Here is a personal story on everyone’s second favorite time of year. Tax time!
| 2008 was the first year my young friend had an official job. Her T4 arrived the other week in the mail. So we sat down to do her tax return. Being that the T4 was the only official document she needed to record, we did a paper return. (Readers with good memories will remember that I advocate software to do most tax returns. However, the visual representation of the paper return is a good teaching tool.)
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When my friend saw her T4 she was incredulous. “I did not make that much money!’ she exclaimed. (How many of us have felt the same way). The reason she didn’t believe the number in box 14 (for Canadian taxes) was that her bank account was more or less at the SAME balance as before she started her job.(Can anyone identify with her?) After some mental calculation she concluded that yes she had made the official few thousands. Interestingly enough she has now set herself a budget as to how much she can save and spend from each pay cheque. I will report back to you later this year on how long that vow will last, (with her permission of course)
So she diligently started filling out the lines and numbers as I showed her. Being that she is under 18 she did not have to pay CPP. She wasn’t too impressed that one of the perks of turning the age of majority is that one now has to pay CPP. Basically she would get back the minimal amount of tax she paid. About three quarters of the way through the forms she started grumbling: “All this work to get back $26. “ “It’s not worth it.†she said. She was not impressed that we had to put it in an envelope and wait several weeks for the refund to come back. “Let the government have the $26 they can spend it better than me.†What do you think dedicated readers? Are you going to bet on the Stephen or the teen? |
Illogical Tax Facts
| t has been a cold winter these past few months eh? I am sure we are all looking forward to putting our toques, boots, and mitts in the back of the closet until next winter.
What does the weather have to do finances? Well the other week I opened my electricity and natural gas bills. My natural gas bill had doubled going from just over $100 to $200 plus. My electricity bill went up by about $35. What surprised me was my reaction to the two bills. I was relieved that my gas bill was only $200 but was very irritated that my electricity bill had gone up $35. The only other time it was higher was when I had a dozen relatives stay with me last summer for a few weeks. |
It all boils down to expectations when it comes to our money. Despite what we all think we do not react logically and rationally to money matters. I had expected my natural gas bill to more that double during the cold spell. Therefore I was not disappointed when it only doubled even though $100 is way more than $35 more on my electricity bill.
Another example of how people approach money matters in a less than logical fashion is how a lot of credibility is put on a guaranteed return. Take the Guaranteed Investment Certificate for example. When you buy a GIC you get back your initial deposit plus an amount of interest. Historically that return is very little to nil after inflation is factored in. Yet that amount of interest received at the end of the term is more tangible than the fact that inflation makes that interest negligible or nonexistent. |
Is my Money Safe at the Bank?
| Here is a little note about termination options that could come in handy for the people you might know who lose their jobs.
There are 2 types of severance options that employers can use when a company lets an employee go. The first is the continuation of salary. This is used when the proper amount of notice is not given. The departing employee will get a certain number of months salary and or benefits(or an additional lump sum in lieu of benefits). The second less common severance option is the retiring allowance. This gives the option to directly transfer some of the lump sum in the employee’s RRSP to offset the tax hit of the package. Either way any pension or group RRSP benefits that are vested are owned by the departing employee. Also if stock options are involved there are different time considerations that will affect their taxability. If you know anyone who is in that situation he or she needs to speak to me. The investment universe has seen a few incidents of major wrong doing. Investors are right to wonder if the companies they deal with are reputable and ethical. In Canada mutual funds companies are strictly regulated. Their assets are held by a custodian which is usually one of the chartered banks. This would cover the very unlikely event that a mutual fund company would suffer financial trouble. The ten provincial securities commissions and the Mutual Fund Dealers’ Association(MFDA) are responsible for oversight and enforcement of investment companies including mutual fund companies. This includes the educational and experience requirements for their portfolio managers, the procedure for a mutual fund investing money, changes to investment mandate, and how a mutual fund company fulfills its disclosure requirements via their prospectus. |
 Canada was long overdue for a recession; the last one was in 1990. But readers might still be interested as to why the stock market went down very sharply in the last quarter of 2008. Unlike previous downturns, most companies’ stock prices were punished even if they were well capitalized and had good balance sheets. (think back to the dot com years when too many companies were birthed only on the promise of profits).
In 2008 hedge funds, another investment vehicle, were forced to sell many of their holdings because they were investing mainly with borrowed money(this practice is know as leveraging). The banks demanded their loans be repaid immediately and so you guessed it many good companies’ stocks were sold to meet that requirement. Hopefully more regulation of hedge funds will be a positive learned from this recession. I leave the least interesting to last: The recent federal budget was rather dull. The only noteworthy item to report is that the tax brackets for 2009 have been adjusted slightly which will result in most of us paying a slightly smaller amount of tax this year. See me if you want to know the exact numbers. |
[tags]tax, tax payers, tax season, taxation[/tags]