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As announced by “Canada’s New Government” in their Tax Fairness Plan of October 31, 2006 … that introduced income splitting for pensioners to increase the rewards from retirement saving effective as of the 2007 taxation year … NEW INFORMATION is now available on the CRA Web site.

This will benefit a good handful of my own clients, and in addition to just linking out the CRA news release, I thought I would just post this information again in my blog for clarification!

If you are receiving pension income in 2007 other than CPP and OAS greater or less than your spouse .. this post is for you!

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Psssst! Deloitte & Touche, LLP .. has updated their “Quick Tax Facts 2007” publication. It’s worth printing it out these 2 pages and keeping a copy on your pegboard for quick perusal …

I keep a printout of something like this on my pegboard for quick estimates while I am on the phone with clients. For instance, if an individual in Manitoba makes $100,000 per year, the combined taxes would be about $32,270. If two individuals each make $50,000 per year, the combined taxes would be about $12,204 each (or $24,408 total). Just knowing this “on the fly” is helpful at times. In Canada, our marginal tax rates are ‘graduating’ in a sense, that once you reach a certain level of tax, the excess is taxed at a higher rate until the next level. In Manitoba, if you earn $100,000 income, you are effectively taxed at 32.27% .. but, if you earn $1,000,000 you are effectively taxed at 44.92%. It’s different in all areas of Canada, because in addition to the federal rates, each provincial or territory have their own tax rates.

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Peter Merrick (BA, FMA, CFP, FCSI) .. President of Merrick Wealth Management, a boutique financial planning, employee and executive benefit consulting firm in Toronto, Ontario .. guest authored an entry here in the 1-800-HART Blog back in July 2005 called Individual Pension Plans - Upgrade Yourself.

He had informed me that the book on Individual Pension Plans that he has been working on for the last few years, has finally been published through Lexisnexis Canada has gone to the presses.

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EGADS … sometimes I get SICK of reading all the tips out there on websites .. in blogs .. reading their lists .. their top ten picks .. etc etc .. Most are purely written because some ‘bloggers’ suggest to others that people really want to read tips and lists (do we have a short attention span?) .. and it will increase traffic.

Y E T … I’ve been quite fascinated with this site: Sound Money Tips … so, I guess I will make my own list.. since .. It’s got tips on everything! More →

Comparing “Net Income” and “Cash Flow” is like comparing “Apples” to “Oranges”. These are two different concepts. You can have a positive cash flow and still lose money. You might be experiencing a negative cash flow but are making money and profits.

Sometimes your banker or investor will ask you to prepare a basic business plan and a Pro-Forma Cash Flow. There’s a reason they want to see this Pro-Forma statement. They want to know if you have the ability to generate cash in your business to pay back their loan and/or return on their investment. Except for the desire that you are a viable company that will be financially stable over the term of the loan or investment, they probably don’t care if you make money or not. Now, don’t get me wrong .. they will look at your Pro-Forma Income Statements .. but, it will become 4th in line (from what I have seen in my line of work). This is generally what they are interested in knowing..

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Retirement Compensation Arrangements
by Peter Merrick FMA, CFP, FCSI

Over the past three decades businesses operating in Canada have found it difficult to provide a worthwhile retirement plan for their top people. A Retirement Compensation Arrangement (RCA) is the Income Tax Act’s retirement planning solution for affluent professionals, business owners and corporate executives.

An RCA enables you to supplement your pensions and registered retirement savings plans, while increasing your financial and retirement security.

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Individual Pension Plans - Upgrade Yourself
by Peter Merrick FMA, CFP, FCSI

Incorporated businesses looking to add a benefit for their owners and top executives might want to consider a little known tax-avoidance structure called the individual pension plan. IPPs are a wealthy person’s answer to registered retirement savings plans. They are sanctioned by the Canada Revenue Agency and offer the best tax and retirement savings solution for individuals 40 years old and older who have a T4 income of more than $100,000 and have historically maximized their RRSPs and pension contributions.

The existing RRSP legislation was created in 1957, at which time inflation and indexing were not taken into account. As a result, RRSP contribution limits are woefully inadequate for high-income earners. In 1991, the federal government remedied the situation by enacting the IPP legislation (in the Income Tax Act of Canada, subsection 147.1) to compensate high-income earners disadvantaged by RRSP rules.

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Financial Planning for Business Owners
by Peter Merrick FMA, CFP, FCSI

At the beginning of my career in the financial planning industry during the early 1990s, I was very fortunate to meet one of Canada’s most successful self-made businessmen. He was in his late 50’s and had much more life experience than me. He told me that the majority of the investment advisors he met over the course of his career did not have the foggiest idea how to make money that lasted, nor did they understand what successful business people were looking for when they sought out professional financial advice.

He told me that when he took a risk he got paid for his risk. He could buy a piece of property for a marginal amount, get it rezoned for a shopping plaza and then get franchisees to sign letters of intent to lease for five years or more when the property was developed. Once this was done he would go off to the bank and borrow on the future revenue that would be generated from these highly profitable leases to develop his properties and create a residual income.

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