Canada Money CA

Financial experts strongly recommend that you perform an assessment of how long you can survive on your savings in a worst case scenario. How long will you be able to maintain your present state if you suddenly find yourself jobless or lose your main source of income? You must immediately work on the numbers so that you know where you stand.

What is the first thing that you must do if you find yourself in this tight situation? You have to focus on your household expenses and determine which cost items can be reduced or eliminated, at least for the meantime. Once you have worked on the outflow side of your finances, the next thing that you must do is to assess the income types that are available. This means that you will have to look at your existing savings account and investment portfolio. Decide which items you can liquidate to improve your cash flow. Your last resort will be to consider your debt options and the liquidation of your retirement fund.

Here is a list of assets which you have to assess in order to determine your present financial condition:

1. Employment insurance – This safety net sets in within 4 weeks from the time you were separated from your job. This financial relief will last for 12 months. The upper limit of employment insurance is about $1,500 per month net of deductions and taxes.
2. Cash Savings – This is the time where you are going to rely on your savings. If you had the foresight and a good sense of management of your finances, then you can definitely rely on this asset item.
3. TFSA – You can withdraw your TFSA tax free and use it as your emergency fund while you are still looking for a job.
4. Unregistered Investments – If you have leveraged some unregistered investment accounts that yield dividends, then you can liquidate them when the need for cash arises.
5. Line of Credit – If you already have a substantial home equity, then you can apply for a credit line that offers competitive rates. However, you have to remember that the interest rate will increase as you increase your credit exposure.
6. Retirement Funds – Your retirement funds must be your last option when it comes to generation of much needed cash. This is because such option is a taxable transaction. This also means perpetual loss of your contribution room.

These asset items can provide you with the much needed relief until you are able to find a new job. It is important that you decide which asset item you are going to touch first. The rule of thumb is to go for the items which are not taxable or have the least cost. Obviously, you first relief will be your employment insurance. However, you may also have to start tapping your cash savings and TFSA. This three asset items are actually your first set of safety nets.

If these first three asset items are about to hit bottom, you may have to move on to your next asset item – your TFSA. It is at this point that you should have at least some job prospects. If not, then you may have to start looking at your unregistered investment portfolio and credit line. You may go for a credit line instead of liquidating your investment if the interest rates are low. The major downside of a credit line is that it adds to your monthly obligations. You will have to work on the numbers to determine whether you can afford additional cash outlay or not.

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings

Personal Finances FAQ:

Question: Has anyone used the new online personal finance software program MoneyDesktop?

Answer: I started using it a couple months ago. I’ve been rather impressed with it not only for its budgeting features but also for it tools to help me payoff my mortgage years sooner than I was going to be able to. Would I recommend it to someone? Sure, it has a 30 day free trial period, you don’t have to give any credit card info for the trial period either. If you don’t like it move on.

Question: Does anyone know the best personal finance book for teens?

Answer: Your Money, Day One: How to Start Right and End Rich by Michael J. Wagner is an excellent read for teens. It is available on Amazon or in Audio form on Audible.com or Itunes.

Question: I want to be better at managing my personal finances and investments – is there a course for this?
I have seen courses for business accounting but does anyone know of a course for personal finance?

Answer: I know lots of banks will offer free or cheap courses to learn how to manage money and whatnot so they can recruit people to their bank. You don’t have to join the bank when the course ends, so it doesn’t matter. Maybe contact your own bank or banks in your area about such courses.

Question: What is a good free personal finances tracker that doesn’t require Internet usage & account numbers/passwords?
Looking for something similar to microsoft money, however I am a mac user and am also very reluctant to give out account information online. I am perfectly willing to manually punch in every single transaction, I just need something with more functionality than a basic spreadsheet.

Answer: If you are an iPhone user, I am sure that the iPhone has some application that is able to do the personal finances function. Too bad you don’t like spreadsheets as I think spreadsheets are a great way to track your accounts as you can create your own database as well.

Question: I am looking for a bank to open an account for personal finances?
Particularly just a checking and savings account. Obviously I don’t want to pay any monthly fees or anything ridiculous like that. I’ll be earning about $800 a month starting in January and using direct deposit. I just want to find the best bank out there that won’t charge an arm and a leg for overdraft fees. I am aware of overdraft protection and will most likely sign up for that.

Answer: There is no best bank, best credit union, or best bank account. You need to look at the totality of the bank’s services, accounts, and fees. Every bank offers several accounts with different features and different fees. Some banks may have low overdraft fees, but high fees in other areas. Some accounts waive all fees if you maintain a minimum balance. Other accounts have a monthly fee, but no fee on each transaction. Other accounts have no monthly fee, but a fee for each transaction.

Some banks have a large number of ATMs which you can use without a charge. Other banks have a charge for ATMs.

I suggest that you visit several banks. Find out the features and charges of each of their accounts. Find out how many ATMs are available, and whether there is a service charge for using the ATM.

Make sure you get everything in writing. Do not accept anything the customer service person tells you verbally.

Question: What personal finance software is available for Mac?
I use a Mac at home and want to use a software to track my investments and personal spending. I do not want anything complicated.

Answer: iBank, Moneydance and Quicken for Mac all track investments and personal spending. There’s a new version of Moneydance 2010 which has just come out. iBank actually seems quite popular with Mac users

Question: What is a good alternative to microsoft money for managing personal finances?

Answer: Exactly, MS Excel – or any alternative to it – is more than enough for personal finances. If you want a ready software with templates for everything, then use a specialized personal finances management software, if you have some time available, and a bit of knowledge of Excel, you can setup a great template for personal finances management for yourself, without all those things that you don’t need in specialized programs.

Another software that is similar to Microsoft Money is Quicken. You can also use an online program like mint.com (which is free) to track your expenses.

Question: What personal finance lesson do you wish you had been taught by your parents or in school?
Personal finance was slightly taught to me by my parents or in school. I had to learn how to balance a checkbook, the dangers of credit cards and about saving all on my own.

Answer: I wish I could teach the world:
1. Don’t ever carry credit card balances; it ruins your credit
2. Don’t even think of leasing a car
3. Don’t ever rent furniture
4. Don’t ever buy a time share
5. Don’t even think of financing furniture; save up for things
6. Save to buy a car, as much as possible
7. Put 20% down on a house; even if you think your friends will make fun of you for having a small house
8. Put money away in a RRSP or savings investment; as much as possible
9. Become as self-insured as possible; stop making insurance companies rich
10. Always have 6 months worth of living expenses socked away

Setting up a small business in Canada requires determination, motivation, high moral and know-how of the business. Following are the steps you need to follow to start up with small business.

Identify Your Business Opportunity: Identify the best possible business for you from the multiple opportunities. It is important to find where you desire lie to understand your personality type.

Prepare a Business Plan: Business plan is must for any business, a business plan permits you to gain a better understanding of your industry structure, competitive landscape, and the capital requirements. Business Analyst observes that companies with business plan have 50% more profits and revenue than non-planning businesses. Writing a business plan just makes good business sense.

Get Start-up Money: To start any business, capital investment is must. Start-up funds for every business is different depending on type of business selected. Finding the money you need may come from a source you never thought of. In Canada the sources of getting money are following:

Canada Small Business Loan Program:

It helps you with your financing needs. Under this program, the Government of Canada makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders. Program works following ground:

- Who is Eligible: Business which can carry profit with gross annual revenues $5 million or less.

- Who is not eligible: Business which does not fall under Canada Small Business Financial Program is farming business, non-profit organizations, charitable trust and religious organizations.

- How much financing is available?: Provides up to $500,000 of financing, from this no more than $350,000 can be used for purchasing leasehold improvements or improving leased property and purchasing or improving new or used equipment.

- How to apply for Loan?: You need to apply for loan at your bank. If the bank decides to grant you a loan, they register it with Industry Canada. The list of lenders are ATB Financial, Bank of East Asia, Bank of Montreal, Caisses populaires Acadiennes, Caisses populaires de l’Ontario, Canada’s Credit Unions, Canadian Imperial Bank of Commerce, Canadian Western Bank, GE Capital Financial Services, HSBC, Laurentian Bank of Canada, Mouvement des caisses Desjardins, National Bank of Canada, Royal Bank of Canada, Scotiabank, TD Canada Trust.

Note: Agri-Food Canada has a similar program for the farming industry.

Canadian Youth Business Foundation:

- It is a national charity that provides young entrepreneurs.

- Young entrepreneurs from 18 to 34 may get up to $15,000 as a start up capital, with flexible three to five year repayment schedules.

- 2-year mentoring program need to be attended where you are matched up with dedicated business mentors or business professionals.

Business Development Bank of Canada (BDC):

- It is a financial institution wholly owned by the Government of Canada. BDC plays a vital role in delivering financial and consulting services to Canadian small and medium-sized businesses.

- Co-Vision loan can be up to $100,000, which can be repaid over 6 years. If needed, entrepreneurs can postpone principal payments for 12 months.

- Co-Vision specifically targets businesses in the manufacturing, distribution, services and tourism sectors.

- Projects such as working capital, acquisitions, fixed assets, marketing and start-up costs, or the purchase of a franchise can also be financed under Co-Vision.

Name Your Business: What’s in a business name? Find the right name which will distinguish you from your competitors, provide your customers with a reason to hire you, and aid in the branding of your company. Learn what you need to know to find a name for your business.

Select a Business Structure: Deciding on the Business Structure is very important decision; this decision should not be taken lightly. Whether you choose the popular Limited Liability Company (LLC), a sole proprietorship or form a corporation; your choice will have an impact on your business liability, fund-ability as well as taxes due.

Get Your Business License and Permits: Depending on your chosen business structure, may need to register your business with the state authorities. Setting up your small business may require an employer identification number (EIN) which is also used by state taxing authorities to identify businesses. Additional paperwork can entail sales tax licenses, zoning permits and more.

Set Up Your Business Location: One of the multitude of tasks in starting a business is the setting up of your office. There are many steps in office set up including where to locate your office (home or office space), buying the necessary office equipment, designing your work space and getting supplies.

Get Business Insurance: As a new small business owner, you have the responsibility to manage the risks associated with your business. Don’t put your new start-up at risk without getting the proper small business insurance to protect your company in the event of disaster or litigation.

Maintain Accounting System: Unless you’re from accounting or finance background, the accounting and bookkeeping aspect of running your business can’t be avoided. Maintaining your Accounts will help you to understand the financials of running a business and advert failure.

Along with the above you also need to know business legal structures, taxes like GST, PST, Payroll tax and Corporate Income Tax and employer obligations. You can also acquire information from any Business Directory Canada, Online Directory Canada, Yellow Pages Canada or Business Telephone Directory Canada.

Conclusions: There are many entrepreneurs who have lost their everything due to failure in their business. This article will help as a pathway to those who need to Setup a Small Business in Canada.

Ranvir S Bahl is a Director at Canada Business Solutions. An online business directory in Canada helps you to search local businesses information, advertising in Canada, business listing in Canada.

Small Business FAQ:

Question: In Canada, what Government services exist for small businesses?
And are they all provincial government services? Does Ottawa grant money to provincial governments using a Small Business Administration?

Answer: Its mostly tax credits and small business loans for businesses that qualify. As far as I have ever seen there is no such thing as a SBA in Canada.

Question: Where can I get info for taxes for a small Canada home-business?
I have been told with a small business you can claim taxes every 7 years. Where do I find info on this type of stuff?

Answer: You can get info from the CRA (Canada Revenue Agency) website. The guide you are looking for is called Guide for small businesses. However, I do not know who told you about the 7 years thing, but it is wrong. You must file every year and remit GST either monthly, or quarterly, and keep records for 7 years as Revenue Canada can go back 7 years to do audits.

Question: How do I incorporate a small business in Canada (BC) specifically? Is it really expensive?

Answer: I cannot comment on the price of incorporating in BC specifically, but I incorporated a numbered corporation in Ontario for under $600 earlier this year. I did all the legwork to get the PST/GST/Federal Payroll tax account, and provincial tax-type accounts, so I saved a few dollars doing that part.

Question: How to file taxes for a very small business in Canada?
I am in the midst of opening my own dog grooming business out of my home. I do not have a business number or registered name and was told that I don’t have to have one. I do not have a business account because I don’t have a registered business name and was again told that I do not need to have one. I will be making under $30,000 a year and do not need to charge GST.

Answer: As a sole proprietor you will do the same as an employee fill out the T1 tax form but sense you also have self employment/business income you will also fill out the T2125 form and come up with a net income or loss. Like you said you do not have to register your business as long as you don’t have employees, collect GST over $30,000 import or export goods or are incorporated. However you are responsible for adding any profits to your total income for the year and pay the taxes on it. So now is a good time because your income is low. Now is the time to start filling out the form and claiming and keeping receipts for your expenses. On the T2125 form line8521 to 9270 are expenses you can claim.

Question: Can a Canadian citizen do a business in UK and live there with family?
I am a Canadian citizen and living in Canada with my family. I want to start a small business in UK and want to move there with my family. What type of visa do we require? Can I get a loan from Canada or in UK to start a business?

Answer: No you cannot get a loan to start a business. You need to have a business in Canada already so that you can show proof that you already KNOW how to run a business. You need to have several thousand GB pounds saved up and you have to get it legally – it cannot be a loan or a gift

Question: How can I have a credit loan for Small Business in Canada, if I don’t have a good credit history or a property?
My business partner and me want to buy a small business: cafe-restaurant. We have a business plan, a license, a business name and a registered company. The only thing we don’t have is money to buy this business. We’ve looked everywhere: All the banks wants a good credit history or a property. We need $150,000.

Answer: When you made your business plan and business model showing your cost for start up. You should have recognized your situation at that time and taken appropriate action then. You went ahead and did your companies registration premature.

There are companies in Canada that help in these situations. Banks and lending institutions will want a personal guarantee on the loan when your business is less than two years old. After two years the business should qualify on its own without your personal credit.

Question: How do I open a small business in New Brunswick, Canada? And how do I pay an assistant?
I currently provide in home child care and I provide my clients with receipts and year end income tax receipts, I also claim my income on my income tax each year. I am considering hiring an assistant but I’m not sure if I need to have some sort of business number or tax number etc. And I also don’t know how I go about paying this assistant in regards to taking taxes off etc, any help would be greatly appreciated.

Answer: You will need to have a BN. You can open one online, and can obtain the information for deductions online as well. Unless you’re willing to allow the person to have tremendous freedom, it wouldn’t meet the criteria for them to be a self employed/contract person; they’d be your employee. CRA also puts on small business seminars aimed at instructing you on Payroll deductions. They are free.

As a self-employed person (as you know) there is some degree of risk of loss. You have a space dedicated to child care, you advertise to get my clients, you could lose money if no-one signed up. You will likely want control over your relationship with this assistant (you’ll decide their hours of work, you’ll provide their work location, you’ll provide all the toys, food, etc, for the children, all of the clients will be yours, and not theirs, they won’t be allowed to hire a replacement to show up in their stead, etc).

Question: I run an online small business in Canada but it is unregistered. Can I still write off expenses against income?

Answer: Yes you can. Even as an individual you should only have to pay taxes on any income that exceeds your expenses. Keep all your receipts as evidence. You should get an accountant to help prepare your tax return to make sure you have done everything correctly. You may have to register to collect sales tax (GST) if your sales are greater than a certain amount.

A successful self directed investor which has made gains during the year should strategically plan against paying capital gains taxes. Understanding the mechanics of the capital gains tax itself is very important. Following is the way capital gains tax is calculated and what my policy is to keep the share that the tax man is supposed to get.

Capital gains is the difference between the book value and the market value at the time you have disposed of an asset. For example, if you paid $10.00 per share and you purchased 1000 shares the book value would be $10,000.00. If the share value increases to $15.00 per share and you sell your 1000 share position, the (market value) or sale price is $15,000.00. Using these values, your capital gain would be the increase in value between the $10,000.00 purchase price and the sale price of $15,000.00 which is $5,000.00. The capital gain tax applies in the following manner, the first half of the gain ($2,500.00) is free of taxation and the capital gain tax is payable on the ($2,500.00) remaining half. The actual amount payable is figured according to your present income bracket for that calendar year.

Now this is how I save paying tax on the remaining $2,500.00. I immediately transfer the funds into my retirement savings plan (RSP) and defer the tax until retirement. Now I not only get to keep the full $5,000.00 but I have generated a tax deferral at tax time. I may have even generated a tax refund when filing my income tax return. Depending on how much time the funds remain in my RSP it may multiply over and over again.

There are many ways to defer paying capital gains taxes but this is just one of my strategies. Plan ahead and generate a larger RSP portfolio and pay less tax.

I would now like to invite you to visit http://www.FinancialInvestmentSecrets.com where you can receive a free course on basic self directed investment strategies. Also, please visit our home page at http://www.InvestorsGroupInternational.com

From Charles H. Mutrie of InvestorsGroupInternational.com

Capital Gains Taxes FAQ:

Question: Capital gains on property sale in Canada?
Purchased a lot 2 years ago, and recently sold it at a profit. The land was never lived on, built on, or modified in any way (not sure if that matters). Will I be subject to capital gains tax on the sale? Or will it count as ‘regular’ income for tax purposes?

Answer: Yes you will be subject to tax on the capital gain on the sale of your property. Capital gains are taxable at 50%. So for example, if you earned $50,000 on the sale of the property, you will be taxed on only $25,000.

Question: Canada CRA Individual Tax Reporting of Capital Gains?
CRA information is very unclear as to how dividend income (on purchased securities) and securities options (transactions) are supposed to be reported. My assumption is that they are ‘grouped’ under Capital Gains and reported on Schedule 3 and on Line 127. Is that correct? Or are dividends and options gains/losses reported elsewhere and taxed differently?

Answer: No dividends are considered income as they are earned by owning not selling the security. How they are reported by you depends if they are Canadian or foreign. If they are Canadian you would report on schedule 4 and claim the dividend tax credit on line 425 of schedule 1. This information would be reported on either a T5 or T3 and it would state whether they were eligible or regular dividends. Foreign dividends and foreign tax withheld would be reported as foreign income.
Stock options can be considered capital gain loss/loss if the same method is all ways used for tax purposes. If the option is exercised it is not considered a sale there for no transaction is considered to have taken place and the cost of the option would be added to your adjusted cost base or premium received would be used to lower your adjusted cost base. All capital transactions are reported on schedule 3.

Question: Can you do house flipping in Canada?
I heard that if you do not reside in the property or if you buy it and sell it within 2 years you must pay capital gains tax. This is to stop people from flipping houses as a business. Is it true? What province in Canada are better to real estate stuff? Don’t take recession factor please! I know now is bad market but I want to know about flipping houses in Canada.

Answer: There is no market for flipping in this economy. For flips to work buyer demand must be very high and selling prices must be on a rapid increase. Flipping might not be economically feasible again for many years if ever

The RECESSION factor is CRITICAL – if there is lower demand for houses, you could be waiting many months to sell, and you have to be making mortgage payments and property tax payments while getting no rental income from the property – you could wind up losing money on the deal if you EVER sell it – you could buy a house, put $10,000 of work into it and still not be able to sell it for even a $10,000 increase – and you would actually have to sell it for more just to cover your sales commission costs also and every month that goes by that the house isn’t sold is another mortgage payment YOU have to pay and that much profit is now gone for good – the average house is taking 7 months to sell, down from 11 months.

Flippers only ever make money if they can buy, renovate and sell within 30-60 days and that is totally unrealistic anymore

Question: If you turn your principal residence to an income property, how do you calculate capital gains tax in Canada?
If I’m moving to a new principal residence and want to keep my current condo as an income property and eventually sell the income property, does the capital gains tax get calculated from when I bought the place or when it became an income property?

Answer: The Capital Gain tax would be calculated from the date of the change of usage. You need to get the Condo appraised as at the date you have changed it’s usage. This year on your Tax return you could show the Deemed disposition of your Condo (Tax Free as it was your Principal Residence). The Deemed selling price (appraisal value), becomes the ACB (Adjusted Cost Base) of the rental property. When you sell the Condo you use that value.

Question: How much is capital gains tax in Canada, BC for properties?
I have an investment property I am selling in Vancouver, BC, Canada (also where I live). I am selling it for approximately $450,000 and making approximately $100,000 profit. How much capital gains tax do I have to pay? Is it on the profit, or total amount? Do I have to pay it at the end of the tax year, or on sale of the property? Any further information anyone can provide will be useful, as I have never sold property in Canada. I am a new (18 months) permanent resident of Canada.

Answer: 50% of the $100,000 profit is taxable as income on your tax return, and how much tax you pay will depend on your tax bracket or marginal tax rate if you have other income in the year. The tax is payable upon filing your tax return of the year (12 months ending Dec 31 for individuals), with filing deadline being Apr 30 of the following year.

Question: In CANADA, if inheriting your parent’s primary residence, do you pay capital gains tax on it? If so, how much?
Can a home pass from parent to child in Canada without tax being paid? If there is tax, who pays it? When do they pay it? And how much is it? I know that if the owner sells their primary residence they are not taxed on it. But what about when the child inherits it?

Answer: Their estate pays any taxes (including capital gains) due, but there are no taxes due on a principal residence. Hence, no tax.

Now, if it becomes YOUR principle residence, you will also have no tax owing when you eventually sell it. If you do NOT take it as your residence, you will pay tax on an increase in value from their date of death to date of sale. If you’re not going to use it as a principle residence, you should have an appraisal done on it as if the date of death, and keep it for future reference.

Question: Capital Gains Tax in Canada?
My mother owns two homes. She lives in one and recently gave away the other house to her grand daughter. Is capital gains owed on the second house?

Answer: Yes, she is taxable for a capital gain on the transfer of the 2nd house, deemed sold at fair market value on day of transfer even though it was a gift without monetary consideration. The reason is that the house she lives in is her principal residence – one per taxpayer – and is tax free upon disposition, and the 2nd house is a taxable property upon disposition.

Hope her grand daughter uses that house as a principal residence. Otherwise, her cost base that house is zero, which will trigger a huge capital gain at a later day.

Question: Please explain capital gains tax in Canada on stocks?
Also, if possible I’m trying to figure out how tax works on interested accumulated from money sitting in my bank account?

Answer: Capital Gains on stocks: If you hold individual stocks (not in a mutual fund) you must keep track of your own ACB (price you bought it for) and you r own sale price (price when you sold it) It will appear in a summary on your broker’s annual statement. You don’t need to pay capital gains until you actually sell the stock (unless we are talking stock options- but we aren’t).

When you do sell, the difference in price is the capital gain. You will pay tax at your marginal tax rate (rate for your last dollar of income earned in the year) on HALF of this gain. So, if you had a marginal tax rate of 25% (we wish!), and your capital gain was $100, you would pay 25% tax on HALF the capital gain, so you overall that is $12.50 of income tax due on a $100 capital gain.

For interest income, it simply 100% taxable at your marginal tax rate in the YEAR IT IS EARNED, not when you sell it. So, with same example above, $100 of interest will result in you paying $25.00 in income tax. Very compelling reason to invest in stocks isn’t it?

Of course if you put it in an RRSP the tax angle becomes moot. FYI: RRSP withdrawals are 100% taxable (like interest) regardless of whether the income earned in the RRSP was capital gains or otherwise.

Homeowners will always find ways to get the best terms and deals in their mortgage application. Obviously, you will seek the best offer in terms of the most affordable rates that can be offered by your lender. But are you aware that you can still sweeten the deal by exploring the possibility of a bi-weekly payment arrangement to further lower the interest rate? It is actually a straightforward way of significantly reducing the total interest that you must pay for your mortgage.

A biweekly mortgage plan is a mortgage loan that provides for payments every two weeks instead of the usual monthly payment schedule. This is a payment mode that results to faster payoff of the loan principal and interest. Through this payment setup, a borrower is making 26 biweekly payments which is equivalent to 13 monthly payments in a year. This extra payment that the borrower makes results to significant savings in terms of the total interest paid for the mortgage loan.

You can significantly shorten the repayment period by a number of years and generate savings in interest. The amount that you can save will depend on the loan amount and the applied interest rate. However, you must understand that if you are not planning to stay in you home longer than 5 or 6 years, this payment mode will not have much impact.

Another reason why you have to consider biweekly mortgage is the convenience that you enjoy paying the same amount as that of loans paid monthly but divided in two smaller amounts paid every two weeks. But before you finalize your biweekly payment arrangement for your mortgage, you have to make sure that you can afford to pay the additional amount that is required each year for the entire repayment period.

The biweekly mortgage is actually a budget tool which homeowners can use to pace their payment mode while maximizing the potential savings that can be earned in the form of reduced interest payments. Mortgage companies normally charge a fee when borrowers opt for the bi-weekly mortgage. There are also companies that charge a set-up fee when traditional mortgage loans are converted to bi-weekly mortgage.

As an example, let us assume that you took out a $150,000 mortgage that will be amortized for 30 years at a fixed interest rate of 6% per annum. If you are going to adopt a monthly payment mode, your monthly amortization will be equivalent to $899. That total amount that you are going to pay for 30 years will be $323,968. The payment breakdown will be $150,000 return of principal and $173,968 interest payment.

On the other hand, if you are going to go for a bi-weekly mortgage payment, then your total interest payment will be reduced to $136,671. This means that you are save a total of 37,296 in interest payments.

All in all, biweekly mortgage is a practical payment for most homeowners. This is an ideal payment option especially for those fixed income earners who receive their income every two weeks. This allows you to spread out your mortgage obligation on the basis of the fixed schedule of release of your earnings. This makes it a lot easier for you to allocate the right amount of your income to pay your biweekly mortgage payment obligations. For some borrowers, this is a better option than paying a larger amount in one single go at the end of each month.

Before you make a go for an accelerated payment mode, it is important that you clarify with your lender all the incidental fees and charges for setting up a biweekly mortgage. Lending companies normally charge upfront and pre-payment fee. It is essential that you work the figures so that you will be able to determine the amount that you actually save.

Learn how to sell your own house here: For Sale By Owner.

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Mortgage Interest FAQ:

Question: Main house in Canada, is the mortgage interest deductible?
I work in US, but my family is in Canada, and we bought a house in Canada (no house in US). Wonder whether the mortgage interest paid is tax deductible.

Answer: Yes it is. However, you should talk to a professional as there could be a requirement for you to withhold 30% of the payment and then the bank would have to claim this back from the government. As no bank would want to do this, they would just increase your payment by enough to cover the withholding, which you would not want. So, talk to an expert first.

Question: Does interest rate affects mortgage in Canada?
My sister lives in France and she says their mortgage is locked in at the price of the time they buy the property. Is it like this in Canada?

Answer: You can have locked in mortgages in Canada and you can have flex able mortgages that have fluctuating interest rates. You can also have mortgages that fluctuate and when you like you can lock the rate and change the mortgage to a fixed rate.

Question: Mortgaging to start a business / Tax deductible interest in Canada?
I’ve got a business start up question, I’ve not been in Canada too long and I’m finding the Tax laws here a little daunting. If I mortgage my home to pay for my business start up, does the interest on that mortgage become Tax deductible? I’m not sure how it works in Canada, it might not be as straight forward as that, in fact I’m sure it’s not.

Answer: There is also another option. Some banks will give you a business loan “with a personal guarantee” So you can get your business loan with all of the taxation benefits of the loan, while you put your personal home up as collateral on the loan.

The more important thing this type of loan does is creates a separate paper trail for tax and business purposes. For example interest paid on the loan would be directly attributable to the business, therefore if you ever got audited by the CRA its much less likely that interest could be attributed to your person.

Question: Can I write off my mortgage interest payments if I’m renting out my basement?
I live in Canada and renting the basement in my principle residence. Would I be able to write off the total amount I paid for the year or only a portion?

Answer: CRA (Canada Revenue Agency) allows a percentage of all rental expenses equivalent to the percentage of the space that you are renting out in your home. This can be based on a “square” metre or food base of the total area. Expenses would include your mortgage interest , property tax, utilities, repairs, insurance, etc. If your basement area is equivalent to a third of your home you can claim a third of your expenses.

Question: In Canada, is a mortgage for land different than a mortgage for a house?
I am interested in purchasing some land that I will use for recreational purposes. It isn’t farm land and I won’t be building a home on it. I have the ability to put up to 75% down in cash, but I would rather only put 25% down. Can a traditional mortgage be used to purchase land? Are there any differences? I imagine land must be able to be financed somehow.

Answer: In Canada, raw land is usually tough to get a mortgage on through a normal bank. Banks will want 50% down or in some cases they don’t want to touch it unless you are going to build on it eventually.
Credit unions are more open to land but again, they will want 25% down at least.

Another way to get it done easier is if you have lots of equity in your house, refinance it to take the equity out and use that liquid cash to pay for the raw land. You will as well be able to get a lower rate because its a more tangible asset than just raw land.

Question: About ING Direct Canada mortgage rates. Are the posted rates negotiable?
I talked to their call centre rep and he said that all the rates on the website are 100% NOT negotiable.

Answer: The rates are usually not negotiable.

Question: Should I lock in my variable rate mortgage?
I live in Canada and right now the interest rate on my variable rate mortgage is very low. I don’t really think that interest rates will go any lower. I have 4 years left on my current mortgage. Should I lock in now?

Answer: There is no way to give a true answer without knowing all of the details of your transaction. It sounds like you want to refinance. If you only have 4 years remaining, then most of your payment right now is NOT interest. So, refinancing may hurt you more than help. I’d run it by a financial consultant (not from your bank but a different one, possibly independent) for the final word.

Question: How much are the interest rates in Canada expected to rise over the next few years?
I am locked into a 5 year mortgage at a rate of 4.49%. In looking around, I have a mortgage broker who can offer me prime – .1 % over a 5 year term–which would be 2.15%. My question is, if I were to pursue this avenue, are the interest rates projected to rise above 5% in the next 5 yrs or so? Additionally, how much longer will prime remain at 2.25%? It will cost approx $2000 to break the current mortgage–is it worth it?

Answer: Read all the fine print with mortgage brokers as they have many hidden fees and costs. Have you already forgot how the mortgage crisis started in the US?

As far as costs go every 1% less on interest rates can save you around $100 a month on payments (for a $200,000 mortgage). The rates are predicted to remain low until around 2012 now. So if you lock in that cheap right now you could come into a renewal at some high rates! I would talk with your financial advisor to see if it makes financial sense for you.

There is a lot of confusion about Tax Free Savings Account or TFSA. The situation is borne out by the wrong notion of people about the “saving account.” While it is true that you can maintain a savings account with the TFSA, you can also utilize the TFSA to purchase stocks, bonds, mutual funds and GICs. The TFSA is basically a shell that is similar to RRSP, as both instruments present opportunities for investment growth tax free.

Here are the essential features of TFSA:

1. Any Canadian citizen, 18 years of age or older, is qualified to make an investment up to a maximum of $5,000 annually.

2. No taxes will be levied on any gains and this will include capital gains.

3. There are no withdrawal limitation for the money deposited in TFSA

4. Any amount of money that is withdrawn from the TFSA can be re-deposited after a certain period of time and will not have any effect on the contribution room.

5. Any used portion of the contribution room for a particular year can be forwarded and credited to the succeeding year.

6. TFSA has no lifetime contribution cap

7. Assets from the TFSA account of a deceased spouse can be transferred to the surviving spouse tax free.

Financial experts are seeing the upsides of TFSA. This plan comes as a welcome breather for Canadians amid the declining and low interest rates. Its attractive tax exemption feature is considered as the clincher for this plan. However, there are certain concerns that you must be aware of when considering TFSAs. The contribution cap of $5,000 and the fees that will be charged are the two major concerns by most financial managers and investors.

That being said, there are basic differences between TSFA and RRSP. The main difference is on the time you can infuse funds and the time you can take them out. Under the general guidelines of RRSP, you are entitled to a tax refund once you infuse funds in the plan while withdrawal at retirement will be levied with the appropriate tax. On the other hand, you are not entitled to any refund when you infuse funds on TFSA, but you will also don’t have to pay any tax upon withdrawal. In addition to this, your withdrawal will not have any effect on your contribution room and you can make another deposit in the following year.

During its first year, you may opt for a high yielding savings account in your TFSA which can serve as your emergency fund. But you have to remember that this is not the best option if you are looking at TFSA as a viable tax strategy. It would be better for you to opt for high earning investment instruments in your TFSA since you will not have to pay taxes. Using the same decision parameter, it is better for you to place low earning investment instruments such as GICs and bonds into RRSPs. You will end up getting the same amount of refund for the funds that you infuse. And when you finally withdraw your money upon retirement, the amount of tax that you have to pay will not be as much as that with REITs or stocks.

Another great thing about TFSA is that you can use this as your income tax shelter. If you are going to purchase income trusts such as REITs in your TFSAs, you can withdraw the returns as a tax-free continual income. If you are planning to push your limit then it is wise for you to incorporate stocks since these investment instruments are considered tax efficient and are your best pick outside of TFSAs and RRSPs.

Learn how to sell your own house here: For Sale By Owner.

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Tax Free Savings Account FAQ:

Question: When you pay back your HBP are you not effectively paying tax on the portion that was “sheltered” interest?
If you use your RRSP savings to put a down payment on a home, when you pay it back (with taxed income), are you not effectively paying tax on what was initially sheltered interest? Why would you use your RRSP to buy a home if this is the case? Wouldn’t you be better off using a TFSA?

Answer: I think you are misunderstanding something here. When you made the initial contributions to your RRSP, you received a tax deduction, thus the contributions were made with before-tax dollars. When you took out the money under the HBP, you did not pay any tax on the withdrawal.

When you repay the HBP, you are using after tax dollars, but you never paid tax on the initial contributions or withdrawals. Thus your conclusion that you are paying tax on the sheltered portion is fallacious.

Using a TFSA is an option to save up for a down payment but the difference is that you don’t get a tax deduction up front for contributions to the TFSA. Therefore, the RRSP/HBP is advantageous, especially for higher income earners.

Question: Should I put money into my car loan or rrsp loan?
I will be getting back about $2000 back from tax refund this year and am wondering what the smart thing to do with it is. I have a car loan that I owe about $15000 on, and an rrsp loan that I owe $4000. The car loan has a higher interest rate then the rrsp loan. I am not having trouble paying either of them off. I am thinking about buying a house and think it might help if I don’t owe a bunch of money to the bank. Another option is to put it all into a tfsa.

Answer: Normally you pay down the loan with the highest interest rate which is most likely the car loan. If you are seeking a mortgage, wait before paying either loan and see a mortgage specialist. They will work with you for free and determine the best thing to do with the excess cash (down pmt vs debt payment).

Question: Canada’s Tax Free Saving Account?
Are we allowed to open TFSA in two different banks? And what about RRSP’s?

Answer: Yes you can open as many TFSA or RRSP accounts as you wish but your restricted to the same contribution limit total for all accounts.

Question: In Canada – Should you Max out your RRSPs? Use a TFSA? Stick with Non-Registered Funds?

Answer: All 3 are completely different products for different purposes. This shouldn’t be an either or question.

Personally, I think the TFSA is being marketed for the completely wrong reasons by the banks and such. This account should be used for long term investing, not saving for a holiday or something. The amount of taxes on savings in one year is minimal, so why waste your TFSA space to save $6 in interest?

RRSP’s are a good start for retirement savings, but you should also have non-registered investments as well, to avoid the big tax bill when you cash them in and so you have something accessible in case of an emergency.

It all boils down to what people can afford and what assets they have available to them and what their goals are.

Question: Credit card debt or TFSA?
The government and banks are pushing the new Tax Free Savings accounts. Should you start to put money in one if you’re still carrying a balance on your credit card?

Answer: I think both. TFSA is saving for your future, which I think is a very good idea for individuals. But at the same time you can pay your credit card debt at least minimum payment. You have to balance savings and paying debt.

Question: Mutual Funds from banks or private brokers?
I am wondering whether I should invest in mutual funds from the banks (i.e. BMO or RBC) or from the private online brokers such as etrade. Good things about banks’ is that I can easily put the funds in my TFSA, and I don’t necessarily have to pay the commission fee separately. But is there any great advantage from online brokers’ mutual funds?

Answer: If you intend to stay in mutual funds, it may be more convenient to invest through a bank. However, if you wish to purchase individual stocks or ETFs one day, you will have to go to a brokerage. Remember, all major Canadian banks have their own on-line brokerages too. My preference would be to go to TD Waterhouse or BMO Investorline. I have a TD Waterhouse account and have a TFSA with them.

If you do wish to stay in mutual funds only, you may want to look at some very low fee index funds offered by BMO Investorline. Keep in mind that most mutual funds under-perform the index they are using as a benchmark. Even if you find a “star” manager, he/she may move to another company. Therefore, you might as well stay with index funds or ETFs.

Question: Are Tax Free Savings accounts insured?
Are the new Canadian TFSA’s insured like RRSP’s?

Answer: Yes and No. It depends on what type of investment you hold under the TFSA. Essentially, the TFSA is a non registered investment so it would not be insured. However, if you were to hold a segregated mutual fund under the TFSA you would receive creditor protection because it is an insurance based product. Some segregated funds offer 100% protection of the face value, while others only offer 75% protection. Just make sure you choose the right one for you.

Question: Are there any capital gains tax for Canadians on u.s. investment?
I’ve just opened a tax free savings account (tfsa) and was wondering if I’m subjected to any capital gains tax on u.s. stock investment or will this tax free savings account only applies to Canadian investment? Also if we are taxed on our gain, what are the rates? Is there going to be a long term and short term rate just like in the u.s.? Or will we just be charged a flat rate of 50%, or so I’ve heard.

Answer: US Stocks held in an account in Canada by a Canadian resident are absolutely not subject to US capital gains tax, unless you are a US Citizen too (in which case the TFSA is pointless). US Stocks held in a Canadian account are deemed to be Canadian property and are taxed accordingly. Also, the capital gain tax rate is 50% of the regular tax rate, not a 50% tax.

Your life can suddenly turn into a rat race. However, you have already found the art of allocating your time among all the things that you have to manage on a day to day basis. You are able to manage your career, provide the needs of your family, attend to home repairs and deliver on a lot of other things which are expected of you. How about your finances? When was the last time you had evaluated and assessed your financial position?

It is important for you to learn the basics of financial management. You have to develop a keen understanding of the ways by which you can effectively handle your finances. This means that you must learn about net worth, cash flow, debt, credit scores, insurance and cash reserves.

Assess your Cash Flow

Using a spreadsheet or other financial management software, prepare a list of all sources of income and their respective amounts. Create another column where you will put the list of all your expenses. Include in this column your retirement contributions and automatic savings. Compare the two columns. The difference must always be on the positive range. If you are getting a negative amount, then this means that you are spending beyond your means. You have to get rid of the excess fat in your finances by reducing your expenses. You also have to look for ways by which you can increase the amount on the income column.

Assess Your Net Worth

Your net worth is a measure of your personal wealth. This gives you the “macro” view of financial health condition. There are 3 ways by which you can improve your net worth. You can increase your assets, reduce your debts and you can do both options simultaneously. Your net worth can be derived by subtracting your liabilities from your assets. You can use your net worth to determine whether you are meeting your financial goals or not.

Check Your Cash Reserves

The state of your liquidity is also a good measure of your financial health. Your cash reserve should be enough to cover your financial requirements under a worst case scenario. It is not enough that you have an existing credit line. A sufficient cash reserve is essential especially if your cash flow is limited or almost zilch.

For instance, you must have sufficient cash reserve in the event that you get separated from your present job. The amount must be enough to cover your expenses until you receive your employment insurance.

Check Your Credit Score

Develop the habit of regularly checking your credit score and credit report. You have to make sure that all the information that are reflected in your credit report are accurate and with basis. Make sure that errors are immediately rectified as this can seriously impact on your credit standing.

Check Your Insurance Portfolio

Your insurance is probably the most neglected item in your personal finance portfolio. You must be able to understand the importance of having the appropriate insurance policy that will protect your family from financial ruin in the event that something happens to you. It is important that your family can survive if your source of income is suddenly cut off as a result of disability or death.

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings

Personal Finances FAQ:

Question: From Canada, took out personal loan from finance company.
Applied over the internet, was called & informed of much different terms/payment info. Signed under duress. Is there a cooling off period allowed to cancel contract?

Answer: Generally if a contract for goods and services is signed in your residence, there is a cooling off period of 48-72 hours depending on the province. But if you signed it on their premises you’re SOL. However, there could be different terms for certain contracts. For instance, I believe if you are approved for a bank loan, the contract only becomes enforceable when you actually withdraw the money from your account. Also there may be special rules in the case where the borrower and lender do not actually meet. Call your provincial Ministry of Consumer and Commercial Relations.

Question: What are some tips to save money and what is the best type of account to open for savings in Canada?
I am single in my early thirties, and I only have $1500 in savings right now. I am trying to rebuild my finances after a devastating personal and financial loss.

Answer: The Canadian government has implemented a “Tax Free Savings Account”. It lets you save money and you don’t have to pay tax on any gains you make from interest, etc in the account. You can contribute up to $5,000 per year. Ask at your bank how to open one.

Question: Which checking account type would you choose and why?
What is one thing you might do to make sure you use an ATM responsibly? Why might someone choose a checking account that had a fee associated with it?

Answer: I personally use two types of accounts. One with a fee because it allows me the privilege of going into the bank and talking to someone. It’s the account that also allows me to get money orders, drafts, etc.

The other account is a no-fee account but I don’t get any of those perks. It’s mostly only online and telephone banking. Cheques are free though.

Make sure you hide your pin when using an ATM, as well as use your branches ATM’s to avoid fees of convenience ATMs in malls and such.

Question: Can someone explain to me how municipal bonds work?
I recently took a personal finance class in school and I think I’m misinformed about this. I know municipal bonds have no taxes. I was taught that for example, if you put out 10,000 with 4%, you get 4% interest every year until maturity but that’s a lot, and it makes no sense. I think that percent might be given over the whole maturity of the bond? But then the coupon which I think is like dividend or payment to you every year? I’m confused.

Answer: The only thing that is tax free is the interest payments, and there are exceptions to that rule. Most states have a personal income tax. The interest payments from Muni bonds issued in another state may be taxable. It depends on the individual state. However if you live in a state with an income tax, income from bonds issued in your own state are usually not taxable. Again, there are exceptions.

Generally, Bonds pay periodic interest payments, usually twice a year. These are known as the “coupon” payments. When a bond is issued, the coupon rate is determined based on various factors and once set, it never changes. Also, the overwhelming majority of bonds issued in the USA have a “Par” value of $1,000.00 and that coupon rate is based on that one thousand dollar par. So if you “put out” or purchased ten thousand dollars you would be buying 10 individual $1000 face value bonds that are paying (in your example) a 4% coupon. That amounts to $40.00 per year divided into two equal payments of $20 made 6 months apart. If you had ten of them, you would get $400 per year.

A bond with a 4% coupon pays 4% on an annual basis. It pays 4% every year until the maturity date at which point it is redeemed by the issuer and the holder gets $1000.00 back for each bond he owns. The coupon is an interest payment. Dividends are different. Stocks pay dividends. Bonds pay interest.

Question: Why is it bad to discuss personal finances with colleagues?
And anybody else besides close family and friends?

Answer: Well, with colleagues it becomes an ethical issue at work. People each have their own rights to privacy, and a lot of fights get started at work over who is getting paid more than who.

With other people in general, its a very touchy subject. I have found that people who have money come off like they are bragging. Other people have less money and they don’t want you to feel sorry or have pity on them. And surprisingly the amount of money you have can have a large impact on what others think about you, and some people just don’t want to get into that kind of drama.

Question: Need a spread sheet for personal finances. How and where do I start?

Answer: Mint.com is a very good website for personal financial management. It can detect what money is spent on your debit/credit cards and show you graphs about spending. Quicken Online is also very good or just make it yourself in Excel/Open Office. It’s actually brutally easy.

Question: What’s the difference between online personal finance software and desktop personal finance software?

Answer: Desktop software is something you install on your local hard drive.

On-line software is something you ACCESS through a web browser. It MIGHT download temporary applets to run on your computer, but those get deleted when you exit the program.

Online financial software actually has many advantages over desktop software. But, if storing your data on an online provider’s server makes you nervous, then desktop is the way to go as long as you take the appropriate measures to secure your data (back up, anti-virus and firewall software).

Question: Most important personal finance number – personal net worth or credit score?

Answer: Net Worth. Credit score is useful when you want to borrow money, but a person with a great credit score can buy lots of stuff he can’t afford. With a high net worth you can liquidate assets and buy what you like. However, a good credit score is more important when borrowing money.

The Home Buyers Plan is a government sponsored program that gives opportunity for first time homebuyers to withdraw a maximum of $25,000 tax free to purchase their first home. The amount will be repaid for a period of 15 years. Since the tax refund have already been received when the funds were initially infused to the RRSP, no refund will be received once the amount is paid back.

You are entitled to draw from your RRSP up to a maximum amount of $20,000 under this Plan if you don’t own the home that you are currently in for the past 5 years. Your spouse is also entitled to the same amount provided that she meets the same requirements. This means that you and your spouse are entitled to borrow a maximum amount of $40,000.

You must fill out Form T1036 and submit the accomplished form to your financing company. It is essential that you use this form when withdrawing the fund under the Home Buyers Plan; otherwise the withdrawn amount will be subject to tax. You are given a year from the date of receipt of the funds to complete the home purchase and another year thereafter for you to move into your new home and make it as your main residence.

The withdrawn amount is a no-interest loan and you will be required to return within 15 years by paying annually 1/14 of the withdrawn amount starting on the second year from the date of release. If you are not able to make the purchase or make the home your primary residence within the prescribed period or fail to repay the amount you withdrew from your RRSP, then the amount will be considered as your increased income which is subject to tax.

Coupled with sufficient preparation, first time homebuyers will be able to use this fund to finance their home purchase. For most of these homebuyers, the Plan provides great opportunity to raise the needed funds to make the purchase of their first home while reducing the amount of debt that they have to pay. An ideal option to get the maximum benefit from this program is to infuse current savings into the RRSP and the use the tax refund to pay off existing credit.

For instance, with a $14,000 savings which you can infuse into your RRSP, you are entitled to a $4,500 tax refund. You can use the tax rebate to pay off existing debt and use the same amount as down payment once you decide to purchase your first home. You will then have to pay $934 annually for 15 years. You may also opt to pay more than the required amount each year and this will in turn reduce the amount that is available for tax rebates by an even amount of $1,000. This can then be credited to your annual repayments. On the other hand, if both your TFSA and RRSP contributions are maxed out but still have some savings left, then you can add to your current annual repayments of $1,000.

Viability of the Home Buyers Plan

This special privilege given to first time homebuyers to utilize their RRSP tax free to make the purchase of their dream home is probably the best option when you really want to buy your their dream home but don’t have enough equity. The only downside of this option is you are missing out on the earning opportunity that RRSP provides if your money remains intact. However, the appreciation in the value of your home over time is usually more than enough to offset the missed earning opportunity.

Learn how to sell your own house here: For Sale By Owner.

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Home Buyers Plan FAQ:

Question: Define “principal place of residence” in Canada to qualify for the Home Buyers Plan.?
I am a first time home buyer. I bought a house this year. I stayed there for 10 days and rented it out. Am I qualified as a first time home buyer based from the rule “principal place of residence”?

Answer: Your “Principal” place of residence is where you reside at least 9 months out of the year. It is not rented or occupied while you are not there. All utilities are in your name and you receive your mail at that address (exception made for PO Box).

Question: How does Home Buyers Plan affect my Tax Filing?
I purchased a home in July using the Canadian RRSP Home Buyers Plan. Lets say, for example purposes, I withdrew $10,000 from my RRSP to purchase my home. For the entire year I also made deposits to my RRSP bi-weekly $100 dollars, for a total of $2600. How will withdrawing the $10,000 from my RRSP affect my Tax Filing this year? Normally the $2600/year I deposit to my RRSP generates me a nice little tax credit. Will I see the same tax credit this year even though I withdrew from my RRSP, or will I not see any credit now that I’ve used the Home Buyers Plan?

Answer: The $10,000 that you withdrew is not taxable income, however you will receive a T4RSP slip from your financial institution showing an amount withdrawn for the Home Buyer’s Plan. This needs to be reported on Schedule 7 of your tax return.

If you withdrew in 2009, your first required repayment for the HBP will be in 2011, and the required amount will be 1/15th of the total amount withdrawn, or $666.66.

Let’s assume that you will continue to put $100 bi-weekly into your RRSP for the next few years. When it comes to the $2,600 you put it, you have a choice. You can take the deduction for the whole amount, or you can designate some of it as a repayment to the Home Buyer’s Plan if you wish to start paying it back early. For 2009 and 2010, this will be your choice. Starting in 2011, you will have to designate at least $666 as a repayment to the HBP, and the remaining $1,934 can be used as a deduction.

Question: If I buy RRSP today, when is the earliest time I can withdraw the fund for (first) Home Buyers Plan?

Answer: You can safely take the money (up to 25K) out of the RRSP via the HBP after 90 days if you make a contribution today.

Question: How to pay back withdrawals for home buyers plan?
Back in 2006 my wife and I both withdrew $20,000 each to purchase a house. We have made several rrsp payments but have never designated any payments back to the home buyers plan via the schedule 7. We just filed our return and thought the quicktax program would bring this up somehow but it didn’t. So we just filed. What’s going to happen next year? I’m assuming we will get dinged somehow for this. How will I see this and what will I owe? And next year how can I use quicktax to designate part of the rrsp’s towards home buyers plan.

Answer: Go to your bank and have them take out whatever you can afford monthly to repay the RRSP. Make sure the money goes into the Home Buyers account so that it shows up at income tax time next year. You would be best suited to speak with your bank about this.

Question: Home Buyers Plan (Canada)?
Are there restrictions on what you can spend the RRSP withdrawn amount on? (ie. down payment, renovations, furniture, things unrelated to home)

Answer: There are conditions attached to the Home Buyers Plan. For details on what the conditions are you should read the CRA website. It does not state that funds can be used other than to buy or build a qualifying home. You may want to contact CRA to clarify.

Question: Can I use the RRSP Home Buyers Plan (HBP) if I intended to buy a home and then rent it out?

Answer: You are required to move in and occupy the home under the HBP, however you will have to check with CRA if there is a minimum amount of time that you need to occupy the home.

You can only withdraw up to $25,000 from your RRSPs, but you are not required to use any of it for a down payment. If they determine you have not met the qualifications, they will assume the cashed RRSPs as income, and you will need to pay tax against it.

Question: RRSP Home Buyers Plan Help?
I had a wife and took out RRSP loan to buy a house but we recently got divorced. I have messed up my finances for 10 years but not in hock. I don’t know how to pay back the RRSP loan. Bank holds RRSP portfolio, not large but could pay off loan. I soon will have severance pay that I will be able to roll over to RRSP. Could I get another RRSP Loan and buy a tiny house for just me and kids (no wife)?

Answer: When you take out an RRSP under the Home Buyer’s Plan, you start paying it back after two years. When you get your notice of assessment after filing your taxes, it will show you how much you are required to pay back each year. You then designate a portion of your RRSP contributions to pay that amount back (when you file your taxes). It gets added to your income.

You will not be able to take out another HBP loan since it is for first time home buyers only. If you withdraw that amount from your RRSP’s you will be taxed on it as income.

Question: Can I buy a rental property using my RRSP (under the 1st time buyers plan)?
I’m looking to purchase a fourplex or sixplex. Is a rental property eligible real estate under the first time home buyers plan?

Answer: Yes, as long as you will be living in the rental property (your primary residence).

A lot of people are interested in the option of using their RRSP in order to finance their home purchases. There are two ways by which this is done – through Home Buyers Plan or getting the home mortgage through RRSP. From the asset management standpoint, these options may not be a good idea. In this article, we will explore the consequential risk related to the home purchase and the possible ways that these can be prevented.

Limited Opportunity for Diversification

One the major downside of home investment is that it ties up much of your equity in one single asset. Most financial gurus emphasize the importance of diversification of the investment portfolio in order to smooth out earning potential and reduce the dips and peaks that characterize single asset investments. This is the main reason why it is wise to purchase mutual funds that are indexed. If you take hold of a few of every stock then you won’t have to worry much if one company takes a big hit, so long as there is a consistent uptrend in the market as a whole. The same rule applies to real estate investment. Aside from owning a variety of real estate properties, it is also essential that you purchase a REIT.

Once you make a purchase of a particular real estate property, you are in effect allocating a significant portion of your hard cash as investment on a single asset. Your net worth will be at the mercy of that single property. Once it goes down, your net worth will also take a dive. In general, this is not a sound business proposition, for your investment portfolio is not sufficiently diversified.

Some Great Opportunities in the Horizon

As a general rule, investing in real estate is not really bad. This type of investment is your safety net against inflation. If Canada is hit by double digit inflation, then the bonds and stock market will go on a nosedive. On the other hand, real estate property will not be directly affected by this economic condition and home prices will remain stable.

You will also enjoy substantial tax incentives when you go for real estate investments. For instance, you are exempted from paying capitals gains tax if you earn significant profit from your main residence. These are the major upsides of real estate investment.

Real Estate Investment – Its Impact on your RRSP

However, the big question that you have to answer is whether it is wise to divert the money in your RRSP to your real estate mortgage. In general, it is not a wise business decision. You want to create some semblance of diversity in your investment portfolio. And the potential earnings from your investment in real estate is likely less than your potential earnings if your funds are left in RRSP.

You are in effect degrading the level of diversification of your investment portfolio if you move your funds from your RRSP to your real estate mortgage. This is tantamount to making a bad situation worse. The home value is independent and immune from the dips and peaks in the stock market. There may be some instances where there will be a drop in the home value while stocks will go on an uptrend. Under a tight situation, banks will be forced to require higher down payment. If you have limited options, then you may have to liquidate some of your assets in order to cover the adjustment in the down payment.

This is the main argument why it is essential that we take the route of diversification. This also explains why you must not move your funds from RRSP to your real estate property.

Learn how to sell your own house here: For Sale By Owner.

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Mortgage FAQ:

Question: What Canadian bank is offering the lowest 10 year mortgage rate right now?

Answer: You should go to your bank and sit down with a mortgage specialist so they can work out the best deal for you. Rate shopping can sometimes be a good thing but you really should speak to a specialist so you don’t end up getting yourself stuck in something that changes later, or ends up being something you weren’t expecting. A lot of people are choosing to deal with mortgage brokers now as well because they can usually get much better deals than an actual bank branch can offer you (because they make commitments to banks and get deals from them).

But truly, the best thing you can do for yourself is go to YOUR bank and have a conversation with them. Tell them you’re looking for a mortgage, they want your business, they may be able to cut their rate to keep your business.

Question: Transferring a mortgage to the States?
I would like to know if there is a way to transfer a Canadian mortgage onto a us mortgage? Therefore the US bank will pay off my mortgage here and just add it on to the US mortgage. I don’t know if this is possible but you never know.

Answer: No. Mortgages and banking in Canada are subject to different regulations than the US. You will have to speak you your US lender about increasing your mortgage there, and then they can send a bank draft to pay out the mortgage here.

Question: Can you get out of a Canadian Mortgage?
My friend in her 20′s signed a 40-year mortgage with her mother for a home; the problem is she has a freeloading and abusive brother (along with his wife) who live at the home as well but refuse to help pay for it. This is causing her tremendous stress and grief. Her mother doesn’t want to sell, can she get her name off the mortgage? Who should she talk to?

Answer: No, she cannot get her name off the mortgage. Her mother would have to go to the lender and refinance the mortgage in her name alone based on her income alone.

Why does the mother allow the brother & sister-in-law to live there without contributing to the mortgage payment and household expenses? And how can a mother allow one child to abuse another? The mother holds the key to rectifying matters here. The daughter is pretty powerless in this dysfunctional situation since she took on the legal obligation of the mortgage.

Question: If you get a debt consolidation loan does it count against you when you apply for a mortgage later?

Answer: It significantly lowers your credit score and shows on the report that it is being handled by a credit counseling agency. You’d think they’d be glad you are paying your debt instead of filing for bankruptcy, but it does count against you in a major way.

Question: How are Canadian mortgages calculated? 3 times your salary?

Answer: The 3 times your salary is only a rule of thumb and a lot more has to do with how much money you have coming in vs. going out (aka debt ratio).

Question: Can a Canadian own or buy property in USA? How can one apply for mortgage in USA?
Can foreclosure homes in USA be purchased by Canadians?

Answer: Yes. As for the loan you apply with a lender providing proof you can afford it. A realtor in the US can help you.

Question: Are you able to add your car loan and school loan to a mortgage?

Answer: I don’t understand exactly what you are talking about. If you are refinancing your home and your home has equity in it then you can take out the equity to pay these other loans. You also can take a second mortgage on your home and use the total value of your home to pay other debts. You will then have two house payments. But you will be free from the other two loans.

Question: Financing property located in US with Canadian bank?
I am looking to buy a property in the US. However I want to mortgage if I can, with a Canadian financial institution because they’re just more regulated and safe than American banks.

Answer: TD has a lot of branches in the US now. However, you do not have to be nearly as concerned with how well the bank is run. After all, it’s not that the bank has YOUR money, it’s that YOU have the BANK’s money. I’d worry most about the interest rate.

Buying your dream home can turn into a stressful and overwhelming experience for first time buyers. There are just too many things that you have to take into consideration all at the same time. Foremost of your concern is your readiness to make a major investment and your capability to sustain the financial burden over a longer period of time.

One of the first things that you must do is to assess your financial position. You can do this by considering your personal net worth, your total debt and your monthly expenses. Your net worth is the basic information that you will need when you apply for a mortgage. It is also essential to take into account your current credit portfolio as well as your expenses in order to determine how much you can afford to pay for your dream home on a monthly basis.

* Fixed-Rate Home Mortgage

This is the type of home mortgage plans that bear interest rates that will remain unchanged for the entire term of the home mortgage.

* Variable Rate Home Mortgage

This is also known as adjustable rate mortgage. The interest rate of this type of home mortgage follows the movements and changes of prime rates by ICICI Bank Canada.

* Conventional Home Mortgage

This type of mortgage can be equivalent to but cannot exceed 80% of the value of purchased real estate property.

* High-Ratio Home Mortgage

This type of mortgage will only require a minimal down payment which is equivalent to at least 5% of the appraised value of the real estate property. This type of mortgage must be insured with the Canada Mortgage and Housing Corporation.

* No-Down Payment Home Mortgage

First-time home buyers can now have the opportunity of buying a home without any down payment. The CMHC as well as other lending companies are now offering this no-money down option for first-time homeowners. These mortgage plans are offered to home buyers that meet the minimum Beacon score of 600. Home buyers who avail of these privileges shall only be required to raise an amount equivalent to 1.5% of the price of the real estate property to cover the closing cost.

*Home Buyers Plan

Under this program, first-time home owners can withdraw a maximum amount of $20,000 from their Registered Retirement Savings Plan (RRSP). One unique feature of this program is that it is tax free, and you and your spouse or common-law partner can apply separately to double the amount that you can raise. You can use the amount to pay the down payment of the real estate property that you are planning to purchase and other purchase-related items.

Before you finally decide on the best mortgage option, it is crucial that you take into account other intangibles. For instance, seriously consider those mortgage plans that allow you to suspend or defer payment for a few months. This will give you some elbow room to manage your finances during times of emergencies. It is also crucial for first-time home buyers to get some help from home mortgage experts so that they can properly assess their options and determine what they can actually afford before starting their hunt for their dream home.

Find even more resources for FSBO here: FSBO Sellers Packages

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings

Mortgage FAQ:

Question: How does the Canadian credit system work with regards to getting a mortgage?
How long do you have to build up credit for? Do you need to have maintained a certain amount of money in the bank for a certain period of time? Basically any info you can give me on getting a mortgage in Canada would be much appreciated; I might be relocating to Ottawa and could use all the help I can get!

Answer: Having a good credit rating and some savings is very useful in getting a mortgage, but the majority of the concentration is on whether or not you will be able to pay back the amount.

If you have relationships with any banks in Canada that helps as well. I work at a bank and I am well aware that if you have been with one of the banks for a significant period of time they are far more likely to approve you for a mortgage.

You can get mortgages with no money down, but having savings in the bank for a significant period of time does help as well.

Contact a mortgage broker, as they are specialized in ensuring that you will be able to get a mortgage. The Canadian system works much in the same way as the US one but functions at a much lower risk level, resulting in a lack of a sub-prime crisis here north of the border.

Question: Can I deduct mortgage interest paid on a Canadian home?
I am a US Citizen living and working in Canada. I purchased my home in 2007 and since I cannot deduct the interest paid here in Canada, I thought maybe I could get something on my U.S. taxes? But then again, does it even make sense if I have no US income?

Answer: In most cases, you will be able to exclude your foreign earned income form US taxation – you will, naturally, have to pay Canadian taxes, which are usually higher.

If you have US income from other sources even while living abroad that you need to pay taxes on, then you can itemize to reduce it. Nothing in IRS pub 936 (Home Mortgage Interest Deduction ) or pub 593 (Tax tips for citizens living abroad) suggests that a home must be in the US for mortgage interest to be deductible.

Question: What were Canadian interest rates in 1998 for mortgage, cars, credit cards and savings?
This is for a time capsule for the year 1998, so I’m just looking for some info to get an average idea.

Answer: In your local library there are archives for 1998 and you can check in ‘Globe and Mail’ or ‘Financial Post’ newspaper. You can also visit their website and check for archives. If you live in Toronto then visit Toronto Reference Library.

Question: How does a Canadian Citizen who relocating to the US with a new job offer able to obtain a US mortgage?
How does the past credit history in Canada looked up in the US? Is there a special area in the mortgage companies that deal with this kind of situation?

Answer: You just need a Visa, Social Security Number and credit. Most of the creditors are international. Have a U.S. Lender run your credit. It is not hard to get credit onto your report.

Question: Did the Canadian government offer a bank bailout to Canadian banks?
It appears that the Canadian government has offered up to 75 billion dollars to Canadian banks in order to buy up their risky mortgages through the Canadian Mortgage and Housing Corporation (CMHC). What do you think?

Answer: I don’t consider this to be a bailout, and it would be inaccurate to classify these mortgages as “risky.”

These mortgages were already guaranteed by the CMHC, making this a virtually risk-free endeavour. Traditionally the banks would have sold these mortgages to other banks. Because of the financial crisis, interbank lending has all but stopped.

The intention then is to free up the bank’s cash so they can continue to lend to consumers. It also ensures the banks continue to be competitive on a global perspective in light of the ‘real’ bank bailouts that have been occurring around the world.

Question: How do I remove ex spouse’s name from Canadian mortgage without refinancing?

Answer: Provide the bank with the decree nisi (final divorce decree) and disposition of marital assets. If it’s all yours, then with the divorce decree they may drop your ex off the loan.

Question: Can US residents buying Canadian property deduct taxes and mortgage interest on their US tax return?

Answer: Yes. US residents buying Canadian real property can deduct taxes and mortgage interest on their US tax return, subject to the same limitations as if it were a U.S. property (i.e. mortgage interest is limited to a principal or secondary residence and up to $1 million in mortgages). In addition, if the Canadian property is your principal residence, it will qualify for the U.S. home gain exclusion of $250,000 if single/married filing separately or $500,000 if filing a joint return.

You also need to consider the Canadian tax rules if this is a rental property (i.e. you will need to file a Canadian personal income tax return. If this a Canadian residence for you, Canada does not allow the deduction of home mortgage interest, but the gain is tax free. Also look at the Canadian-US income tax treaty which could subject you Canadian tax on the sale of the property in certain instances.

Question: What are the differences between Canadian mortgages and US mortgages?
I know that one difference has to do with taxes being deductible in one and not in the other? Can someone please explain that?

Answer: In the US the interest portion of the mortgage payment on your principal residence is a tax deductible expense, but you may have to pay capital gains tax upon the sale of your home.

In Canada you can’t deduct mortgage interest (some exceptions), but you don’t pay capital gains on the sale of your principal residence.

In Canada, a Guaranteed Investment Certificate or GIC is an investment normally issued by banks, credit unions, or trust companies. The institutions will offer a guaranteed rate of return over a fixed time period. People tend to purchase GICs as part of their retirement plans because they offer a low risk rate of return. Because of its low risk, they are apt to receive a lower return than other investments such as mutual funds, stocks, and bonds. If for some reason a bank defaults, it is only the principal that is at risk,

How Guaranteed Investment Certificates Work

When you buy a Guaranteed Investment Certificates (GIC) from a financial institution, the institution pays to borrow your money for a specified time period. The period can be months or years. The end of the time period is called the maturity date. You must agree to the terms and conditions specified by the institution. For instance, the set term of the investment can be as little as 30 days, one year, or up to 10 years. You select how long you want the time period to be. Most people purchase GICs for one, three, or five years.

A certain amount of money has to be invested in the GIC. It is generally at least $500.00. You will be paid the interest that is accrued over the time period. Therefore, if your GIC is set for ten years, you will make more of a return in interest over the time period. The less time period, the less interest you will receive. It is important to remember if you take your money out before the end of the set term, there may be a penalty or early withdrawal fees. You may even not receive any interest. However, there are some GIC options that will allow a certain portion of the interest to be paid each year if you have a term that is set at a certain number of years.

You can normally receive your interest payments monthly, every three months, or once or twice a year. If you choose a monthly payment, interest payments will be lower.

Types of Guaranteed Investment Certificates (GICs):

Each financial institution may design their own GIC packages for their clients with different options, but there are two main types of GICs.

1. The safest GIC investment is one where an interest rate is set for the specified period of time. This is known as a fixed rate. Your money will be used at a specified interest rate that will not fluctuate with the market conditions. Because interest rates often change, always check to make sure that you are getting the best rate.

2. Purchasing GICs where the interest rate is based on the conditions of the stock market, rates will vary according the market conditions. It gives the investor a chance to possibly have a higher interest rate thereby earning more if the market is doing well.

What the Bank does with your Money

The bank takes the amount you invested in the GIC, and lends it to other financial groups. The bank will charge a much higher interest rate than the rate that they are paying you. The bank makes its money from the higher interest rate charged to their borrower. The difference between what they pay you and what they charge the borrower allows them to make a profit

It is important to remember that with GICs, the bank’s costs are factored into the price you pay. So, when comparing investment options, you have to look at what the total return would be on a GIC. As well, Guaranteed Investment Certificates are considered lower- risk, not no-risk investments. When your investment depends on market conditions, risk is higher. However, you will not lose the principal. Also, taxes on GIC interest that you receive tend to be high.

We all want to make the right choices when planning for our future, especially our retirement. Guaranteed Investment Certificates are a great way to make an investment with lower risks.

Get the current listing of GIC rates currently in effect for your investment needs at Ontario credit union. Providing mortgage refinance options, mortgage loan and investment options for all your financial requirements.

GIC FAQ:

Question: Which bank has the best one-year fixed deposit/GIC/etc low-risk investment rate?
As I’m going to be out of the country for a year, I’m looking to park my money in a fixed deposit, GIC or some other low-risk investment option with guaranteed returns. Does anyone know which bank has the best interest rate for what I’m looking for? I’m new to this and very overwhelmed by the amount of info I’m getting from the banks.

Answer: Premium Money Market Fund, only worth a few percent a year, but liquid as cash at any time, usable to buy stocks at my bank at a moments notice. It is what I do until I find something better.

Question: I am looking to invest in the CIBC’s GIC’s in the escalating investment but I need a few questions answered first?
On the subject of investments when it says interest is annually does that mean every month week or day? Can I add on to my investment as time passes? How do banks make a profit off investments? Is there a fee of something in fine print I have missed?

Answer: Guaranteed Investment Certificate pays interest at the end of a year when it says interest annually. You can buy more GICs anytime you want with new money but you can’t include your present GIC money until it’s term ends, or you lose any accrued interest. Banks make a profit by lending your GIC Money out at higher rates than they pay you. There are no fees for buying, just loss of interest if you sell before the term date.

Question: Difference between RRSP and GIC RRSP?
Can you please explain to me the difference between an RRSP and and RRSP GIC? Are both tax-sheltered? What are the benefits of each?

Answer: A GIC RRSP restricts investment to Guaranteed Investment Certificates and are offered by banks and credit unions. Contributions are tax deductible.

A normal RRSP is also tax deductible and is not as restrictive in the type of investment allowed. Mutual funds for example are also allowed. There are a number of potential products that can be bought or transferred into an RRSP including stocks, bonds, stock options etc.

Question: What is the difference between a registered and non-registered GIC?

Answer: A registered investment means it is registered with the government. These investments are essentially guaranteed to the government so you can’t use them as an asset for the most part at a financial institution. A registered investment is most commonly put into an RRSP (Registered Retirement Savings Plan) which is used for your retirement, but there is also the option of an RESP (Registered Education Savings Plan), which would be for your child’s education.

A non-registered investment is one that is just a regular investment. It’s just there with no set singular purpose and is considered an asset.

Any type of investment can be classed as a Registered or non-registered investment.

Question: Do you have to pay income tax on a gic if you use money from a buyout?

Answer: Interest earned from a GIC is reported on your income tax return and therefore, yes, you pay income tax. The only exception is if the GIC is part of your TFSA.

Question: RRSP, GIC or Savings Account?
I already have 2 savings accounts with pretty good interest rates. I was wondering if I should stick with those or should I get an RRSP or GIC to save some extra money? Keeping in mind that I am going on Maternity leave soon. My husband already does separate investments and he is planning on opening a RRSP with our mortgage.

Answer: The RRSP is the best investment of the three. You don’t pay income tax on the interest unless you take them out before age 65. GIC you pay tax on the interest when they mature i.e. a 5 yr. GIC you would pay tax on the interest accrued after 5 yrs–10 yr GIC you pay tax on interest accrued after 10 yrs etc. Savings accounts, not enough interest to make it worthwhile.

Question: GIC Interest, Where Does It Go?
This is my first time doing taxes on my own. I entered GIC interest along with bank deposit interests in the “Interest from Canadian Sources” in Box 13 of the T5 slip (StudioTax). Is this correct?

Answer: If this was not an RRSP account, then yes, you entered it correctly.

Question: Should I invest in GIC?
I got about two grands which I believe will be sitting around in my savings account anyway. So I thought I would rather have them in BMO GIC since it’s highly liquidity with no risk, well low rate. Is there any other investment which may be a bit riskier than GIC but still highly liquidable and with a higher rate?

Answer: A GIC is not highly liquid, it is locked in for the period of time you select. 1, 3 or 5 years. If you get a cashable GIC, then you must accept a lower interest rate.

In your situation, if the ability to access the money in an emergency is an issue, I would recommend a money market account, which is a type of mutual fund, which usually pays higher interest than a savings account, but you can get the money out within 1 or 2 days. BMO can do it for you.