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Pack Responsibly

Nelson & District Credit Union will strive to provide members with solutions to help them pack responsibly for their unique life-stages and reach their viewpoints. This process is called the Financial Hike.

What is a Financial Hike?

Your Hike starts with identifying your goals. Nelson & District Credit Union will create a personalized guidebook to help you reach them.

Healthy, long-term strategies incorporate all elements of your financial affairs. How you pack one element influences how you pack another. We offer professional financial planning and access to virtually every investment product and service in the marketplace today.

The information below will assist you in considering the best path to take and which guide to choose. Please contact us at thehike@nelsoncu.com for more information.

2008 Budget Highlights

A Few Highlights from the 2008 Federal Budget
Bradley Roulston, CFP

Tax-Free Savings Account

Undoubtedly, the biggest treat for investors in the 2008 federal budget was the introduction of a new savings vehicle that will allow Canadians to save money, not just for retirement but for any purpose, on a completely tax-exempt basis.

Starting in 2009, Canadians who are at least 18 years old will be able to contribute to a Tax-Free Savings Account (TFSA). Contribution room is $5,000 (indexed annually), will be cumulative and will be allowed to be carried forward indefinitely. For instance, if your contribution was only $2,000 in 2009, you can contribute $8,000 in 2010 ($3,000 carry-forward plus $5,000 of new room). Unlike the RRSP system, any amounts withdrawn will be automatically added to your TFSA contribution room. However, be careful not to over-contribute as excess contributions will be taxed at 1% per month.

Unlike RRSPs, but similar to RESPs, contributions to a TFSA will not be tax-deductible from income. The big advantage is that any income and gains on investments held within a TFSA won’t be taxed either while inside the TFSA or upon ultimate withdrawal. Further, since withdrawals are not considered income, they will have no impact on government befits or credits such as GIS, OAS on the Canada Child Tax Benefit or the Goods and Services Tax Credit.

Since income earned inside the TFSA along with withdrawals are non-taxable, you won’t be able to write off any interest expense on funds borrowed for the purpose of investing in a TFSA (similar to RRSPs). However, unlike RRSPs, you can use TFSA assets as collateral, which may facilitate investors in obtaining secured credit at more favourable rates. Income splitting is allowed as attribution rules do not apply to any income or gains earned in the TFSA derived from a spouse or partner’s contributions.

Assuming that you have limited funds and choosing between the TFSA or RRSP… While both are meant to be tax-neutral, RRSPs will make more sense if your tax rate is lower when you take the money out (I.e. retirement). Both vehicles work best when years of compounding interest are able to occur. People might be inclined to withdrawal money from their TFSA more regularly, hence sacrificing their retirement income. Other critics believe that the TFSAs are likely to be utilized more by middle and upper income earners.

Dividend Tax Credit

In response to the reduction in corporate tax rates from 19% in 2008 to 15% in 2012, the dividend gross-up factor and the dividend tax credit for eligible dividends will be reduced. By 2012, an eligible dividend will be gross-up by 38% (compared to 45% currently) and the dividend tax credit will be reduced to 15% from the current level of 19%. These changes will increase the effective federal tax rate on eligible dividends from 14.55% to 19.29% by 2012.

Depreciation

The manufacturing and process sector also received extended capital cost allowance treatment for investment in machinery and equipment. The accelerated depreciation that was introduced in the 2007 budget and which applied to investments made within a two year horizon has now been extended out to include investments made up to the end of 2011. For the first additional year, a 50% straight-line accelerated CCA treatment will apply, but for 2010-11, an accelerated treatment will be provided on a declining basis.

Bradley Roulston, CFP is a manager of the Nelson & District Credit Union. For more information, contact broulston@nelsoncu.com

Added on March 17th, 2008

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