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Taxes Just Keep Rising for Pre-Retiring Baby Boomers and their Heirs By Evelyn Jacks The last federal budget (February 26, 2008) predicted that personal tax revenuesóby far the largest revenue line item for the governmentówill increase by $2 Billion in 2007-2008 and thereafter increase faster than personal income growth to $125,475 Billion in 2009-2010. It's time to revisit this trend in light of the current global economic crisis, as this party too, may end soon. The need for governments to rein in spending and expectations for revenue growth may be as necessary as it is for families. Why? Canada's primary taxpaying base is disappearingóthe baby boomersóare getting ready to retire, against the backdrop of financial uncertainty. Add to this a global economic crisis the likes of which has never been experienced before and you have the potential for unprecedented hard times for governments and the taxpayers who depend on redistributed tax dollarsósometimes too much. As a bear market descends firmly upon usófor what seems to be more than a short termósolid financial fundamentals are required to take us through to the next generation, a smaller taxpaying base, which may not have the same potential to fund the numerous needs our society demands of them. To have the opportunity to spend in the right places, when needed, requires budgeting with new precision and above all waste management. It also requires some creative thinking about going back to the same trough over and over again. Security comes in many formsóand people need to be safe from financial insecurity. Canadians and their governments need to master their finances, now in a time of relative wealth, to be ready for tomorrow. FACTS ON FINANCIAL LITERACY: A Canadian survey found that respondents considered choosing the right investments to be more stressful than going to the dentist. United States ó 50% of adults and 66% of high school students fail basic economics test. United Kingdom ó fewer than 40% of respondents confident about making financial decisions. Japan ó only 1% of consumer education professionals believe that consumers have adequate level of financial knowledge. Australia ó 37% of those with investments did not understand that investments can fluctuate in value Source OECD Study, 2005. Note The Knowledge Bureau is publishing a series of books on Mastering Your Personal Finances starting in November 2008.
Dr. Jerry L. Gray Why is it when you are on your way to Scotland to play golf, your golf clubs go to Hong Kong? Do you really think airlines are so incompetent that they can't get your luggage to where you want to go? Or that there is really no airline seats available for upgrade? Do you really believe that a police officer enjoys giving you a speeding ticket? If you see the world this way, prepare to be changed. If you don't know how to deal with people, the world will be against you. If you do, the world will be your oyster. Dr. Gray, Dean Emeritus and Senior Scholar at the Asper School of Business at the University of Manitoba and management consultant and author, has been developing, practicing and teaching his philosophy of interpersonal relationships for over 35 years. Thousands of individuals have been exposed to his technique and have had their lives transformed. His humorous and captivating presentation will be remembered for years to come. Based on solid and scientific concepts, Jerry's humorous, yet informative and practical presentation will transform how you deal with people. When you see the results that can be obtained by simply understanding the fundamental motivation of people and how you can use this to achieve your goals, you will experience a dramatic and significant change in your relationships with others. Regardless of the situation ñ business, social or family ñ the fundamentals of developing positive relationships do not change.
Excerpted from EverGreen Explanatory Notes, an online reference published by The Knowledge Bureau. Permission to reprint required. Although the Income Tax Act does not specifically address the issue, it is possible for spouses to arrange to transfer accrued but unrealized capital losses between them. This strategy is advantageous where one spouse is about to realize a capital loss but has no capital gains ó either currently or in the three-year carry back period ó to offset the loss against, but where the other has such gains. This strategy is based on the following framework: Spouses are affiliated persons, under S. 251.1. Accordingly, the stop loss rules will apply when a loss is realized on the transfer of property from one spouse to another. Where the transferor and transferee are affiliated individuals, as is the case for spouses, any loss arising on the transfer of property between them is a superficial loss, as that term is defined in S. 54. A superficial loss includes a loss that is realized in circumstances where an affiliated person acquires identical property within a period that starts 30 days before the transfer and ends 30 days after the transfer. A superficial loss is deemed to be nil, by virtue of S. 40(2)(g). The attribution rules generally cause property to transfer between spouses at tax cost, so that no gain or loss arises. It is, however, possible to elect under S. 73(1) to have the transfer between spouses accounted for at fair market value (FMV). If this election is made, the loss arising on the transfer will be realized. The loss remains a superficial loss, however. Furthermore, any income and loss (under S. 74.1(1)), and capital gain and capital loss (under S. 74.2(1)) realized on transferred property attribute back to the transferor spouse. However, if the transferee spouse paid fair market value for the property, the attribution rules will not apply, pursuant to S. 74.5. Payment can be made with cash, cash and debt, or all debt. However, if debt is used, it must bear interest at not less than the prescribed rate and such interest must be paid, in cash, no later than 30 days following each calendar year end. Taken together, these provisions give rise to the following strategy for transferring capital losses between spouses. Example: Transferring Capital Losses Between Spouses Issue: Judy holds marketable securities with an unrealized loss of $25,000. She acquired them a couple of years ago for $60,000. She has no capital gains accrued on other property, nor did she realize capital gains in the current or prior three years to use the loss against. Her husband, Steve, though, has the potential to report $100,000 in unrealized capital gains this year. Judy transfers the securities to her husband in return for a promissory note in the amount of $35,000, the fair market value of the funds. Normally, this transfer would be deemed to occur at $60,000, the adjusted cost base of the securities. However, Judy files an election under S.73(1) with her income tax return, in which she elects not to have that subsection apply. Accordingly, she accounts for the disposition at fair market value, and realizes a capital loss of $25,000. What are the tax consequences of this situation and what actions must be taken by the couple in order to optimize their tax status? Answer: The loss that Judy realizes is a superficial loss. Therefore, although Judy reports the disposition on her tax return, she adjusts the loss to nil, noting that it is a superficial loss. The cost of the shares to Judy's husband is the $35,000 he paid. The adjusted cost base of the shares, however, is $60,000, as a superficial loss is added to the cost base of the property under S. 51(1)(f). As Judy and her husband do not wish to have the attribution rules apply, the promissory note that Judy takes back is interest bearing. Judy and her husband are careful to calculate interest on the note as long as it is outstanding, and her husband pays her the interest before January 30 of the year following the year of the transfer. Her husband holds the shares for at least 30 days. He must do this, in order that the loss he will realize on their disposition not be treated as a superficial loss to him. He then sells both the shares he acquired from Judy and his property that gives rise to the capital gain. He can deduct the allowable loss on Judy's shares, $12,500, against the taxable gain on his own shares, $50,000, in computing his net income.
On October 7, the Department of Finance announced the interest rates for Canada Savings Bonds that are available for sale until November 1. The announcement included the following rate table: Canada Savings BondSeries 114 Canada Premium BondSeries 64 Interest rates for year beginning Annual interest rate Average annual rate of return if held to November 1 of the following year Annual interest rate Average annual compound rate of return if held to November 1 of the following year Nov. 1, 2008 2.00% 2.00% 2.35% 2.35% Nov. 1, 2009 TBA TBA 2.50% 2.42% Nov. 1, 2010 TBA TBA 2.65% 2.50% The rates for Series 114 will be extended to existing CSB bonds series 46-52, 54, 60, 66, 72, 78, 84, 90, 96, 102, and 108. The rates for CPB series 64 will be extended to existing CPB bonds series 3, 15, 34, and 46. In addition, the maturity dates of CSB series 51 and 54 and CPB series 3, which mature this year, have been extended to November 1, 2018. With the equity markets in melt-down mode, many investors are looking for a safer place to park their money. With the current inflation rate hovering around 3.5% and interest on Canada Savings Bonds being taxable annually on a bond-year basis, let's take a look at how a typical taxpayer with a marginal tax rate of 40% might fare by investing in one of the new Canada Premium Bonds over the next three years (where rates have been set). Example: $100,000 invested in October 2008 in Canada Premium Bonds by a taxpayer whose marginal tax rate is 40%. Inflation rate assumed to be 3.5% Current $ Future $ Year Capital Interest Earned Value of investment Income Tax Payable Net value after tax Net value after tax 2008 $100,000.00 2009 $100,000.00 $2,350.00 $102,350.00 $940.00 $101,410.00 $97,980.68 2010 $100,000.00 $2,558.75 $104,908.75 $1,023.50 $103,885.25 $96,977.99 2011 $100,000.00 $2,780.08 $107,688.83 $1,112.03 $106,576.80 $96,126.17 Notes: 1. Each year the taxpayer will have to pay the tax on the accrued interest (November to October) in spite of the fact that the interest has yet to be received and is therefore not available to pay the tax bill. 2. The average interest rate (stated as 2.5%) is reduced by income taxes to approximately 1.5%. 3. After 3 years, in current dollars, the $100,000 investment will have grown to $106,576.80 (after taxes). However, if inflation continues at 3.5% per year, that $106,576.80 will be worth only $96,126.17 in today's dollars. The value of the investment therefore is reduced by approximately 2% in real dollars each year.
Don't miss KB National Workshop tour with Evelyn Jacks and John Poyser Media Passes Available: Contact The Knowledge Bureau toll free: 1-866-953-4769. Investors and taxpayers will be looking around every corner for help with debt management this year. The tax system may in fact be the best place to look for new cash flow to shore up over-leveraged assets. The Knowledge Bureau will be presenting two nationwide, day long, educational workshops to discuss issues and strategies. The first, this November highlights year end tax planning opportunities in light of the unprecedented events in the financial markets, as well as new investment opportunities. The second, in January, will overview the latest tax changes and discuss in detail, the tax consequences of personal, investment and business debt management. The dates are: November Year End Tax Planning Update - November 14 - 21 January 2009 Line by Line Tax Update and Debt Management Workshop - January 9 to 16 November Year End Tax Planning Update Nationwide Workshop Tour Dates and Venues Date City Venue Location November 14 Winnipeg The Manitoba Club 194 Broadway November 17 Toronto East Crowne Plaza Don Valley 1250 Eglington Avenue EToronto, ON M3C 1J3 November 18 Toronto West Crowne Plaza Hotel Toronto Airport 33 Carlson CourtToronto, ON M9W 6H5 November 19 Calgary Carriage House Inn 9030 Macleod Trail SouthCalgary, AB November 20 Vancouver Terminal City Club 837 West Hastings Street November 21 Edmonton Four Points by Sheraton Edmonton South 7230 Argyle Road Register Now January Tax Update and Debt Management Workshop Nationwide Workshop Tour Dates and Venues Date City Venue Location January 9 Winnipeg The Manitoba Club 194 Broadway January 12 Toronto East Crowne Plaza Don Valley 1250 Eglington Avenue EToronto, ON M3C 1J3 January 13 Toronto West Crowne Plaza Hotel Toronto Airport 33 Carlson CourtToronto, ON M9W 6H5 January 14 Calgary Carriage House Inn 9030 Macleod Trail SouthCalgary, AB January 15 Vancouver Terminal City Club 837 West Hastings Street January 16 Edmonton Four Points by Sheraton Edmonton South 7230 Argyle Road Register Now Register for both workshops by October 31 and save!