Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

With 2 weeks to go, two in five have yet to file their taxes for 2016

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While the tax-filing deadline has already passed in the United States (it was yesterday, April 18th this year), Canadians still have roughly two weeks left to go before the May 1st tax-filing deadline for the calendar year 2016.

Today, a survey from H&R Block Canada found two in five Canadians still haven’t filed their taxes this year. I had to shake my head because the survey arrived in my inbox shortly after I received emails from the Canada Revenue Agency advising me that returns for my wife and I had been processed, with (small) refunds deposited into our bank account.

Actually, those expecting refunds don’t get hurt too much by procrastination, although the time value of money tells you the sooner you file and get your refund, the sooner it can be properly invested, or be applied to eliminate high-interest debt.

But I worry about the 40% who still haven’t filed, especially about the subset of that group who expects to have to pay the CRA. (30% of H&R Block clients have to pay, versus 70% who get refunds).  It’s bad enough owing money and you don’t want to compound matters by having penalties and interest get tacked on on top of the outstanding balance.

Majority are between Procrastinators and Eager Beavers

H&R Block claims its survey has a bit of good news as it relates to attitudes towards filing: the majority consider themselves to fall under the In-Betweener category (55%), i.e.  those who file a few weeks before the deadline. Almost a quarter (23%) are Procrastinators who file at the very last second. Category 3 are  Eager Beavers (19%), who file well in advance of the deadline. (That would be me, although even Eager Beavers have to wait until the first week of April if they have non-registered investments: some of those T-3 slips don’t arrive until the end of March).

Eager is perhaps too strong a word. I hate filing taxes as much as anyone but I look at the annual ordeal as comparable to dentistry. If you have a toothache you want to address the pain head on, as soon as possible. And there’s nothing like the feeling of relief you get from hitting the Send button on a tax return, assuming you NetFile.

Most Canadians are anxious about tax filing, although H&R Block says one in four actually “get excited about filing and the prospect of receiving a hefty refund.” But the majority associate negative feelings with it:  Reasons range from finding tax preparation a complicated process (21%) to the inconvenience factor (19%) of filing a tax return or just the feeling of overall anxiety it evokes (11%).

The major excuses for not filing:

• They haven’t organized all of the necessary paperwork yet (34%) – with millennials being the most susceptible at 45% to state that as the main reason for not having filed

• They always file on the last week before the deadline (18%)

• They had not yet received all of the necessary paperwork (17%) to file

• They haven’t had time (11%) to file

Even so, 86% plan on filing their taxes before the May 1st deadline. Between now and April 27th, you can download the H&R Block Tax Software 100% free of charge (including all upgrades and support). See here for details.

 

 

Millennial Money: An experiment in money-saving hacks

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As both a student and a millennial, my eyes are always peeled for helpful tips and advice on how to manage my finances. I recently came across this article from refinery 29 about “10 Bizarre Money Habits Making Millennials Richer.”

While I usually try and avoid this ‘listicle’ format, I was intrigued enough to look into it. The list surprised me in that it actually did include some new tips I hadn’t heard about before, like literally freezing your credit card (See image to the left).

I decided to run a little experiment based on this article, and I’m sharing the results with you now. I didn’t think it would be feasible to try and implement all ten of the habits. Besides, some of them don’t apply to me (I no longer have a car or any recurring payments coming out of my bank account), so I decided to focus on just a few of the tips to see how easy they really were to put into action.

Tip 1: Pick a denomination and save it

The first tip I implemented was to pick a denomination and save it, always. Unlike the article, I don’t get paid in cash (or at all really, apart from payment for blogs like this), so the only time I come into contact with physical cash is when I take it out of an ATM or get cash back at the grocery store.

I thought I’d start small: I would save all my £2 coins [the UK pound is the currency where I currently live, in Scotland] in a jar on my desk. This actually turned out to work quite well for me, as my current wallet is a card carrier without any space for coins. Every time I received change I separated out the £2 coins,  then made sure to move them into the jar every couple of days. After three weeks of this method, though, I had only saved around £12. Turns out, £2 coins aren’t given out that frequently as change.

Continue Reading…

What first-time home buyers should know about FHA loans (U.S.)

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By Cher Zevala

Special to the Financial Independence Hub

For most people, a home is the most significant purchase they will ever make, as well as one of the most complex. Finding a home is actually the easiest part in most cases, but financing the purchase can be stressful.

That stress is only amplified when you want to purchase a home, but don’t necessarily meet lender qualifications for an attractive mortgage. Simply put, it’s not always easy to get a mortgage for a home. Lenders have strict criteria in terms of down payment, income, and credit history, and failing to meet those criteria can mean disappointment, at least when you work with a traditional lender. Thankfully, there are other options for purchasing a home, such as an FHA mortgage.

What Is an FHA Mortgage?

An FHA mortgage or loan is a home loan backed by the Federal Housing Administration (in the United States).  Borrowers who get a mortgage under this program must purchase mortgage insurance, which protects the lender in the event of a default. The agency itself does not issue the loan, but instead works with traditional lenders, providing assurance that the bank will not lose money on the deal.

FHA loans are attractive to many home buyers because they typically have less stringent qualifications in terms of down payment and credit score, but still offer competitive interest rates. For instance, while a buyer who only has a 10 per cent down payment and a credit score of 600 is not likely to qualify for a traditional loan, he or she has a better chance of getting financing via an FHA loan. Continue Reading…

How to earn $50,000 in dividend income tax-free (in most provinces)

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The Financial Post has just published (in Thursday’s paper and online) my article headlined “You can earn $50K in tax-free dividends but there’s a catch: You can’t have a job.”

Can’t have a job, indeed, or a large pension or any other source of significant alternative income.

The article is based on a BMO Financial Group report (May 2016) entitled Eligible Dividend Income. It shows that at least eight provinces or territories make it possible to receive $51,474 a year in “tax-free” eligible dividend income, provided there are no other major sources of income, and notwithstanding any provincial health levies.

These include Alberta, British Columbia, New Brunswick, Ontario, Saskatchewan, the Northwest Territories, Nunavut and Yukon. It’s only $45,309 in Prince Edward Island, $35,835 in Quebec, $30,509 in Nova Scotia, $24,271 in Manitoba and just $18,679 in Newfoundland and Labrador.

BMO won’t update for 2017 until all 2017 provincial budgets are released. When it first began publishing the document for the 2012 tax year, the maximum amount of tax-free income on eligible dividends was $47,888 in Ontario and eight other provinces. The amount rose to $48,844 in 2013 and to $49,284 in 2014.

Dividend Tax Credit, Basic Personal Amount are keys

This low-tax phenomenon happens through a combination of the Basic Personal Amounts (which in 2016 makes the first $11,474 tax-free federally) and the 15.02% federal dividend tax credit on eligible Canadian dividends: Continue Reading…

On the Middle Class & paying one’s fair share of taxes

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By Tim Paziuk

Special to the Financial Independence Hub

The Liberal Government has stated it wants to build a strong middle class, but who comprises the middle class?  Mr. Morneau in his 2017 budget speech stated, “All Canadians must pay their fair share of taxes,” but what is a “fair share”?  Does fair share mean the total amount of taxes one pays as a percentage of their gross income?  Is this based on an annual consideration or a lifetime consideration?  Or does fair share mean positively contributing to the general revenue?

The answer to the first question is an ongoing contentious debate.  According to former Finance Minister Mr. Joe Oliver, the middle class could include households earning as much as $120,000.  Given research completed by MoneySense Magazine[1], the middle class could include households earning incomes ranging from $38,800 to $125,000 (average second, third, and fourth quintiles for Canadian households), but this varies considerably between Provinces and Territories, and even between cities.  But does owning a private corporation automatically exclude you from the middle class?  The continued witch hunt on private corporations by the Liberal Government would indicate this is the case since it directly contradicts their mandate to build a strong middle class.

Comparing a private-sector and public-sector worker

It is at this time I would like to introduce Sally.  Sally could be a physician or accountant, an engineer or architect, a therapist or life coach, or a hairstylist or clothing retailer.  Suffice to say that either out of choice or necessity, she is self employed.  Let’s make her a plumber who is in a position where it makes sense for her to incorporate because she can defer income within her corporation and income split with her spouse under present tax legislation.  Her spouse works part-time.  Their situation can be summarized as follows:

  • Sally’s taxable corporate income: $100,000
  • Spouse’s gross income: $25,000
  • Net income required to meet their lifestyle: $80,000
  • Spouse’s CPP income: $4,300

Continue Reading…