenses on your personal tax return then you need to keep a mileage log. If you keep a mileage log in order for this log to have any credibility you need to have the opening odometer reading at the beginning and the end of the taxation year. So on your way to count your inventory go ahead and write down the odometer reading on your vehicle.
Bill your clients- make sure you have billed all of your clients for work done in this year. If you have a service business and have work that is not billed, it is called work in progress and is a form of inventory. If you have billed it, it is accounts receivable if you have done the work and you have not billed it then it is work in progress. Either way you have to figure it out.
For those of you who follow me on twitter (@debipev) you will be receiving further reminders at midnight on December 31…
Don’t Let December Ruin 2012
There is no avoiding the holidays! The Christmas lights are starting to show up on houses, the advertising started weeks ago and the invitations are starting to roll in.
For business owners the holidays have their own challenges. There are statutory holidays which mean salaries are being paid but no revenue is being earned, in fact for many businesses you can pretty much write off the last two weeks of December as far as making any money. Did your business plan consider this slump? Of course for retailers it is crazy busy and the hope is that this month will make the whole year a success.
December can be a month where we suspend our normal mind set and spend money we do not have, which has an impact on the rest of the year. Keeping December under control will go a long way to making January a happier time!
So what can we all do to keep the holidays in perspective?
1. Make a budget for presents and entertaining and stick to it.
2. Don’t spend money you do not have – which will end up on your credit cards for a long time.
3. Accept invitations from the events you want to attend, don’t go everywhere, you will just get tired and cranky.
4. Think about what part of the holidays mean the most to you and make sure that you spend your time on those activities. Consider this a time budget.
5. Business owners – plan now (if you have not already) for how you are going to cover the extra costs and reduced revenue of the holiday season.
Good Tax Reason to Have a Will
A will is a document that explains what you want done with all of your stuff when you die. It can be as simple as leaving everything to your spouse or as complicated as a long list of items, each given to a different individual. The second type of will allows people to argue over who gets the blue vase. For some reason people do not want to talk about their will, maybe assuming that they will die sooner if they mention it.
There are many good tax reasons to have a will. The most important of those reasons is called the spousal rollover. This rollover means that any item you leave to your spouse will not be taxed on your death.
Let me explain that better. When a Canadian resident dies they are deemed to have disposed of everything that they own at the fair value on the day of their death. This means that if you own stuff that is worth more than you paid for it, you are going to pay tax on 50% of the difference. As an example if you own shares of the Royal Bank and you paid $5000 less for them than they are currently worth – you will add the capital gain of $2,500 (50% of the $5,000) to the income that is taxed on your final return. If however you leave the Royal Bank shares to your spouse – there is no tax on those shares and they are transferred to your spouse at the amount you paid for them. This is a good thing. Leaving your RRSP or RRIF to your spouse works the same way, those plans are not taxed. Leave your RRSP to adult children and the total amount of your RRSP will be added to your final tax return.
It is important to have a will. If you die without one, which is called dying intestate, then your heirs will have to apply to a court in order to obtain any of your assets. If you have more than one heir, a fight could result and the court will have to decide what you would have wanted. Don’t leave people in suspense—write a will.
Should You Pay Down Debt Or Borrow To Invest?
We live in challenging economic times. Making this simple decision about whether it is time to pay down debt or time to borrow to invest, has become complicated. Interest rates are set to stay at record low levels for the next couple of years in the United States and this will likely mean low interest rates in Canada as well. Typically, low interest rates tempt people to borrow. However, economic growth is predicted to be slow over the next two years as well and the world economy may be entering a recession. Slow economic times tempt people to save their money and pay down their debt. If you are paying attention you will see that these are two opposite effects!
So do you pay down debt because times are slow or do you borrow money because interest rates are low?
If you have debt then you pay interest. If interest rates increase then you pay more interest and maybe you have a harder time making minimum payments. If you pay a lot of interest, then you don’t have money to spend on other things, or to invest for the future. However, if you borrow money to invest, you can deduct the interest that you pay on that loan. Being able to deduct the interest means that the interest rate is even lower, depending on your tax rate.
Does it make sense then to borrow money to make investments? Yes – provided that you can find investments that will earn a higher rate than the interest you pay. What investments should you choose for your hard earned money? I am not an investment advisor but I would suggest that you consider investing in anything baby boomers might want or need. Think health care for example. The stock market often looks like a mystery but the baby boomers getting older is a fact!
Back to your strategy- should you borrow and invest, or pay down debt and feel more secure. Here are a couple of thoughts:
1. Refinance any debt that you can at the low rates that are currently in effect.
2. Borrow money to invest in anything that will earn more than the current rates of interest, this could be your business, real estate or shares.
3. Consider investing in the market if you have more than 10 years to go before retirement, as stocks are low now, but should eventually increase in value.
4. Don’t borrow to increase your lifestyle, borrow to invest for the future.
5. Don’t budget yourself too tightly, live is uncertain. You have to enjoy today, there may not be a tomorrow.
I will close on THAT note. Think about your financial strategy and take advantage of low interest rates, one way or another.
What Retirement Assumptions Are You Making?
The Globe and Mail is reporting (August 15, 2011) that General Motors Canada “has eliminated a key legacy cost with deal on health care trust fund.”
If GM is eliminating costs the retired workers will have increasing costs. That is how accounting works. The health care plan has been taken off of GM’s books and will now be administered through a trust. GM is only responsible for putting a fixed amount of funds into the plan, not continuing to fund it, and the contributions stop in 2018. What this deal means for the retired GM workers is that less of their health care costs are going to be covered by the trust fund.
These workers retired with an agreement covering their future health care costs. That agreement has been changed and they do not get to vote on it.
My question to you – what assumptions are you making about your retirement? What would happen if one of your assumptions turns out to be wrong? It would be best to have a range of sources of funds. Your income during retirement could be coming from an employer’s plan, government plans or your own investments. Or maybe you will continue to work. The fancy term for this is diversification. Check in to the financial health of the plans you are counting on. Or spend your money now and let the kids take care of you later!
Someone Should Have Told Me
Have you ever said that? If so – have you identified the person who should have told you?
What strategies do you employ to make sure that you are well informed about the world around you, particularly anything that could cause you trouble or cost you money? Do you have someone in your life that is responsible for letting you know when the rules change? You might need more than one of these people, for various areas of your life. For example does your car dealer contact you when there is a safety recall concerning your vehicle, your doctor let you know when new treatments are available and your spouse when you should cut the lawn? Does anyone tell you when you are no longer allowed to use certain pesticides on that lawn?
If you are charged a late filing penalty because you did not file your personal income tax return on time, the federal government will not be at all impressed with your observation that no one told you. They see it as your responsibility to understand your obligations.
In the small business world, it is often the case that you need to do research on your own, to find out what you need to know to be a success. There is no guarantee you are going to learn everything you need to know simply by having your friends mention stuff to you.
Do you volunteer or sit on a nonprofit board? If so you should ask the same question, who is responsible for scanning the world and letting the organization know when you have new problems. Someone on that Board should be responsible! This responsibility might be divided up among a number of people based on their expertise.
What if you are responsible for telling people that policies have changed? Consider how you let people know about new policies. Here is an example. When the law changed in Halifax, N.S. about allowing transit buses the right of way no matter what, the powers that be decided to post signs on the back of buses and to launch a radio campaign. How long do you do this before you implement the policy change? In this example there were still people, largely unaware of the outside world who were very surprised the first time the bus cut them off!
Develop your strategies for staying up to date and out of trouble. Do you use old media such as newspapers and TV, or do you get most of your news online via Twitter, blogs and websites? Perhaps your strategy is a combination, but you do need to have a strategy.
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