Mark Your Calendar: Critical Deadlines for May and June

Tax season never truly ends, it seems, as there are many more upcoming tax filing, investment planning and education milestones to discuss with your clients over the next six months. Check out our handy checklist below and then test yourself – what are the conversation openers you’ll use and with which clients? It’s your opportunity to shine with every member of the household:

We don't often think of the taxman as cupid, but this month, you may have received a Valentine's Day treat: the timely delivery of your 2011 RRSP Deduction Limit Statement. Canada Revenue Agency dropped this simple, one-page form ó complete with easy-to-read definitions ó into the mail early in February, to remind eligible Canadians of their correct RRSP deduction limits. This very useful information arrived in the usual fearsome, brown, CRA envelope. If you trembled and hid it at the bottom of your burgeoning pile of unopened mail, go dig it out. By noting the important information on this form and making the correct RRSP contribution, you'll reduce your net income (line 236 of your income tax form). That is the number used to generate a host of tax goodies: Refundable tax credits such as the federal GST/HST Credit, Canada Child Tax Benefits and Working Income Tax Benefit. Many provinces have refundables, too, so RRSP-reduced net income can influence cash flow throughout the year. Non-refundable tax credits, such as the Spousal Amount, Age Amount, Caregiver Amount, and Tuition, Education and Textbook amounts, to name a few. Social benefits such as the Old Age Security and Employment Insurance benefits, which are clawed back at certain net-income ceiling thresholds. Moreover, a lower net income can also decrease provincial pharmacy deductibles and per diems at nursing homes. So, take a peek at your RRSP Deduction Limit Statement. It is easy to read and tells you in very plain terms: Your RRSP deduction limit for 2010 and how much of that you used on last year's tax return. That leaves you with your unused RRSP deduction limit at the end of 2010. Your RRSP deduction limit for 2011, which may include a variety of adjustments related to your employer-sponsored pension plan, if you have one. Those adjustments might increase or decrease your RRSP deduction limit. This second figure is next to a prominent figure (A). Find it and circle it. For most people, this is the exact amount you can contribute to your RRSP and you should do so by Feb. 29, 2012, if you are to get the deduction that will reduce your 2011 net income. It is very helpful to show the statement to your financial advisor, or the person at your financial institution who will sell you the RRSP. That's because this form also notes whether you have any unused RRSP contributions available for 2011. This is labelled, albeit not as noticeably, as Amount (B). That's the amount you previously invested in your RRSP, but have not yet deducted on your tax return. It's important to pay attention to this number because sometimes too much of a good thing ó an excess contribution ó can attract a 1%-a-month penalty. That happens when your unused RRSP contributions (B) are more than your deduction limit (A) plus a $2,000 "buffer zone.î (Note: minors aren't allowed the buffer zone.) If that's too much information and the dreaded tax tremors are back, visit your tax advisor, who will know what to do about your over-contribution and excess contribution. Just between you and me, tax pros tremble at the thought of having to complete the dreaded 1% penalty form, a T1-OVP, so they're motivated to keep you out of the penalty zone! It's Your Money. Your Life. Treat yourself to more cash flow throughout the year and more accumulated, tax-deferred capital by looking over your 2011 RRSP Deduction Limit Statement and then making your correct RRSP contribution by Feb. 29. Evelyn Jacks, President of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. To get your copy, see www.knowledgebureau.com/books   Additional Educational Resources: Essential Tax Facts 2012 Edition and Introduction to Personal Tax Preparation Services.  

TD Economics calls the Canadian housing market "slightly overbuilt and overpricedî and certainly a number of indicators lend credence to that view. The number of building permits issued in December reached their highest level since June 2007, multi-unit housing starts continue to edge higher and prices of both new and resale housing are making gains, albeit moderate gains. It all comes down to continuing demand. Certainly, low interest rates will support demand but labour market weakness could put the brakes on growth. And a lot seems to be riding on the Toronto condo market. According to Statistics Canada, municipalities issued building permits worth $6.8 billion in December, the highest level since June 2007. The majority of that ó $4.5 billion ó came from the residential sector, mostly in Ontario. And almost half of that ó $1.9 billion ó was for multi-family dwellings. That represented a 28.9% increase month over month, the second consecutive monthly increase and the highest level recorded since December 2005. "The growth was due to major condominium and apartment building projects initiated in Ontario,î StatsCan says. Canadian housing starts, however, dipped 1% in January to 197,900 annualized units from 199,900 units in December, lead by Ontario. "Overall Canadian residential construction appears to be settling in at a well-behaved pace just below 200,000 units per year,î says Bank of Montreal economist Robert Kavcic, in a report, "slightly below the average of the past decade.î But, Kavcic points out: "Multi-unit starts rose 0.4% in January, while singles fell 7.8%, continuing the theme of much stronger construction activity in the condo market. Multis are now up a hefty 35.4% in the past year, versus a gain of just 0.8% for singles.î On the pricing side, StatsCan's New Housing Price Index rose 0.1% in December, following a 0.3% increase in November, with the metropolitan regions of Toronto and Oshawa and Montréal taking the lead. In its release of January sales, the Canadian Real Estate Association reported its national MLS HPI composite rose slightly by 0.3%, following a decline of 0.2% in December and 0.1% in November. Relative to a year ago, the national composite was up 5.2%. Of the five markets comprising the national composite, Toronto recorded the strongest year-over-year rise of 7.6%.   Additional Educational Resources:  Debt and Cash Flow Management and Financial Recovery in a Fragile World  

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.