May 2025 Poll

Does the Liberal promise expected soon to cut the lowest personal income tax rate by 1% to 14%,  go far enough to help Canadians impacted by high costs?

Canadians seem to be less concerned about the disappearance of defined-benefit pensions than the experts. According to a new report by BMO Retirement Institute, Canadians generally like the increased flexibility of capital-accumulation plans such as defined-contribution plans and group RRSPs. Yet, the report, entitled Perfecting the Workplace Pension: The Quest Continues, points out: "Capital-accumulation plans do have a serious drawback: instead of having a guaranteed income, how much retirement income you can count on depends a lot on how much you have saved and how well you have invested.î Certainly, the number of employer-sponsored pension plans has decreased. As the report states, only 33% of working Canadians are part of an employer-sponsored plan, down from 41% in 1991. Over the past 20 years, DB plans in particular have become scarce, with membership dropping to less than 16% of private sector workers from 31%. From 2008-2009 alone, membership in private sector DB plans declined nearly four percentage points. Public sector employees have fared better. More than 80% of public sector employees, but representing less than one-quarter of the workforce, still have DB pension coverage. Yet, most Canadians seem unconcerned. BMO Retirement Institute asked Canadians aged 25 to 64 who are not yet retired to name the factor that was most important to them when they considered a job opportunity. Respondents across all age ranges placed a relatively low priority on a good retirement pension. Overall, only 7% of all respondents selected a good retirement pension as the most important factor. Salary (47%) and flexible work arrangements (22%) were considered far more important. "Even as Canadians continue to be inundated in the media with dire warnings of a future retirement income shortfall,î says the report, "they are demonstrating a clear preference to maintaining control, whether over their current remuneration, work hours or work locations, as compared with the promise of a future benefit.î For a copy of the report, go to www.bmo.com/retirementinstitute.   Additional Educational Resources: Master Your Retirement 2012 Edition and Tax-Efficient Retirement Income Planning  

The paltry increase in employment in January ó 2,300 positions ó was seen by many economists as yet another indication of Canadaís slowing economy, especially when taken in conjunction with a 36,500-job decrease in the last quarter of 2011. The jobless rate increased a mere 0.1 percentage point to 7.6% in January. "Canadaís labour market is exhibiting a clear trend of increasing slack,î writes economist Emanuella Enenajornin in a report for CIBC. "These figures are consistent with an economy fighting to keep its head above water,î adds Derek Burleton, deputy chief economist at TD Bank Group. A discouraging outlook but there is some good news buried in the Statistics Canada data released last week. The number of paid employees increased by 39,000 in January, with private and public sector workers sharing the gains equally. In fact, January marked the third straight month for increases in public and private sectors employment, with education positions leading the public sector. Notes Burleton in his report: "This was perhaps the most surprising detail in the report, in view of recent focus by governments on fiscal restraint.î These gains, however, were offset by a 37,000 decline in the number of self-employed. That, reports Dawn Desjardins, assistant chief economist at Royal Bank of Canada, may go some way to explaining the 44,800 drop in professional services positions in January 23,200 fewer positions in the finance, insurance and real estate sector. The latter may be the more worrisome trend. On a 12-month basis, StatsCan notes, employment in professional services remained 23,000 or 1.8% ahead. But, notes CIBCís Enenajornin, in the past six months 73,000 positions have been eliminated in the finance, insurance and real estate sector ó "the biggest loss in any single sector of employment.î The industry sector that fared the best? Says StatsCan, "While employment in natural resources was little changed in January, it has posted the highest 12-month rate of growth of all industries, up 8.5% or 28,000 since January 2011.î On a geographical basis, Canadaís two most populous provinces are still struggling. Quebecís employment edged up slightly in January but year-over-year, employment was down 1.1% or 45,000 jobs. Quebecís unemploymentís rate is 8.4% while Ontarioís is 8.1%. Despite little change in January, Ontario is 0.7% or 44,000 jobs ahead of January 2011. Tessa Wilmott is the editor of Knowledge Bureau Report. On a demographic basis, StatsCan reports employment among youths aged 15 to 24 edged downward for the fourth consecutive month. Youth employment was 31,000 or 1.2% below its level in January 2011 and the unemployment rate was 14.5%.   Additional Educational Resources:  Debt and Cash Flow Management  

Governments getting their fiscal houses in order are asking taxpayers to depend less on government services and take more responsibility for the future. But those same taxpayers are wrestling with two layers of taxes: taxes on income, which erodes current income, and taxes on capital appreciation, which erodes future income. This seems counter-productive to the concept of self-reliance. That begs questions about our tax system. Should current income be taxed more than the future income that capital appreciation provides, as happens now? Should they be taxed equally? Or should capital appreciation ó often seen as the purview of the wealthy ó be taxed more than current income? These are very important considerations, especially in these volatile times, and there are arguments to be made on both sides. On the side of lower taxes on current income is the time value of money. Presently, taxes leave taxpayers with fewer after-tax dollars to put into the tax-advantaged savings vehicles at their disposal: Tax-Free Savings Accounts (TFSAs), which create tax-exempt income from after-tax dollars, and tax-deferred registered accounts such as Registered Retirement Savings Plans(RRSPs) or employer-sponsored pension plans. When governments take tax dollars off the top of taxpayers' employment income, they remove important wealth-compounding opportunities. At the outset, savings balances are lower, and the advantage of whole dollars compounding over time is lost. The most important defence a responsible taxpayer has is the ability to keep more of the first dollar he or she earns and invest it promptly in a tax-protected account. Then, he or she is in a position to create the self-reliant income required for the future. (Governments, meanwhile, still have an opportunity to tax future income.) Unfortunately, millions of Canadians are using their after-tax dollars to fund non-discretionary needs and do not have enough "redundant incomeî to save for the future. (See "Contribute to your RRSP,î Knowledge Bureau Report, Feb. 1). But spending decisions also factor into the equation. Families can work toward creating "savings roomî and tax efficiency will jump-start that process. For example, an RRSP creates new capital through tax savings that, in turn, can fund TFSAs, RRSPs, non-registered accounts and non-financial assets. Those with taxable assets come up against a second erosion of wealth ó the tax on accumulated capital. Many think the asset-rich should pay more and government taxes at the time of actual sale or "deemed dispositionî (death or emigration, for example) should be higher. We want to be very careful here. If the goal is self-reliance, we donít want to rob future generations of the ability to earn income on that inherited capital ó or future governments of the ability to tax the income that will be generated by it. Yet another factor affects capital accumulation: because the adjusted cost base of a capital asset is not indexed to inflation, any increase in inflation subjects the value of capital to a powerful and hidden tax, one that's based on inflated values rather than real values. Government coffers win in times of high inflation; investors lose on a net basis. So, which should be taxed more ó current or future income? There is no easy answer. In the end, what matters to everyone ó individuals, families and communities ó is what we keep and how much it is worth when we need it. In this volatile economic climate, ensuring financial freedom for the future is, at best, difficult. It's Your Money. Your Life. Do you understand how your current income and future income from accumulated assets are taxed? If you are not sure, ask your tax and financial advisors. Discuss what you can do to protect your income and capital from the eroding effects of tax and inflation and manage both better to secure your financial future. Evelyn Jacks, President of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. Mrs. Jacks will be launching her books and addressing today's financial and tax issues in Winnipeg on Feb. 9. To register, click here.  

Real gross domestic product (GDP) fell 0.1% in November. The unexpected decline, on top of a flat October, has convinced many economists that the Canadian economy is slowing sooner than anticipated, indicating continued shepherding of your personal wealth. "If GDP manages to rise 0.2% in December,î writes Doug Porter, deputy chief economist at Bank of Montreal, in a report, "and that's no sure thing after back‐to‐back disappointments, growth will come in a touch below 1.5% in the fourth quarter, compared with the Bank of Canada's latest estimate of 2.0%.î According to Statistics Canada, reduced output in the energy sector was behind the November decline. Oil and gas extraction dropped 2.5% in the month, partially the result of maintenance shutdowns. Decreased drilling activity made for a 3.8% drop in support activities for oil and gas extraction. Certainly, as Porter notes, most of the downside was concentrated in that one category, but no other sector "stepped upî to provide any offset. For the third consecutive month, manufacturing output did increase ó but only by 0.6%. "Expectations of an increase in overall GDP in November were largely based on earlier indications of a sharp 1.7% rise in the volume of manufacturing sales in the month,î reports Paul Ferley, assistant chief economist at Royal Bank of Canada. Manufacturing growth was mainly in the production of durable goods such as machinery and motor vehicles (+0.9%) vs. non-durable goods (+0.1%). According to StatsCan, fabricated metal products, furniture and related products, and primary metal products also posted gains in output while manufacturing of computer and electronic products posted declines. Other major categories that increased output are retail trade (0.6%) and real estate and brokers (2.2%). Among those that decreased output are utilities (0.6%) wholesale trade (0.6%), finance and insurance (0.4%), and construction (0.3%). "After a strong third-quarter performance (+3.5%), economic growth in Canada has clearly lost momentum,î writes Dina Cover in a TD Bank Group report. "Overall, we expect the modest rate of expansion recorded in the fourth quarter to carry over into 2012.î If the economy is slowing at the rate projected, this has serious implications for the management of your personal wealth. Cautious spending and reduced debt are in order, as is guarding your wealth against the eroding effects of personal income taxes. If the employment environment worsens, have a back-up plan in case job loss threatens your financial well-being; consider opportunities for self-employment. Having a disaster recovery plan will help see you through what could be a challenging 2012. Additional Educational Resources: Debt and Cash Flow Management and Introduction to Personal Tax Preparation Services.  

The Feb. 29 deadline for 2011's RRSP contribution is fast approaching and if you are like a number of Canadians, you may well be procrastinating. It seems that when it comes to contributing to RRSPs, Canadians' intentions are far better than their actions. Take, for example, a recent survey of 1,520 Canadians 18 years of age and older conducted this past November on behalf of BMO Financial Group. Of the respondents, 69% said they would be contributing the same amount or more to their RRSPs in 2011 as they did in 2010. Yet, a recent Statistics Canada release shows less than one in four Canadians contributed to his or her RRSP in 2010. In fact, although 93% of taxfilers were eligible to contribute, only 26% of those who were eligible did. In reality, slightly less than six million Canadians made contributions in 2010. (Data is based on tax returns filed for 2010.) Either those Canadians surveyed in November were feeling optimistic about future contributions or they were being ironic: they contributed nothing last year and they intend to contribute nothing in 2011. Those who did contribute in 2010 put a total amount of $33.9 billion into RRSPs, a 2.6% increase from the amount contributed in 2009. But that $33.9 billion still represents only 5.1% of the total room available to eligible taxfilers. In fact, says StatsCan, the median contribution was $2,790, that is half of the tax filers contributed more than $2,790 and half less. Either way, that is a long way from the $22,000 maximum for 2010. This year, the maximum contribution is $22,450. To contribute, you must have qualifying income from 2011 (generally employment income which includes income from self-employment) or unused room from earlier years. The limit is based on 18% of the previous tax year's earned income to that maximum, less any pension adjustments, plus any unused room carried forward. (You can find your RRSP contribution room for 2011 by going to your latest notice of assessment, or reassessment, from Canada Revenue Agency. Or you can open "My Accountî on the CRA website, which gives you online access to your tax information.) Of the respondents to the BMO survey who are not contributing or are contributing less this year, 38% cited other expenses and 20% said they don't have the money. Yet, the BMO survey found, 61% of Canadian have an RRSP even if they don't make regular contributions. But it is mostly older Canadians putting money into RRSPs: 62% of respondents aged 18-34 said they have not yet opened an RRSP. That is consistent with StatsCan's findings. In 2010, the average age of contributors was 45. Of the almost six million taxfilers making contributions in 2010, 30% were in the 45-54 age category. The 35-44 age group accounted for 24%, while the 55-64 age group added another 21%. The under-35s accounted for 22% of contributors ó still slightly ahead of the 55-64 age group, who, you might assume, would be more motivated to save. Geographically, looking at median contributions in 2010, Canadians in the north and west were the largest contributors to RRSPs in 2010. Nunavut's median contribution was $4,100, Northwest Territories' was $3,610, Yukon's was $3,310. But as might be expected, the number of contributors was smaller in those areas. Ontario and Quebec had the greatest number of contributors, 2.2 million and 1.5 million, respectively, but were in the lower half for median contributions, $2,880 and $2,530, respectively. So, stop procrastinating and make your RRSP contribution. Don't forget the corresponding tax credit means your taxable income will be reduced by the amount of your contribution. The BMO survey also found one in three Canadians is not confident about his or her ability to save for retirement. The StatsCan numbers go a long way to explaining why. Tessa Wilmott is a financial journalist and editor of the Knowledge Bureau Report.   Additional Educational Resources: Tax Efficient Retirement Income Planning and Master Your Retirement, 2012 Edition.  

This week, a friend in business lamented the shocking loss of a key employee. The unanticipated death closed down the firm for several days as fellow employees absorbed this traumatic loss. It was the tenth death within this circle of employees, suppliers and clients and their respective families. When it rains, it often pours. Although very difficult emotionally, conceptually we understand the consequences of human frailty and demise. As humans, we do our best in times of great change: we rally around those who are vulnerable. Again and again, we cope with the stages of grieving ó moving from shock and denial to pain and guilt to anger and bargaining and, finally, to the beginnings of acceptance: reflection, re-organization and re-construction. People around the world are reacting to the disruptive and sometimes devastating effects of the extended global financial crisis with this same shock, denial and anger. And the challenge for governments is to manage these global economic threats to our fiscal health while keeping cherished social benefits in place. In Canada, there are big issues ahead for the large, baby-boom generation and the government that counts on boomers' continued contribution to its tax coffers. For their part, boomers are at the front door of retirement and are facing significant changes to Canada Pension Plan benefits and, possibly, access to Old Age Security. This comes after a decade of zero returns on their savings or, worse, the reduction or demise of their employer-sponsored or private pension plans. For its part, the federal government is already seeing interest charges on our public debt and support to the elderly eat up 11¢ and 13¢, respectively, of a dollar of government revenue. On the revenue side, the federal government counts on personal income taxes to provide 48¢ of every dollar of revenue collected. This source of revenue will be difficult to grow as this significant group of taxpayers heads into retirement. Fortunately, Canada is in a good position to balance global economic threats and preserve social benefits. According to the federal Department of Finance's Fiscal Monitor, released last week, the budgetary deficit for the first eight months of the government's 2011-12 fiscal year was $17.3 billion, vs. $26 billion a year earlier, a 35% improvement. Net tax revenues were up; program expenses were down. Public debt charges, however, increased and that is a threat for retirees. Higher deficits cost more money to service and, should interest rates rise, the ability to maintain or increase existing social benefits will be squeezed. It's important to anticipate that now so you can chart an alternate course if required. And so it goes: the burden of the healthy is to manage the consequences of decline and loss with grace and strength and to take the very best possible care of those who are vulnerable. It's Your Money. Your life. Things change. This tax season, take the time to find ways to save more of your income, so you can build and grow family wealth. Challenge your tax advisors to dig for every tax deduction and credit to which you are entitled, so you can reduce non-deductible debt and invest more tax-efficiently. This is one of the best ways to build your pensions and investments so you'll be ready for unexpected personal and/or economic shocks. Evelyn Jacks, President of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. Mrs. Jacks will be launching her books and addressing today's financial and tax issues in Toronto on Feb. 7 and Winnipeg on Feb. 9. To register, click here.