Tax Tips for Seniors
By Gail Packwood
Tax time is upon us and every year brings some changes to what your obligations are and what tax credits might be available to you. It is always best to check with the Canadian Revenue Agency (CRA) or your tax preparer/financial adviser before filing to ensure you haven’t missed anything.
It is important to always do your taxes, even if you have a modest or low income and don’t believe you will owe any money or receive any money back. As part of the filing process, you also apply for the GST/HST tax credit. Many low or modest income individuals and families qualify for a quarterly payment to offset GST/HST expenses. By not filing, you may be missing out on this benefit.
Regardless of age, you may be able to benefit from the Public Transit Tax Credit. This is a fairly new benefit for those who take public transit and buy a transit pass or use an electronic payment card. These expenses may now be claimed as a non-refundable tax credit. Certain restrictions apply and you need to keep your passes and receipts for proof of payment.
Some medical expenses including prescription drugs, walking aids and non-cosmetic dental treatments can be included on your tax return to claim a non-refundable tax credit based on your total costs. This is separate from the Disability Tax Credit which you may be able to claim if you had severe and prolonged physical or mental impairment during the tax year. A separate Disability Tax Credit Certificate is required to apply for the Disability Tax Credit which is available on the CRA website for download. Please note, that if you are receiving other disability benefits it does not automatically mean you are eligible for this tax credit program.
If you were 65 or older at the end of the calendar year, you may be able to apply for the Age Amount tax credit on line 301 of the return. Income restrictions apply and the amount you can claim will vary based on your total income. Remember as well to claim the corresponding provincial or territorial amount on line 5808 of the provincial portion of your return.
There were recent changes to the Canada Pension Plan which include the fact that if you are between the ages of 60 and 65 and still working, you must continue to contribute to the plan. If you are between 65 and 70 and still working, you may choose to continue your contributions.
And don’t forget, if you are still eligible to contribute to a Registered Retirement Savings Plan (RRSP), those contributions may be used to reduce your tax. Also, if you make charitable contributions throughout the year, keep your charitable tax receipts as they also can be used to offset your taxes owed.
The Canadian Revenue Agency offers all its publications in multiple formats including large print and Braille. Contact them at 1-800-959-2221 or visit www.cra-arc.gc.ca
Debt in retirement means a lean time and tough choices
Jana Schilder, Toronto Star
When most couples are celebrating the end of their mortgage and the start of living debt-free, Danny, now 77, and his wife Terry, now 71, bought a house and took on new debt.
After several rent increases and the threat of having to pay for electricity in their rented Oakville apartment, they bought a house in March 2009 in Hamilton for $194,000.
From the start, the Gaisins knew that they were not going to pay off their $184,000 mortgage. Ever.
Given this, they took out a really long amortization period, 35 years, on the advice of their mortgage broker, which would keep their payments lower. They locked in a 3.9 per cent interest rate for a 5-year term.
They also spent about $7,500 on kitchen renovations and added a second bathroom, which they put on a line of credit. Since 2011, they have paid off a $2,000 line of credit and have no credit card debt.
Their living expenses, even with a mortgage late in life, are less now than they were when they were renting.
Danny, an arts and music critic in greater Toronto since the 1960s, now runs a website, ontarioartsreview.com that has 4,000 monthly readers. Both Danny and Terry are still working part-time; they each drive school buses for special needs children.
Credit and Debt Solutions
Sometimes we end up in financial situations that are less than ideal. Perhaps your credit card debt has gotten out of hand or a change in your employment situation has left you with more money going out than coming in.
You are not alone. Growing consumer debt is at a crisis level in Canada with the average Canadian owing $26,000, the highest level in 8 years, in credit card debt, auto loans and lines of credit (this is non-mortgage debt). Money trouble can quickly feel overwhelming, but there is help available to get you back on your feet and into a healthier financial situation.
Credit Canada Debt Solutions (CCDS) is a not for profit charitable organization established to help Canadians resolve their credit and debt issues and offer financial advice to those needing to find solutions to their financial concerns and challenges. Some of the services that Credit Canada provides include credit counseling, debt management, financial coaching and money management. Many of their services are free or at low cost. They provide free debt consultation to everyone – this service is funded by banking and financial institutions, which want you to be able to meet your financial obligations as much as you do!
In Quebec, these services are provided by SOS Dettes (www.sosdettes.ca).
The CCDS website offers many great tools including some of their most requested financial advice. You can find introductions to how to budget, avoiding bankruptcy, dealing with losing your job, debt and how it affects your relationships and many others.
Some basic tips that everyone should try and follow in order to reduce your risk of falling into debt:
• Avoid payday loans companies.
• Avoid credit cards with high interest rates (this includes many department store cards that entice you with a big discount on your first purchase only to charge you monthly interest rates of over 20%)
• If you don’t need a car, don’t buy one. If you do need one, choose a more economical model that fits into your monthly budget. Don’t be tricked into committing yourself to higher payments than you can afford by “no money down” offers.
If you do find yourself in debt, there will be a way out but it will take some work and commitment on your part. Some simple steps to take right away include:
• Pay higher than the minimum monthly payment on your credit cards with the highest interest rate first. It is only when you pay higher than the minimum payment that you start paying off more than just the interest.
• Make a realistic budget for your monthly expenses and be diligent about sticking to it (you can find steps on how to do this, on the CCDS website).
• Speak openly with your spouse and family members about your financial situation – everyone needs to agree to work together on curbing spending and getting out of debt.
Providing services in many languages in addition to English, CCDS is an accessible alternative for those who may not know where else to turn for help. You can overcome a financial crisis, but having solid, reliable advice to assist you do it is invaluable and can help you reach your goals faster and with less stress. You do not have to face your financial crisis on your own.
For more information on the CCDS and their services, visit their website http://creditcanada.com/
Retire? Can you afford to?
Philip DeMont, Toronto Star
Andrew Pyle sees the growing concern among Canadians about their retirement prospects almost every day.
More people crossing the threshold of his office are worried about how to fund the time in their life after they finish working, says the Peterborough financial planner.
“There is a general anxiety over the ability to retire . . . that the CPP (Canada Pension Plan) is not going to be adequate,” Pyle says.
Setting aside the usual bromides about the necessity of getting a financial plan in place, these fears have merit.
A gathering battalion of retirees who will live longer than past cohorts, struggling companies not willing to top up pension benefits, and governments seeking ways to reduce public outlays for the elderly are combining to tarnish the lustre of the “golden years” of many.
“Canadians . . . want to maintain their lifestyle, have a guaranteed income and are worried about outliving their money . . . . (They) must recognize that they cannot have their cake and eat it, too,” said a report from BMO Retirement Institute in 2011.
Forty years ago, such retirement tradeoffs, while always of some concern, were less pressing for Canada’s retirees. Skilled workers probably had a job at a company that provided a defined benefit pension, a plan with a set payout that a firm might top up.
Also, any salary savings that worker managed to squirrel away earned a decent rate of return. For instance, a three-year Canada Savings Bond had a posted interest rate of 4.5 per cent in 1965, enabling you to double your money in about 16 years
And the expectations this generation had for its retirement years were limited, maybe a game of golf or two and a chance to see the grandkids once in a while.
Things have certainly changed.
To read the full article: http://www.moneyville.ca/article/1288045--retire-can-you-afford-to
Boomers gambling home values will save them
Susan Pigg, Toronto Star
Mortgage broker Steve Garganis sees more and more baby boomers adopting what he calls “the 10-year plan.”
It consists of buying up — not down — into the most expensive house they can afford in their 50s, even if the kids are gone, with the notion of cashing out as they ready for retirement.
“They’re pulling away from other investments that have not performed well and they’re saying let’s look at real estate, but from a long-term perspective with record-low interest rates.
They’re thinking even if there is a downturn in the market, they’ll ride out the ups and downs over the next 10 years but they’ll build up equity faster.”
That nest-egg notion of home ownership could create a new kind of “retirement stress” among baby boomers who’ve largely abandoned the concept of a house as simply Home Sweet Home, warns a new report from the Bank of Montreal Retirement Institute.
It found that 40 per cent of Canadians surveyed, all of them over the age of 45, aren’t confident they’ll be able to save enough for retirement. Some 41 per cent said they see their house as “an alternative source of funding,” with one-third saying they’ve either sold their house or plan to sell to help bankroll the retirement they envision.
Some 87 per cent of boomers have seen their homes skyrocket in value, nearly half reporting gains of 50 per cent or more, especially in cities like Toronto, Vancouver and Calgary, the report notes.
But it also warns that demographics and economics could work against boomers and that home equity could shrink if the market softens, as some economists are predicting.
Just as the rush of boomer buyers helped drive house prices up over the last few decades, there’s a good chance they could drive prices down as they try to unload big, expensive houses that are simply out of reach of most younger buyers, especially when interest rates start to rise.
“The rally in house prices has given people the false sense of security that investing in a house is safe and an option to fund their retirement,” says Marlena Pospiech, a retirement strategist with the Retirement Institute, an arm of BMO Financial Group which offers financial advice and strategies.
Your Financial Toolkit
The Financial Consumer Agency of Canada (FCAC) is “an independent body working to protect and inform consumers of financial products and services”. Among other services, the FCAC provides toolkits and worksheets to help consumers understand and make smart financial decisions.
The website is divided by “life events” so you can narrow down your search for topics of interest based on your stage of life. So whether you are having children or planning for retirement there is a section aimed at just what you need.
They answer many frequently asked questions from the more complex “how to chose a financial advisor” to the more straightforward “what happens if I make a late payment on my credit card?” There is a range of advice offered to suit most levels of financial knowledge and aptitude.
Your Financial Toolkit is a new tool available both on their website and in hardcopy to assist ordinary Canadians in managing their money
Written using ordinary language and available in both English and French, the toolkit continues short videos, calculators, quizzes and checklists to help you assess the areas of your financial management that are of concern to you. It helps you focus on what you may need to learn more about in order to become more financially secure and aware.
It covers a wide variety of topics including creating budgets, saving more money, managing debt, retirement planning, avoiding fraud and many others. A great place to start is the “self-assessment tool” which will help you pinpoint which modules and tools would be most useful to you.
I myself worked through the “retirement and pensions” module and found it full of useful tips as well as some jarring realities. The website is very easy to navigate and has many different options for how to look at the material which you can select based on what works for you - if you prefer to read a checklist or watch a video for instance.
The FCAC’s website can be found here http://www.fcac-acfc.gc.ca/eng/index-eng.asp
Aging Canadians confront cruel financial reality of "grey divorce"
Linda Nguyen, The Province
When Deborah O'Connor was 50, her marriage died.
At the time, she didn't realize her decision to leave the unhappy relationship was going to result in a costly battle still being fought in the courts five years later.
O'Connor estimates she has spent $150,000 in legal bills and other separation-related costs including taxes on a home she no longer lives in.
"It did me in," said O'Connor, a University of British Columbia professor who studies the effects of divorce on baby boomers and seniors.
According to Statistics Canada, "grey divorce" has been steadily growing among those 55 and over, with rates expected to increase as more people continue to age.
While marriage remains the predominant family structure in Canada, it only represents 67 per cent of Canadian families, down from 70.5 per cent a decade ago — and 91.6 per cent in 1961, before the advent of the Divorce Act, Statistics Canada reported Wednesday in its latest batch of 2011 census data.
And for the first time, the number of common-law families in Canada outstripped the number of single-parent families in 2011, another sign of the declining popularity of matrimony.
As baby boomers — their children grown and moved out of the family home — reach the retirement-age threshold, divorces among couples 65 years old and older are becoming more and more common, according to Statistics Canada numbers that pre-date Wednesday's census release.
In 2008, there were 1,237 divorces among women 65 and older, 2,486 among men of that age and 852 divorces where both partners were over the age of 65, the agency's figures show.
O'Connor said it's no longer just men who are leaving their wives, perhaps for a younger woman. In the past few years, she said she's heard more cases of older women exiting their long-term marriages by choice.
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