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Ask an Accountant is provided by YMbD’s favourite accountant, Mindy Abramowitz.  Today, she gives some good news to parents — payments from the gov’t for kids, and tax credits.   (hmm.  I wonder if they’d consider helping out parents of daschunds.)

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babyHere is a roundup of the benefits and tax credits for parents of young children:

Canada Child Tax Benefit

The CCTB is a monthly, tax-free payment for any child under the age of 18. Payments begin in July and carry on through June based on the net income reported on your tax return from the previous year. Everywhere but in Alberta, the basic amount is $1,238/child/year (plus an additional $90 for third and each additional child). This amount is reduced by 2% of the family net income that exceeds $37,178 (4% for families with two or more children). Eligibility for the benefits tops out at a family income of approximately $101,328. But keep in mind that this figure is income net of RRSP contributions. You must apply to the federal government in order to receive this benefit.

Universal Child Care Benefit

The UCCB is available for each child under the age of 6. It is a flat payment of $100/month intended by the government to contribute to child care costs, though its use is left to the discretion of the recipient. The payments are taxable in the hands of the lower income earner in the family. Enrolment in the program is processed with the Child Tax Benefit application.

Child Care Expenses

The spouse with the lower income can deduct up to $7,000 in child care expenses for each child under 16. Eligible expenses include payments to: nannies, daycare centres, nursery schools, day camps, boarding schools and sleep-away camps. Advertising costs to locate a child care provider can also be claimed.

Proposed Children’s Fitness Tax Credit

Starting in 2007, parents are eligible for a tax credit for registering children under 16 in ongoing, supervised activities intended for children that improve cardio-respiratory fitness along with one of the following: muscular strength, muscular endurance, flexibility, balance. The maximum amount eligible for the credit is $500 per child, so the maximum credit is $77.50 per child ($500 x 15.5%). The fees must have been paid in 2007 in order to be eligible. You will need a receipt to document the claim, though you are not required to submit receipts with your tax return.

New Child Tax Credit

The 2007 budget introduced a new child tax credit based on $2,000 per child under 18. The credit is calculated using the lowest personal tax rate of 15.5% and works out to $310/child. Either parent can claim the credit when the child lives with both parents throughout the year. In other cases, the parent who is eligible to claim the child as a dependent can claim the credit.

alexanderstreet1.JPGIf you’re like me, you’ve gulped when your property insurance renewals arrived in the mail. It’s not a big rip-off, and insurance agent Grace Catao, owner of Habitat Insurance, gives us some straight-up intel on why it’s happening and what we need.

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With surging property prices in the Lower Mainland, homeowners who bought into the market in the last few years are sitting pretty: their assets have appreciated spectacularly.

However, increased property values have resulted in substantial increases in property insurance premiums. In some cases, we have seen increases as high as 50% to 100% in the last year.

This, of course, leads to much dismay for homeowners when they get their renewal policies.

When faced with a much higher premium, a property owner may be tempted to cut corners and insure the property for less than its market-related value.

What owners need to keep in mind is that since October 2003, construction prices have increased at a rate of approximately 1% to 2% per month. This scenario is unlikely to change in the near future, with market conditions demonstrating continued high demand for construction materials, services and trades.

In the event of a major peril occurring – such as a fire in which the entire home is destroyed – the property owner who scrimped on insurance may well find himself entitled to an insurance claim that will be insufficient to rebuild his home.

A homeowner who is concerned about rising premiums should speak to his broker about 1 to 2 weeks before the policy expiration date. A good broker will review the policy and explain the reasons for the increases. This will also be an opportunity for the broker to look for better rates with other insurance companies or restructure the policy.

Ultimately, a homeowner must keep in mind that his home is probably his single most valuable asset and must be appropriately insured: this may save a lot of heartache and money in the future.

Copyright© 2007 – All rights reserved – Grace Catao

Habitat Insurance Agencies Ltd.

“We’ve got you covered”

2152 Kingsway
Vancouver BC V5N 2T5

 

Tel. 604-438-5241
Fax 604-438-5243
Cell. 778-997-2583
e-mail Grace at habitat insurance dot calm

Mindy Abramowitz, our resident accountant (who is uber-cool, by the way) answers the perplexing question:

Should I lease?  Or should I buy?

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red-convertible.jpgHere’s another question best answered, “It depends.”

People usually are talking about a car, but a discussion of the lease vs. buy dilemma applies to a wide variety of items: computers, equipment, even buildings.

Why lease?

  • Lower monthly payments
  • No down payment (depending on the lease)
  • Sales taxes are included in the monthly payment, so you don’t have to pay them up front
  • Easier to keep your equipment up-to-date because you can acquire a newer model at the end of the lease
  • Depreciation is not your concern (though it is factored into the lease cost)
  • Greater tax deduction if you use the item for business

Why buy?

  • The item is yours. You can customize it as you see fit.
  • It’s easier – there’s less paperwork and fewer terms to negotiate.
  • It’s up to you whether you repair it – you are not legally bound to maintain your vehicle or equipment.
  • No restrictions on use (mileage limits, etc.)
  • You can sell the item for cash.
  • Over the long term the cost is usually lower

How to compare:

  • Many leases present the cost of leasing right in the agreement, but if yours doesn’t, use an online lease-or-buy calculator to figure out how much the lease costs so you can compare it to the cost of purchasing.
  • The cost of purchasing is either your loan interest if you are financing the purchase, or, if you intend to buy outright, the after-tax return your cash would earn in an investment . If your interest is tax deductible (i.e. you are operating a business), then use the before-tax return on your investments.
  • If the lease term differs from the loan term, make sure you compare the annual or monthly cost of each.

I am ignoring the effect of down payments, sales taxes and other fees for the sake of simplicity, but if you need a more detailed cost analysis I encourage you to try a lease-or-buy calculator.

Each Wednesday, the Amazing Accountant who does my personal and business taxes, Mindy Abramowitz, highlights an accounting topic many Canadians encounter.  Today she dives into the frequent question:  to pay down my mortgage or contribute to my RRSP?

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This is hotly debated question in Canadian personal finance circles and the answer will differ according to the asker’s situation and temperament.

From a tax reduction perspective, the mortgage payment will yield no immediate benefit, whereas an RRSP contribution will minimize taxes payable in the year it is made. Over the long term, the decision to pay down the mortgage will save you interest but will deprive you of tax-free compound growth in your RRSP.

However, if the following conditions apply to you, the mortgage payment route will likely be the more helpful option:

  • your annual income falls into one of the lower tax brackets; or
  • the interest rate on your mortgage is higher than the return on the investments in your RRSP; or
  • your retirement will come sooner than your last mortgage payment; or
  • you simply cannot tolerate carrying debt.

Assuming you are in a high tax bracket, bumping up your RRSP contributions will give you the most bang for your buck. In some cases, you’ll get to have your cake and eat it too: you can use the resulting tax refund to pay down your mortgage.

Crunch the numbers to figure out what would work best for you — easy-to-use RRSP vs. mortgage calculators abound on the internet (try the one at taxtips.ca) — or talk to your financial advisor.

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smiley-kid.jpgToday’s guest post is from someone who spent time in my hometown, Yellowknife! It’s a belated post (mea culpa) but with fall routine really settling in, the timing is perfect for a post on how a babysitting coop can work, saving you money, and creating a very warm environment for your kids.
It’s June 8, which means my daughter turns 24 today. It’s made me
a bit nostalgic, and I’ve been wallowing in some memories of her
childhood. She was born when I was living in Yellowknife, NWT, far from
family, and although Yellowknife was a small and isolated “city” (pop.
8,500 in those days), we worked together in a caring way, with lots of
laughter and regular pot luck dinners and cross-country ski weekend
events. One of the Yellowknife gifts that came into my life during
Emily’s first year was a babysitting co-op. It was started by a woman who
wanted to ensure her child was left in a safe and caring environment
whenever she needed childcare. It worked so well that I wanted to share
it with your website readers.

It’s a simple idea: a group of parents get together and work out a system
of childcare that is free. Now it’s been more than 23 years since I was a
member but here’s what I remember about the main guidelines.

Our group in Yellowknife had 20 families in it, brought together by
several women who each contacted several friends and then we had
an early evening gathering of all the interested mothers and their
children. (It was all mothers in those days, though not all of them were
stay-at-home moms; we also felt it was important that everyone got a
chance to meet the children too as they were as much a part of the
babysitting mix as the mothers.)

We worked out the specifics during that first meeting: 1 point for each 30
minutes of babysitting, which meant you were always in either a credit or
debit situation; we’d meet once a month just to visit and not only get to
know each other better but to also let our children know all the adults in
a relaxed social setting (not just when their mother was leaving them),
and to check in with each other for a point overview to make sure no-one
was in either credit or debt overload. We put together a master list of
each woman’s availability, for example some women only wanted to babysit
during the daytime, others only on weekends, some only specific week
nights. (Email wasn’t an option in those days but now it would be easy to
have an email contact list.) We also talked about what would happen when
someone moved away or left the group – should they have to “clear” their
babysitting debt before they went? We put together a contact list, made
copies, and proceeded to have a very positive experience.

There are some great reference websites (just Google “babysitting co-ops”
and you’ll suddenly have about 34,000 sites to work your way through)
along with a variety of books, including Julee Huy’s “Smart Mom’s
Baby-Sitting Co-op Handbook,” which I haven’t read but which gets great
reviews. (editor’s note: it’s available at Abebooks.com
for about $7)

If you’re part of a babysitting co-op, your children will feel like they
are going over to a friend’s house to play, or that friends are coming
over to play with them. And as a parent, you can leave your child(ren)
with family’s you and they know and trust. It’s a win-win situation for
everyone.

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