Achieving Your Family's Future Financial Goals

by Michael Moreau

Have you established an education fund for your children or grandchildren? Futurists predict two employee classes dominating over the next decades – the well-educated professional and the skilled trades. A university degree or advanced trades training is now mandatory. And government funding is not adequate for either.

More and more, parents are taking on additional financial responsibilities for their children’s education.
A market-driven education system may produce better educational results for more students but the cost will no doubt be higher tuition fees. Governments are reducing education subsidies at an alarming rate. A conservative estimate for a four-year course is $25,000. If the student is away from home, expect the cost to double to $50,000. And in ten years, you could be facing a total four-year price tag of $40,000 to $81,000. In 18 years, those same costs could be $62,000 to $166,000. And we have only used the lower inflation value of 5% – what if costs increase at 7% or 10%?

There are three main options as to how to pay for these costs. The most expensive method is to fund future education costs with future dollars – in other words, a pay-as-you-go plan. The most economical method is to implement a strategy today. Or you could do nothing and have your child saddled with a crippling debt load as they enter the workforce.

If you have a plan in place, you should review your projections and monitor the plan’s growth. The ideal education funding strategy depends on the individual’s circumstances. Fortunately there are many choices from Registered Education Savings Plans to simple in-trust accounts.

HOW TO SERIOUSLY REDUCE YOUR CURRENT INCOME TAXES
Our complicated and convoluted tax system seems to have been designed to distribute wealth to the underprivileged. It was not designed for simplicity. Over the years, almost all tax reduction strategies have been removed for salaried employees who have minimal investments, whereas business owners and individuals with significant investment portfolios will be able to take advantage of numerous tax planning strategies.

HERE ARE A FEW OF OUR FAVOURITE TAX REDUCTION STRATEGIES:

1. Contribute the maximum amount to an RRSP annually. Some advisors say to contribute at the start of the year, but in January/February many people are cash poor. An effective strategy is to commit a fixed amount each month withdrawn automatically from your bank account by the investment company. You will often contribute more than if you invest with a lump sum amount once a year. Remember to consider the spousal RRSP strategy. You may be able to reduce your taxes by equalizing the post-retirement income streams between you and your spouse. Most public servants who have high pension plan values do not have a lot of room to make further RRSP contributions – all the more reason to maximize contributions each year.

2. Make your mortgage payments tax deductible by converting bad non-tax deductible debt into good tax-deductible debt while building a non-registered investment portfolio. Canada’s wealthy have been using this technique in for generations. For this strategy to work effectively, you must have self-discipline and long-term foresight.

3. Start a small business. Many people have outside interests that are capable of being run as a part-time business. Provided that you are carrying on a bona fide business – even on a small scale – you are potentially entitled to a wide range of tax deductions not available to salaried employees. If you have a split-use asset, such as a section of your home, you can deduct a proportionate amount of the home expenses as a business expense, based on the space used or, in the case of a vehicle, the kilometers traveled for business. Pay family members an income to help in the business. The greatest tax savings occur when paying very low-income earners – those earning less than $8,000 annually. Write off business losses against other salary to the extent that legitimate deductions can be claimed. The conditions are you must be running a bona fide business and have a plan and a reasonable expectation of profits in the not-too-distant future.

Of course, there are specific rules and limitations to all our suggestions and you must be able to substantiate all expenses as ‘reasonable’ and with proper documentation. Remember that every dollar we save in taxes or expenses is like earning $2 before tax. Tax Freedom Day was June 28 last year.

Therefore, after combining and paying all taxes from the three levels of government, the average citizen spent half their income on taxes.



Michael Moreau, CFP, RFP is a Registered Financial Planner with Personal Financial Solutions FundEX Investments Inc. For comments or article suggestions, contact (613) 725-3447or service@michaelmoreau.ca. The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.