Canadian Personal Finance Blog

This year I will not be receiving a tax rebate, thanks to a plethora of reasons, but if I did there is always the question what do you do with found money like this?

Found Money: Windfall or Savings?

Simple Savings Routine

Some people have a very good equation at tax time:

• Put moneys into RRSP up to Limit
• Take Tax Rebate from this saving and apply to mortgage as overpayment
• Repeat methodology each year

An excellent Savings routine, and if you can do this a good way to build up your RRSP and pay down your mortgage.

Let’s Go On Vacation

Other folks I know view Tax rebate moneys as “found money” and feel  that since it hasn’t been planned for, it can be spent however they wish and they typically use it towards a family vacation. Surprisingly, I don’t think this is a bad thing, if the family vacation is just that and not an excuse to spend more money on vacation and go farther into debt. Vacation and rest is important, as long as it is well planned (financially).

I Hate Tax Rebates

Another group of folks I know, despise getting a tax rebate, because that means the government has had your money for the year, when you could have had it instead, and they make sure their employer takes off as little tax as possible, while ensuring they don’t owe money to the government come April 30th either.

I like this concept as well, and usually try to make sure I pay as little tax as I can. 

At the end of it NOT owing money to the CRA is a good thing.

Found Money?

So what if I “find” money (say it falls off the back of a truck, or a relative gives me some)?

If you go with the RRSP routine, it becomes a savings windfall:

1. Money goes to RRSP and creates a tax rebate
2. Tax Rebate moneys goes onto Mortgage or into a savings vehicle if Mortgage is paid off.

I like that idea a great deal.

What do you do with found money?

… to make the financial markets even more jittery. The WHO has now moved up their scale for the pandemic to 4 out of 6 and that may mean more jitters in the financial markets.

This will make for some very interesting trade decisions in the next few days, is my guess, since a lot of produce and such come from Mexico, will we see an embargo? Will this drive up food prices (which are already sky rocketing)? Inflation, did you order Inflation with your Global Financial Apocalypse? Sorry, it comes with the deal.

Kiss the Mexican tourism trade good bye for a while, not many folks will be wanting to go Loco down in Acapulco.

Swine Flu again? I’m sure Maple Leaf is deliriously happy to give consumers ANOTHER reason not to buy their products. Stay away from pig farms would be the best advice for now.

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Let’s hope this ill wind does not kill off any kind of rally.

Tax Day – 2

Yup remember Thursday at midnight you’ll need to have filed and PAID for your tax bill if you live in Canada. Not sure if they are giving Swine Flu dispensations yet, but get it done folks.

Server Issues Return

My site was down for a good portion of yesterday, my apologies to my readers, seems my server went down for the count, but I have been told that evidently the problem is resolved for now. Might have been Swine Flu in the disk drives, not sure.

Figured I’d ask since you really only have a few days left to get it all done. You have 9 days including today to get it into the CRA, and if they owe you money, why didn’t you do this sooner, because it is your money. If you owe them money, wait until the last day to pay them, but you can still file early, just don’t pay until April 29th.  Remember the tax man in Canada may not have the sweeping powers that the IRS does in the U.S., but they can still make your life as miserable as possible, if you don’t give them their “fair share”.

Mortgage Lock In Time?

With Interest rates now at historical lows is now the time to lock into your Mortgage rate? 

That seems to be a big question going around these days, but here is a better question to ask, if interest rates go up to 10% can you still afford your house? Can you afford your debt load you are carrying? 

Those are the real questions to ask. When my wife and I bought our first house, we locked in at 12% for five years, because the world was just coming off mortgage rates of 15% and up to 20% so we thought that this was the best bargain we could make at that moment. Turned out we were completely wrong, and ended up paying a lot more than if we had gone variable or gone with shorter terms.

Were we wrong? No, is my opinion, we could afford the mortgage at that rate and did not want variance in our mortgage payments (where variance really means, didn’t want to pay MORE for the mortgage), so we locked in. There is no wrong answer in this area, it is what you feel comfortable and how you want to plan and architect your financial plan. 

For the past 8 years I have carried my house on a completely variable interest rate debt vehicle, and it has served me fairly well, but I am hoping to pay it off quickly, once I find another job. I can withstand a fairly steep interest rate jump (I’ll complain a lot mind you), but for me I feel ok with my current decision about staying at a variable rate.

The whole goal is to get rid of this debt so that you can then use your money to build wealth, not just pay off debt.

Do you feel safe with the current interest rates? What would happen if they shot up to 10% in a year (say like oil prices did)? Are you confident there is no Inflation on the financial event horizon?

April 30th (Canadian Income Tax deadline (CRA)) is starting to loom on the event horizon and for me that means paying a hefty 5 figure Income Tax bill (due to my severance payment not being taxed at the correct level). This will (hopefully) be the largest tax over-payment I need to make in my life (but who knows).  

Since I owe the government money I have filed my tax return, but I am waiting to make my payment until the end of the month (no point in giving the government any extra funds), which I will do using my Bank’s Direct Bill Payment capability.

Due to this very large bill, I have managed to find and work as many deduction and tax credit areas as I can legally think of (aside from claiming my cats as dependants, which is in the illegal side of the equation).

Some of the more important areas that I was able to take advantage of:

1. Soaking up all remaining RRSP room that I had to lower my tax payment (along with the allowance given to me for having worked for the same company between ‘85 and ‘94).
2. Ensuring I transfer over my daughter’s tuition fee deduction (she did not need it).
3. Mass transit tax credit, using the bus passes I buy my daughters to lower my taxes
4. Active Children tax credit, for two of my daughters
5. Safety Deposit box rental as a carrying charge
6. Making sure I have all of my Charitable Donations in place
7. Filling in my tax forms correctly, thanks to Quicktax (I am sure UFile would have done the same)

These and other important tax deductions and credits have helped soften a large blow to someone with no income for now either.

However, as all of these stories go, there are people worse off than I am:

1. Former co-workers who got no severance, so I am not complaining about paying a lot of tax, because it means I did get some money.
2. Other folks due to circumstance who are going to owe much more than me (see Michael James post on Phantom Income Strikes). 

Remember when you pay that big tax bill there are others worse off, so calm down and get it done, April 30th is not that far away!