BDO Canada LLP Retirement Survey Report - More Financial Survey Results

You may remember my November post highlighting the initial results of a financial survey conducted by BDO Canada LLP. These findings offered a trove of valuable information on the wealth management journey for Canadian business owners. They confirmed much of what I had been hearing in conversation with clients but also offered important new insights.

The financial survey produced such robust data that BDO created two reports. The second one — The Retirement Planning Report — is now available as a free download and reveals additional insights on how all Canadians manage their wealth and plan for retirement.

The survey that produced these two reports has strong ties to The Blunt Bean Counter. Many of you took part in this study — thank you very much for your tremendous participation and input. Some of you received a free copy of my book Let’s Get Blunt About Your Financial Affairs as a token of thanks for responding to the questionnaire. In total, almost 1000 Canadians took part in the study.

Summer beckons from just around the corner. For those taking time away from the office, the break provides a great opportunity to reflect on the big picture: how we envision retirement, how our finances align with that vision, and where family fits into the picture.

This new BDO report will help you focus on what matters to you in retirement and on your preparedness. Jonathan Townsend, the National Wealth Advisory Services leader for BDO Canada LLP, provides a synopsis of the report in his guest post below.

In conjunction with the BDO report, you may want to read, re-read or reference the six-part series I had on "How Much Money do I Need to Retire? Heck if I Know or Anyone Else Does!" The links for the blog posts are down the right-hand side of this page under the Retirement heading.

Retirement Planning Report   By Jonathan Townsend

Retirement sometimes appears to Canadians as a moving target. Like all plans for the future, it depends on variables that we can’t fully control. We do our best to cover all the circumstances, but life intervenes and renders our financial plans out-of-date.

“How much do people actually need to save?” Mark Goodfield in the report says the following: “That is the million-dollar question — with no clear-cut answer. At the end of the day, Canadians need to evaluate their individual needs with the help of a trusted advisor.”

That is why expectations play such a large role in successful retirement planning. In the 1980s, many Canadians believed their investments would support retirement at 55. Today’s pre-retirees have adjusted their retirement dates upward to fit the changing times. The average age of retirement climbed from 61 in 2005 to 63 in 2015, according to Statistics Canada.

BDO’s new Retirement Planning Report reveals valuable data on a topic that can be difficult to access: how Canadians themselves see retirement. By turning the spotlight on expectations, we can better understand the entire planning process.

Here are some key report findings that caught my attention:

• On preparedness — About half of survey respondents have prepared a financial plan. Of those respondents with a plan, almost three-quarters had a professional advisor prepare the plan.

• On health care — Long-term health care placed second on the list of respondents’ retirement concerns, but almost 4 of 5 of respondents have done nothing to prepare for health care costs in retirement.

• On family — Canadians in the so-called sandwich generation raise their children while looking after their parents. Fifteen percent of respondents in our study say they are supporting their parents financially. As longevity continues to increase, Canadians may need to calibrate their retirement plans to account for both slices of bread in the family sandwich. Rob Carrick of The Globe and Mail found this topic of interest, especially the fact that 10% of Canadians support both their parents and children and discussed the study here in his Carrick on Money newsletter.

• On pension plans — Companies have shifted more of the savings burden to employees by moving to defined contribution plans. In the longer term, more and more Canadians may have no employer-sponsored plan at all. Contract and part-time work are accounting for a larger share of the labour market.

The findings and strategies highlighted in the report provide actionable tips that you can incorporate into your own successful planning. I invite you to download the report here.

Jonathan Townsend is the National Wealth Advisory Leader at BDO Canada LLP. If you have any questions, please contact him at 519-432-5534 or jtownsend@bdo.ca.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

TFSAs - Ease of Access, Discipline and Retirement

Last week’s budget confirmed the badly kept secret that the Tax Free Savings Account (“TFSA”) contribution limit would increase. The Conservative government proposes to increase the limit from $5,500 to $10,000 (although, TFSAs will no longer be indexed) effective January 1, 2015. Although I can’t say I fully understand this from a public policy perspective, I think the increased limit is great from a purely financial perspective.

As there have already been numerous articles discussing the advantages of the increased limit and who will benefit the most (here are links to two very good articles by Rob Carrick of The Globe and Mail  and Adam Mayers of the Toronto Star), today I thought I would take a different tact and discuss how the increased TFSA limit will test our human behavioural traits.

Ease of Access, Discipline and Retirement

Ease of Access - A Good Thing or a Bad Thing?

TFSAs allow you to withdraw your money at any time for any reason. The reason could be financial, for example to help purchase a house, or purely for personal indulgence, such as to go on your dream vacation or buy that sports car you always wanted.

One of the great things about a TFSA is that you have the option to re-contribute any money you withdraw from your TFSA beginning January 1st of the following year. However, my concern is once that money is withdrawn, many people will not re-contribute, especially in respect of discretionary withdrawals where the money provided personal gratification.

I have written a couple times that one of the indefinable benefits of a Registered Retirement Savings Plan (“RRSP”) is that it acts as an invisible barrier to protect you from yourself, as some (not all) people treat their RRSP as sacrosanct and only consider withdrawing money for emergencies, or income smoothing purposes. In contrast, TFSAs are inviting with limited barriers to protect you from yourself.

Discipline - Do You Have It?

The easy accessibility of TFSAs will require us to be disciplined if we are not to squander the funds we sock away. It has been my observation that many of us do not have that financial discipline. I have said this before and will say it again; with respect to accessible monies, the path of least resistance generally ends at the cash register.

Retirement - Are TFSAs the New RRSPs?

Over the last few years, more and more Canadians have decided to fund their TFSAs in lieu of their RRSPs. Many people seem to prefer the flexibility and tax-free status of TFSAs and are willing to forsake today’s tax refund (generated by RRSP contributions), for tax-free withdrawals in retirement (to avoid taxable withdrawals from their RRSPs/RRIFs in the future). While this change in retirement funding makes sense where your marginal tax rate today is lower than it will be in retirement, it does not make income tax sense where your marginal rate is higher today than you anticipate at retirement.

Whether the trend of moving to TFSAs and away from RRSPs makes financial sense or not, assuming the budget proposal becomes law, I can foresee the day where TFSAs will become the dominant retirement vehicle in Canada. 

This brings us back to discipline. Much has been written about how poorly many Canadians have saved for retirement and how we need government pension plans (see Ontario) to save us from ourselves. Yet now, it can be argued, the government has in a way incentivized us to not use our RRSPs and is expecting us to be disciplined and use the money in our TFSAs to fund our retirements.

As the expression goes, I am from Missouri on this issue; you will need to show me that Canadians will be disciplined enough to always choose their retirement over the trip to Tuscany.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

The Two Certainties in Life: Death and Taxes - Video Interviews

As I am talking death and taxes this week and next, I thought it apropos to post three interviews I recently had with Rob Carrick of The Globe & Mail on the topic. The links to my three video interviews are here:

Why both spouses must know their finances

What to put in an "in case I die” file

The tax implications of a spouse’s death

I would also like to thank Rob for selecting our video interview on “The costly TFSA blunder that people keep making” as the most popular personal finance video of 2014. The link for all ten nominees is here, starting at number ten and counting down to number one.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

The Costly TFSA Blunder & Playing With Matches - The 20% Matching Penalty

In general, I understand the policy reasoning behind many of the income tax legislative changes made by the Department of Finance (that does not mean I agree with all these policy changes). I also typically understand the rationale behind most of the CRA's administrative polices. However, there are four tax rules and administrative policies I cannot comprehend and are major pet peeves of mine. They are:

1. You can be penalized for re-contributing to your TFSA in the same year you withdrew funds. This rule may make administrative sense for the CRA, but when 75,000-100,000 people over-contribute/incur penalties each year, there is a problem with the rule in my opinion.
2. You can be penalized 20% of the income you did not report on a T-slip, even though the CRA has that information on hand.
3. The necessity to file a T1135 Foreign Income Verification Form to report specific foreign stocks that do not pay a dividend, even if they are held at a Canadian Institution (rule on hold for 2013, to be effective 2014, see last weeks post).
4. The fact the CRA has an April 30th personal filing deadline, yet many slips (T3, T5013) are not issued until the 2nd week of April (even though the deadline for those slips is March 31st). IMHO, the deadline to file all these tax slips should be moved up 15 days.

I was fortunate enough to be interviewed by Rob Carrick of the Globe and Mail on my first two pet peeves and was thus able to vent on a medium other than my BBC soap box.

The Costly TFSA Blunder 

Many Canadians continue to over-contribute to their TFSAs. Most of these over-contributions result because you take money out of your TFSA and then re-contribute those funds back in the same year. However, unless you have additional contribution room, you are not allowed to re-contribute those funds until January 1st of the next year.

As TFSAs have been promoted by the CRA and financial institutions as a savings account, where you can take money out and put money back in; the re-contribution rule is counter intuitive and a trap for many Canadians.

I discuss this issue and other TFSA related issues in this interview with Rob.

Playing With Matches- The 20% Matching Penalty

The CRA’s matching program catches the non-reporting of income every fall. Each year the CRA checks the T-slip information in its database against Canadian taxpayer’s income tax returns to ensure the income you reported matches the CRA's database records. Where the income filed by a taxpayer does not match, an income tax reassessment is mailed to the taxpayer asking for the income tax due. If the taxpayer is a first time offender, they are just assessed the actual income tax owing and possibly some interest. If this is the second occurrence in the last four years, a 20% penalty of the unreported income is assessed.

Under Subsection 163(1) of the Income Tax Act, where a taxpayer has failed to report income twice within a four-year period, he/she will be subject to a penalty. The penalty is calculated as 10% of the amount you failed to report the second time. A corresponding provincial penalty is also applied, so the total penalty is 20% of the unreported income. This penalty can apply even if you owe no tax!

To avoid the chance of this penalty, I strongly suggest you make a checklist of any T-slips you expect to receive and follow-up with any missing slips. You may also want to call the CRA in June or July and confirm with them all the slips their system is showing. You can do this with your "My Account"; however, not all slips are reflected online.

I discuss this insidious penalty and other income matching issues in this interview with Rob. 

Tax Tips for Dividend Investors

 

Rob interviewed me on a third, less controversial topic, that being tax tips for dividend investors. Please keep in mind the three points I discussed in the interview. When you prepare your tax return, you should have dividend income from the same companies as you reported last year, unless:

1. The company stopped paying dividends;
2. You are missing a T3/T5 slip - if so, please follow-up or you may be subject to the 20% penalty discussed;
3. You sold the stock - if so, you must report a capital gain.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Hot Diggity Dog

Reggie and Whitney
Pic by Trudy Rudolph

Did you ever wish after a hard day’s work that you were a dog? What a life. Wake up and go to the bathroom, get fed, play and/or walk, get a snack when your guilty master goes to work, try to have sex with the next door neighbour’s dog, take a nap (a long one if you were successful with the dog next door), go for another walk, greet your master(s) at the door, lick them and get a cookie, get fed, watch some TV, go for yet another walk and then back to sleep. All this must be done while being massaged, patted and kissed by family members. Then if you are real lucky you get a $12,000,000 inheritance or an $8,000,000 mansion and $3 million trust fund.

Since this is a financial blog, the thin thread of finance in my post today will be the cost of owning a dog (Actually, after last week's brain numbing three part series on small business owners remuneration, I needed a less taxing topic). I have two dogs, Reggie and Whitney, both schnauzers (see picture). Reggie the male and larger dog is a half-brother to Whitney (see the first paragraph about trying to have sex with the dog next door. In this case, Reggie and Whitney’s mother was successful, or at least the neighbour's dog was successful).

I have had several dogs during my lifetime and I have typically passed on dog insurance. Boomer of Boomer and Echo (Robb Echo) wrote an excellent article on how much we spend on our pets. In the article Boomer noted that the average dog owner spends $1,800 a year. I got the feeling Boomer found this to be on the high end. So being the anal accountant I am, I went back to look at my Quicken data for the last three years and found my annual cost per dog was closer to $2,800 a year. Ouch. Last week in Carrick on Money, Rob Carrick posted this article on the lifetime costs of owning a dog, which I consider on the low end.

The major reason my costs are higher than the “supposed average” is that when my kids went off to University a couple years ago, we decided to hire a dog walker a couple days a week. Our dog walker is also our dog's trainer. She is publicity shy, so I will not mention her name, but she is a great trainer and walker and loves the dogs. That being said, two things became glaringly evident: dog walking is a nice gig if you can get 4-6 dogs for each walk, and we could easily reduce our costs if we cut out our dog walker.

The other Costs

Food – $65 for each bag of food (special food required due to Whitney having crystals in her urine), so around $800-$900 a year in total.
Grooming – $110 ($55 each dog) for grooming, so around $500 a year.
Vet costs – vaccinations, heart worm medication, check-ups, (each dog has required an operation and had some skin infection); so from $1,000 to $2,000 a year.
Kennel costs – when on vacation if a family member cannot take the dog (we are lucky, often our breeder takes in our dogs at a reasonable cost), the costs of boarding can be as high as $400-700 per week for both dogs.  
Dog singing lessons- just joking, but check out Reggie and Whitney singing. Whitney actually sings on demand. She is often the star attraction at family gatherings and some relatives start singing on purpose to get her crooning.

I am sure many readers are thinking I am nuts for spending that much on our dogs, but if you are a dog lover, you understand this. If not, you never will.

Rant

The great “dog’s life” I discuss in the first paragraph, is unfortunately dependent upon the dog being purchased or adopted by a great family. Many a dog has been mistreated, abused or worse by miscreants who had no right owning a dog. If I ran the court system, any kind of criminal infraction against dogs, or any animal for that matter, would be treated the same ways humans are and would be interchangeable in court sentencing (although we don't exactly levy heavy sentences for many human infractions). Anyways, I am off on a tangent, but now I feel better.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

How Not To Move Back In With Your Parents - Book Review and Giveaway

Rob Carrick of the Globe and Mail is one of my favourite finance writers. Back in March, he had the audacity to release his latest book, How Not To Move Back In With Your Parents, during income tax season. As such, I wasn’t able to read the book until recently, but, as they say, better late than never. Rob has been kind enough to provide me with two copies to give away to readers (see the details at the end of this post).

The book is promoted on Rob's website as a book that speaks not only to late teens and 20/30-somethings, but also to their parents. Rob states “There’s a lot parents can do to help their kids develop good financial habits, and to strategically assist them as they graduate, move into the workforce and start a family”.

As a father of a 22 and 20 year old, I was intrigued by the book’s premise.
I just finished reading the book and quite enjoyed it. Rob is blunt (a trait I certainly admire) and I really appreciate his no-nonsense, give it to them straight-up approach in providing advice to both parents and their children. While his approach would seem to resonate with parents of my generation, Rob also seems to have a finger on the pulse of the younger generation, which is reflected in his humorous and informative case studies.

Personally, I think Rob may be slightly ambitious with his dual objective of speaking to parents and young adults. It is not that I don’t think he does an excellent job in reaching both audiences; I am just dubious that the younger audience will take heed until they have made many of the mistakes he tries to save them from. I know that when I try to give my son financial advice, it is like talking to a wall, a wall that has eyes that roll up and down and I know a little bit about finances. Hopefully, I am wrong and young people have/ will embrace this book, because it is definitely an excellent guide for them.

Chapter Outline

Below is a chapter summary. I have noted my favourite comment Rob makes in each chapter. I just find them insightful, practical and several caused me to chuckle.

Chapter 1: Affording College or University – “Unless your parents are okay with you being loaded down like a mule with student debt, they should be paying as much attention to RESPs as to TFSAs and RRSPs”.

Chapter 2: How to Handle Debt, Both in School and Afterward – “Shrewd handling of credit is one of the things that defines a financially successful person”.

Chapter 3: You and Your Bank – “Banks are basically stores that offer financial products for sale. They are in business to sell you stuff, not to be your adviser, your partner or your friend”.

Chapter 4: Saving, Budgeting and What to Do if You Have to Move Back Home – “A little parental support at a key moment can help position you for a lifetime of success”.

Chapter 5: Looking to the Future: RRSPs and TFSAs – “A moderate, steady approach to retirement saving is the best present you can give your future self”.

Chapter 6: Mobility: Or, Cars and You – “Stay car-free as long as possible after you graduate”.

Chapter 7: Buying a Home – “Renting can be the shrewder move than buying if you cannot properly afford the full cost of buying and owning a home”.

Chapter 8: Weddings and Kids – “Arrange the best wedding you can afford”. Also, I could not resist this nugget on engagement rings that probably alienated half the females reading the book: “Men, don’t buy that crap about spending 3 months’ salary – spend what you can afford and remember that you can always buy a nicer ring later on as an anniversary present”.

Chapter 9: Insurance and Wills – “Young adults starting a family have a lot of expenses and term life is the most economical way to provide for a family in case of disaster”.

I am going to give away one free copy of Rob’s book to both a young adult and a parent. To enter the book giveaway, in the comment section below, please provide your first name and the first initial of your last name and identify yourself as a parent or young adult. Then, either provide a comment on the blog post, or give me your best financial tip for a young adult from a parents perspective; or if you are a young adult, the best tip you would give to another young adult. For my more social savvy readers, you can tweet your comments to me, including the hashtag #BluntBC. I will announce the two winners next Wednesday on my blog and twitter account.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Are RRSPs the Holy Grail of Retirement Savings or the Holey Grail?

In March 2011, I wrote a blog post disputing Jamie Golombek’s assertion that RRSPs are not the Holy Grail of retirement to Canadians. In May 2011, I followed up the above noted blog with another post in which I attempted to reflect that RRSPs are only accessed under financial duress.

Based on the above two blog posts, clearly my opinion has been that RRSPs are the Holy Grail of retirement planning for Canadians. However, I am beginning to wonder if my personal experience in dealing with higher net worth people who tend not to "touch" their RRSPs, has distorted my view of the situation and RRSPs are really a "Holey Grail".

The catalyst that has led me to second guess myself as to whether RRSPs are really sacrosanct is a recent poll (of 2,013 people) undertaken by the Scotiabank on Canadians' mindset regarding RRSPs.

The poll states that “one-third of RRSP holders (36 per cent) reporting taking money out of their RRSP this year, up from 23 per cent back in 2005”. The poll also reported “the average amount Canadians withdrew from their RRSP was $24,531. In 2005, the average amount Canadians withdrew from their RRSP was $10,716". 

What I personally found shocking about the poll was that “Canadians aged 55+ (41 per cent) are more likely than 18-34 year olds (32 per cent) and 45-54 year olds (30 per cent) to have taken money out of their RRSPs”. Although one must take into account people greater than 55 years old will have larger RRSPs from which to withdraw, one would think that of anyone, those closest to retirement would consider their RRSPs as Holy Grails. However, as noted by the Canadian Investor in the comments area, some +55 year olds may be accessing their RRSPs as part of their retirement plan, in essence lowering and/or smoothing their income tax liability and funding retirement expenses.

I summarize the poll numbers below (Note: I have used the numbers in the Scotiabank press release and from an article in the Financial Post by Garry Marr on “What not to buy with your RRSP”, to pull these numbers together, as I could not directly access the survey).

Reasons People Withdraw from Their RRSPs

Buy a first home - 40%

Pay down debt - 16%

Convert to a RRIF - 15%

Cover day-to-day expenses - 14%

Home renovations - 8%

Vacations - 6%

Education - 4%

Medical - 3%

Holy Cow - Did you really use your RRSP for a Suntan?

So, let’s step back for a moment to review the reasons provided by Canadians for withdrawing money from their RRSPs and examine whether my postulation that RRSPs are the retirement Holy Grail is flawed.

In total, 14% of RRSP withdrawals are used for home renovations and vacations; two fairly self-indulgent and discretionary expenses, that most would suggest should not be funded by a RRSP. What is scary is that number would be much higher if we added the percentage of day-to-day expense withdrawals that were for discretionary expenses such as tablets and TV's. Ouch, not much of a holy grail.

Holy or Holey?

The Scotiabank poll still reflects that 64% of the population do not access their RRSPs and that percentage would move closer to 70% if we exclude the legislated conversion of RRSPs to RRIFs, which are not true withdrawals.

If you believe that first time home purchases are technically just loans from your RRSP and not true withdrawals, the percentage increases to almost 85%. Finally, if you believe paying back debt is just a result of financial duress and not because RRSPs are holey, it could be argued the percentage of people accessing their RRSPs is a relatively small narcissistic percentage.

So let's look at the top two reasons for RRSP withdrawals in greater detail.

Buying a First Home

As noted above, the largest single reason for withdrawing money from a RRSP is the purchase of a first home. This is an extremely complex issue to analyze, because the CRA has condoned the use of RRSP funds for first-time home buyers. Many people make RRSP contributions they would never have made in the first place, knowing they will get an immediate income tax deduction and tax refund, while keenly aware that they will utilize these RRSP funds to assist in purchasing a home in the short-term.
 
In the Scotiabank press release, Bev Moir, a ScotiaMcLeod Wealth Advisor, said the following: "Investing in a home and investing in retirement are both important parts of life and finding a way to balance both is key. If Canadians are going to take money out of their RRSP for a major purchase like a house, they need to have a plan in place to return that money as soon as they can so they don't limit their options in the future. “  

The problem I have with Ms. Moir's statement is that it ignores the reality of the situation. People buying their first home typically struggle to just repay the yearly minimum Home Buyers Plan (HBP), which is re-payable over 15 years. In my CA practice, it is my experience that many people do not make the required yearly HBP repayment. The consequence of non-payment is that the required payment amount becomes taxable income in that year; which results in additional income tax and a further deterioration of potential retirement funds. Even where people have a plan and make the yearly repayments, years of tax-free compounding are forgone and their future retirement options may be limited to some extent.

Here is what Rob Carrick of the Globe and Mail has to say on this topic. In his book How Not To Move Back In With Your Parents Rob says that when people ask him should they contribute to their RRSP so they can withdraw money under the HBP his answer is "Uh no. You contribute to an RRSP to save for retirement. If you need some of your RRSP to afford a house, fine. But there's too much of a tendency for people to see RRSPs as a savings account from which money can, if necessary, be withdrawn."

Personally, I don't think using a RRSP to purchase your first home negates my Holy Grail argument. The intention of the HBP program is in essence to provide a 15 year or shorter term "self" mortgage, while keeping your RRSP whole; however, like any legislation that has more than one objective, both objectives cannot be fully satisfied.

Repayment of Debt

I discussed the issue of excessive Canadian debt in my blog, Debt – An Ugly Four Letter Word. Accessing RRSP funds to pay down debt is a blog on its own, so for now, I will only say, often RRSP withdrawals related to debt repayment are accessed under financial duress. Now whether this duress is self-inflicted due to excessive discretionary spending is another question entirely.

Rob Carrick in his book states that "there are better ways to accomplish this very worthwhile objective" than using your RRSP to repay debt. I discuss some of these ways in my above noted Debt blog post. Rob also makes a great point in noting that the statutory withholding tax rate attributable to RRSP withdrawals is often less than the person's marginal income tax rate, which can result in an income tax shortfall, which creates yet another new debt. In that regard, if a RRSP is accessed by a taxpayer in the 31% marginal tax bracket (the tax bracket the average Canadian would be in) to pay down debt, they will only be applying approximately $69 of each withdrawal to pay down their debt after the CRA takes its tax bite.

My Final Comment

At this point, I can only suggest that RRSPs are the Holy Grail for at least 70% of Canadians. However, for a disturbingly large segment of the population, RRSPs are the Holey Grail. For this percentage of the population, instant self-gratification, whether in the form of a nicer house, vacation or the latest electronic gadget, is of greater importance, than a distant concept called retirement. As for the high percentage of 55+ year olds making RRSP withdrawals, I am very concerned for their retirement if the withdrawals are not being made as part of their retirement plan.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

It's Bean Two Years

Last week, one of my partners at the office commented "that he could not believe how many blogs I had written'. Since I had not really paid much attention to my running total, I went back and determined that I have posted 210 blogs to date. Today will be number 211. That is a lot of blogs when you consider the technical nature of many of my topics and the fact that I tend to write long blogs, despite advice to the contrary.

Today's blog post also marks the second anniversary of my blog which debuted September 20, 2010.

I have been told by several people that when they Google a tax topic, The Blunt Bean Counter is often one of the first links displayed. I am not sure whether I should be impressed with that information or consider the possibility that I write on such boring topics that no one else bothers to write on those topics. I have however, managed to write several blogs on some taboo money topics that have been fairly original in nature and received some recognition.

Over the last year I have received some critical acclaim; being nominated for a Plutus award (I did not win), having multiple mentions in Rob Carrick’s Reader, and being noted as a must read in Money Sense on four or five occasions. I have also been quoted in the newspaper a few times and even been interviewed.

Another blogging accomplishment this past year was creating the Bloggers for Charity initiative, in which Boomer & Echo, Canadian Capitalist, Michael James on Money, Canadian Finance Blog, Retire Happy Blog, Financial Highway, Canadian Financial DIY, Where Does All My Money Go, Young and Thrifty, Canadian Personal Finance Blog and my blog, raised $12,575 by auctioning off our blogs for a guest blogger for the day.

All in all, my decision to write has worked out very well, especially considering I really had no game plan other than to write a blog. Despite the time it takes to write many of my posts, I really enjoy writing them and it is rare that the task is burdensome. Now, how many blogs I have left in me is a question I cannot answer at this time?

Finally, although I do not have the largest financial blog following in Canada by any means, I have many readers who take the time to write to me privately, encouraging me or congratulating me when they like a blog, or offering constructive criticism when they don’t like something I wrote. I would like to thank those loyal readers of The BBC – thank you!

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Globe and Mail - Let’s Talk Investing Interviews

I would like to thank Rob Carrick of The Globe and Mail for interviewing me for the “Let’s Talk Investing” series. I link the three interviews below.

Following the first interview (Why you should give your Kids their Inheritance while you’re Alive), my so called friends and family let me know that I had a face and personality made only for blogging, and offered to buy me media training for my next birthday present. I dejectedly stated in a weak defence, that I did not have any takes in any of the interviews, and I should at least be given credit for that. They did not buy that, but I did not expect much mercy.

However, the reviews for my second (How to keep the Kids from Fighting over your Will) and third interviews (Your Inheritance and the Taxman) where much more positive, so much so, that I was offered a TV series to be called The Blunt Bean Counter Gets Blunt.

Just joking about the TV series. The interviews were a fun experience and I had a great lunch with Rob, lamenting the fact we are both long suffering Maple Leaf fans.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Blunt Bean Counter noted in The Globe and Mail

Thanks to Preet Banerjee for referencing me today in his Globe and Mail column. His column today is titled "Share your family fortune now to reap the rewards". Preet is a well-known financial expert, who writes a column for the Globe and Mail, is the money expert on the W Network and is the blogger behind the blog WhereDoesAllMyMoneyGo.com. I am not sure if he still has another real job :)

I would also like to give Preet props for participating in my Bloggers for Charity initiative, in which he raised $5,000 for charity. He is obviously an altruistic financial guy; yes, I know that term is usually an oxymoron.

This is the fifth time that I know of, that one of my blogs has been at least in part an inspiration for a newspaper column. Preet's column today quoted from my blog "A Family Vacation- A Memory worth not Dying for". Personally, it is self-satisfying when my blogs provide an inspirational thought or idea for others, given the time and effort required to create many of the blog posts.

I am particularly pleased that only one of the inspired newspaper columns has been an income tax based article. I look at my income tax blogs as loss leaders. I write income tax blogs since they show a professional competence (or incompetence) and they fill an information void since I think there is only one other mainstream blogger (Canadian Tax Resource) doing such that I am aware of. 

However, what I really enjoy writing are my blog posts on how money and finances impact families, relationships and the psyches of individuals. After 25 years of practice as a CA, I have seen most of what is to be seen in that regard, so I write from a perspective of experience.

Since I have severe restrictions on site advertising as a Chartered Accountant, I am not blogging for financial gain (although I do get the occasional client from my blog), but mostly because I enjoy doing so and as such, I appreciate it when columnists such as Preet, Roma Luciw, Rob Carrick and other financial bloggers, most notably Boomer & Echo, Canadian Capitalist, Big Cajunman, Michael James, Jim Yih,  My Own Advisor and Money Sense Online appreciate my blog posts whether as an inspiration for a column or as a recommended read. Thanks!

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

20 Things I Don’t Understand About Income Tax

Rob Carrick recently wrote a great column in The Globe & Mail entitled, “20 things I don’t understand about personal finance”. The article caused me to smirk and chuckle several times. As they say, imitation is the sincerest form of flattery, so here are the top 20 things I do not understand about income tax:

1. Why can’t spouses file joint income tax returns as is permitted in the United States? It would equalize income tax rates, simplify our tax system, reduce the administrative time required to prepare and process personal income taxes and reduce the amount of paper the Canada Revenue Agency ("CRA") receives each year.

2. Why are parents only allowed a transfer of $5,000 of their child’s unused tuition, education and book credits? The parent is often the one who paid the costs of tuition, why is the credit transfer restricted. At a minimum, this cap should be re-evaluated in the wake of rising tuition costs.

3. Why people are so consumed with saving income tax that they buy tax shelters of dubious nature? There are numerous shelters or schemes out there that purport to reduce income taxes significantly. People are so hungry to reduce their taxes that they forgot their common sense – if it sounds too good to be true, it probably is.

4. Why child care expenses must be claimed by the lower income spouse? The motivation behind the child care deduction is to get people with children back to work to help drive the economy. Who’s to say which spouse was the spouse that was enabled to head back into the work force by hiring child care?

5. Why so many people ask for their RESP tax deduction receipt? Receipts aren’t necessary since the contributions are not tax deductible.

6. Why when one spouse has a tax refund and the other owes money, you can’t net the refund and tax payment against each other? Again, this would simplify our tax system and reduce the administration and paper work for the CRA.

7. Why people are loathe to realize a capital gain on an investment because they will have to pay income tax on the gain (which by the way, will be subject to tax at maximum rate of 23%)? Often individuals wait too long before selling and end up converting what would have been a capital gain into a capital loss (case in point: individuals who held shares of Nortel too long because they did not want to pay the income tax on the inherent gain). I have a whole blog on this topic upcoming.

8. Why do so many people think they can contribute the maximum RRSP limit to both their spousal RRSP and their own RRSP? It is one RRSP limit per person, regardless of the number of RRSPs contributed to.

9. Why people complain about income tax preparation fees, which help reduce the risk of costly potential future re-assessments, yet they are willing to "blow" thousands of dollars on investments in ridiculous companies or options trading they heard about on the radio without blinking an eye? 

10. Why don’t people who can deduct their car expenses, not note their odometer reading on January 1st and December 31st of each year. This would provide them with at least the total km driven in a given year, even if they are not willing to keep log books? The CRA has relaxed their administrative position concerning log books recently, but I still think there is no substitution for a log book and at minimum, noting your odometer readings at the beginning and end of each year.

11. Why the withholding taxes on RRSPs are graduated? Withdrawals up to $5,000 are subject to a 10% withholding tax; withdrawals between $5,001 and $15,000 are subject to a 20% withholding tax; and withdrawals of $15,001 or greater are subject to a 30% withholding tax. These graduated rates often cause significant income tax owing in April since the size of the withdrawal has no correlation to the taxpayer’s marginal income tax rate. All withdrawals should be subject to higher withholding rates (or withholding at the highest marginal tax rate) to prevent this issue.

12. Why does the CRA constantly send information requests for documentation to support child care claims in relation to nannies? Taxpayers are required to report the nannies social insurance number when claiming a child care expense. All that is required by the CRA is to match the social insurance number to the T4 filed by the employer for the nanny. The CRA has other programs which match items in a person’s tax return to a T-slip, why can’t they include this?

13. Why do people pay no attention to the RRSP contribution limit information on their income tax assessments when planning their RRSP contributions for the year? An individual’s RRSP contribution limit for the upcoming year is printed right on the Notice of Assessment for the prior year. It is also available on-line assuming that you register for on-line access on the Canada Revenue Agency’s website.

14. Why don’t people create a file folder for charitable donations they make during the year? If a donation is made online, they can print out the confirmation at the same time and replace the confirmation with the actual online receipt when received. Alternativey, if a cheque or pledge is made, make a copy and replace that copy when the actual receipt is received in the mail. By doing such, at year end it will be clear which donation receipts are missing and have to be chased down.

15. Why do people have money in non-registered accounts but yet they have not fully funded their TFSAs? Just transfer $5,000 each year, non-taxable is always better than taxable.

16. What do post-secondary aged children have against printing out their T2202A tuition receipts for their parents without being admonished? They are now at the age where they are supposed to be considered responsible adults – they should act like one.

17. Why do people who buy stocks not create a spreadsheet to track the cost (adjusted cost base) of the stocks purchased? In addition, when stocks are inherited from parents or grandparents, why not note the value reported on the parent’s or grandparent’s terminal income tax return so the cost base is not lost. You wouldn’t believe the number of times that shares have been passed down from one generation to the next where the recipient has no idea of the actual cost base.

18. Why do people transfer assets to try and save probate taxes without understanding the consequences for income tax. See my blog on probate taxes for a discussion of some of the possible detrimental income tax consequences when tranfers are made blindly for probate purposes.

19. Does the public transit credit or the children’s fitness/activity credit really incentivize anyone to use public transit or put their child in a sports/activity program? The tax benefit from these credits is so small. If the government really wanted to advocate these behaviours or activities there are better ways to do this than offer petty tax credits.

20. Should the labour sponsored funds tax credit be more appropriately called the convert $5,000 and turn it into a $1,000 credit? Enough said.

I am sure I could come up with another list of 20 plus things I don’t understand about income tax, but I will leave that for another blog for a rainy day.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Blunt Bean Counter Noted in Rob Carrick’s Reader

Today my blog Investment Bravado, Little White Lies and Why Kiss and Tell Investing can get you shot was mentioned in Rob Carrick’s The Reader.

Rob has honoured my blog several times in the past few months. As a blogger who can only hope to "bluntly blog" on some complex income tax and investment topics, I sincerely appreciate the “critical acclaim“ from a truly sophisticated financial writer.

Not that Rob needs much introduction, but here are links to follow Rob’s various online writings:

The Reader

His columns in the Globe and Mail

His Facebook

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.