The General Rate Income Pool (or GRIP) is a corporate tax concept that tracks corporate income that has been taxed at high corporate tax rates, and any eligible dividends received from other sources, such as subsidiaries or public companies. Your corporation may have some built up GRIP that should be addressed before the end of the year. Here’s why.

When GRIP is paid out, that amount is considered an eligible dividend, taxed at a preferred dividend rate. Due to the continually decreasing corporate tax rates, the eligible dividend rate is continuously increasing. The difference between 2011 and 2012 is about 1.4%.

If you have a corporation with a GRIP account, you may consider paying a dividend in 2011 to save this additional tax. If your corporation also has Refundable Dividend Tax on Hand (RDTOH), the dividend payment will also generate a dividend refund with the filing of your corporate tax return.

Speak to your accountant to see how this tax tip applies to you.

This report has been prepared by Scotia Capital Inc. as a resource for its clients and may not be redistributed. While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc. nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of such information. Nothing contained in this report is or should be relied upon as a promise or representation as to the future. This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation or particular needs of any specific person. Investors should seek advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. The pro forma and estimated financial information contained in this report, if any, is based on certain assumptions and management’s analysis of information available at the time that this information was prepared, which assumptions and analysis may or may not be correct. There is no representation, warranty or other assurance that any projections contained in this report will be realized. Opinions, estimates and projections contained in this report are our own as of the date hereof and are subject to change without notice. The information and opinions contained in this report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.

From ‘Discovering She’ Magazine, August 2011

Talking with Women About Money – August

It’s a HOT summer and I hope you’re enjoying it at your favorite “home away from home,” your family cottage. For many of us, our cottage represents the second largest financial investment we will make. There is, however, an important difference between this property and your primary residence! On the last death of you and your spouse, there will likely be a significant tax liability. This is because a couple can designate only one property between them as a principal residence, which is sold with a capital gains exemption. All of this has the effect of forcing us to develop ways to pass the cottage on in a tax efficient manner.

Who should the family cottage go to?
While concern about the future tax liability associated with the disposition of the cottage is important and requires forethought, for others, who to leave the property to is paramount. The best solution may not be to leave it equally to all children. The children may not have the same interest in its future use and, a cash bequest, from other estate assets, may be more appropriate to those who don’t want the property.

I recommend having an open discussion with your children or grandchildren to determine who has an interest in using the property and who will pay the costs of future maintenance and taxes.

Ways to transfer ownership of the cottage
There are several ways of transferring ownership including the use of life insurance and trusts.

Life insurance can be a very cost-effective method of providing liquid cash to pay any capital gains. Insurance can be purchased on the single owner of the cottage or, as is most often the case, on the joint owners (mom and dad.) The policy would be a “joint last to die” and, because two people are insured, the cost will be less than either could buy individually. The proceeds of the insurance are tax free to the beneficiaries. In some cases, the beneficiaries of the cottage and of the insurance may be able to pay the premiums. The only potential downfall to this solution is that the owner(s) of the cottage must be in good enough health to qualify for the insurance. Because this may not be the case, let’s look at other solutions.

Consideration can be given to transferring a cottage to an ‘inter-vivos’ (living) trust if there is currently a small capital gain (the transfer of the cottage asset into the trust triggers capital gains). However, this would effectively transfer any future capital gains to the beneficiaries.

A “discretionary” trust can be useful because, as mentioned earlier, it may not be clear as to which of your children may even have an interest in the property. The transfer can take place into this trust and the owners will have unlimited use of the property as well as complete control. This would allow time to decide who the beneficiaries will be. At some later date, the property can be rolled out of the trust to the beneficiaries, at the value it was rolled into the trust originally. This will have the effect of deferring tax until the property is sold. If, as the owner, you are over 65, an ‘alter ego’ or ‘joint partner’ trust could be used. With these types of newer trusts there is no deemed disposition of property when the cottage is transferred into the trust.

A Word of Caution
There have been suggestions that the cottage can be transferred into joint names with the eventual beneficiaries. While this may have the effect of passing the property by “rights of survival” at death, it has major drawbacks. If this is done, there will be a capital gain at the time of transfer, the property would be in “joint control” with all owners, and it would be subject to claim if there were a marriage breakdown or by creditors of any of the owners. This is clearly not a good solution.

Hopefully your family cottage is a source of great enjoyment and many fond family memories. It’s important to plan for its’ appropriate transfer and to provide sufficient liquid cash to pay any taxes. A great deal of expense and frustration can be avoided in the future by taking a small amount of time today to plan for this event.

This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as personal investment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. This publication and all the information, opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI. Scotiabank Group refers to The Bank of Nova Scotia and its domestic subsidiaries. ™ Trademarks of The Bank of Nova Scotia.

Here is a Personal Tax Organizer to help you prepare to file your income tax. (pdf)

Introduced in 2009, you can contribute $5,000 each calendar year. That means you could have contributed $10,000 by now and, as of January 2011, you can add another $5,000.

The TFSA is a flexible and versatile account offering tax-savings benefits for Canadians over age 18. All income, (interest, dividend, and capital gains) in your TFSA is tax-free for life and you can withdraw funds at any time, also tax-free.

If your goal is increasing your retirement savings, consider investing in growth-oriented securities such as equity mutual funds, dividend-paying securities, and high yielding bonds. The income from these investments remains tax-sheltered until you need it and then it can be distributed to you to form part of your retirement income.

If you haven’t taken advantage of this opportunity, please speak to us about setting one up for you.

We hope this information is helpful to you. If you have questions or concerns related to your situation, please contact us.

As we approach the end of the 2010 personal taxation year, it’s time to review your portfolio to identify positions currently trading at a loss. When they are sold, you are crystallizing the unrealized loss so that it can be used to offset taxable capital gains.

You can use previously realized capital losses, by offsetting capital gains with realized capital losses. Capital losses are generated by selling securities and/or mutual fund units for less than the cost at which they were acquired. As a rule, capital losses do not expire and may be carried forward indefinitely to offset capital gains generated in the future, or they may be carried back three years to offset any capital gains reported in those years. In this way, it’s possible to recover some of the taxes already paid.

Before acting, it’s advisable to confer with your tax professional for advice appropriate to your situation. Also, remember that Canada’s tax rules require sellers to wait at least 30 days before repurchasing the same security in order to be able to claim the full amount of the capital loss.

We hope this information is helpful to you. If you have questions or concerns related to your situation, please contact us.

From the Insurance Journal by Red Bolton

Financial planners across Canada are eagerly awaiting the Jan. 1, 2009 launch of the new tax-free savings accounts (TFSA).

“We’re anticipating quite a rush, quite a demand to open in January,” says Bev Moir, a senior wealth advisor with Scotia McLeod. Ms. Moir has already made the necessary arrangements with a number of her clients so they can step into TFSAs come the first day of the New Year.

The positive interest Ms. Moir has received from clients about the new TFSAs is partly a result of her promotion of the new scheme. She wrote an article on the topic which she sent out to her clients and posted on her website. She has also been speaking exhaustively with her client base, explaining the opportunities available.

Read the full article (pdf-290kb)

A Savings Plan for All Canadians for Their Future
The Government proposes to reduce the taxation of savings through the introduction of a Tax-Free Savings Account (TFSA)
How the Tax-Free Savings Account Will Work

• Starting in 2009, Canadian residents age 18 or older will be eligible to contribute up to $5,000 annually to a TFSA, with unused room being carried forward.
• Contributions will not be deductible.
• Capital gains and other investment income earned in a TFSA will not be taxed.
• Withdrawals will be tax-free.
• Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits.
• Withdrawals will create contribution room for future savings.
• Contributions to a spouse’s or common-law partner’s TFSA will be allowed, and TFSA assets will be transferable to the TFSA of a spouse or common-law partner upon death.
• Qualified investments include all arm’s-length Registered Retirement Savings Plan (RRSP) qualified investments.
• The $5,000 annual contribution limit will be indexed to inflation in $500 increments.

Why should you open a TFSA?

• The TFSA will provide a flexible savings vehicle for Canadians.
• Since not everyone is able to save each year, individuals who are unable to contribute $5,000 in a year will be able to carry forward unused contribution room to future years.
• The TFSA complements existing savings plans such as registered pension plans, RRSPs, Registered Education Savings Plans (RESPs) and Registered Disability Savings Plan.

Full Flexibility to Withdraw and Re-Contribute

• In addition, in recognition of the fact that most people are likely to have multiple savings objectives at the various stages of their lives—e.g. to purchase a car, home or cottage—the full amount of withdrawals may be re-contributed to a TFSA in the future, to ensure that there is no loss in a person’s total savings room.
• In recognition of the fact that couples often make their savings decisions and plan for their financial security on a joint basis, individuals may contribute to the TFSA of their spouse or common-law partner, subject to the spouse or partner’s available contribution room.

Saving in a TFSA to Meet Unforeseen Needs

• Canadians will also benefit by being able to use the TFSA to start saving early for a range of needs they may have in the future.
• Many Canadians may prefer to use a TFSA to save for pre-retirement needs given the absence of tax consequences on withdrawals and the ability to avoid the use of RRSP room for non-retirement savings needs.

A Savings Account for Post-Retirement Needs

• The TFSA will also provide seniors with a savings vehicle to meet any ongoing savings needs, something to which they have only limited access once they are over the age of 71 and are required to begin drawing down their retirement savings. Based on current savings patterns, seniors are expected to receive one-half of the total benefits provided by the TFSA.

No Impact on Income-Tested Benefits

• Tax Free Savings Accounts will not affect your eligibility for federal income-tested benefits, such as the Canada Child Tax Benefit and the Guaranteed Income Supplement.
• Money you take out of your Tax-Free Savings Account will not affect federal income-tested benefits and credits, so you’re not penalized for saving.

The Tax Relief Provided by a TFSA Will Grow in the Future

• This amount will increase in the future to take inflation into account.

More details on the TFSA and its design features are provided in the link below:http://www.cra-arc.gc.ca/gncy/bdgt/2008/txfr-eng.html

The end of another year is once again upon us. And while tax planning is a year-round activity as part of the financial planning process, now’s the time to pay special attention to various tax issues before it’s too late. To that end, this issue of Year-End Tax Tips briefly outlines some of the more common items that may need consideration and some changes for 2008.

Note: These points are by their nature general and brief, and not applicable to all situations. Your tax advisor can assist in determining if any of these points are relevant to specific situations.

Read the full 2007 Year-End Tax Tips (pdf-42kb)

Here are links to the Canada Old Age Security OAS program and the Canada Pension Plan CPP:

OAS (you can print the 10 page application from here)
CPP

If you start your pension at 60, your monthly payment is 30 percent lower than if you wait until you’re 65. However, by starting it sooner, you will likely receive it for a longer time. If you start your pension at 70, your monthly payment is 30 percent higher than if you had taken it at 65. There is no financial benefit in delaying your pension beyond age 70.

Q. I understand that by making a charitable donation, I can reduce my taxable income. I heard that there were some changes to the personal tax rates related to donations in the last federal budget. What are these changes and how can I use them to my advantage?

A. Although most charitable donations are motivated by philanthropic reasons and belief in the receiving charity, there are also income tax incentives for giving. It is important to understand how charitable tax credits work as careful planning can reduce or eliminate income taxes owed during your life as well as when you pass away and benefit the selected charity.

The May 2006 federal budget eliminated the capital gains inclusion rate for donations of publicly listed securities that were acquired with employee stock options and for donations of ecologically sensitive land to a registered public charity on or after May 2, 2006. This means that it is more tax effective to donate securities that have appreciated in value to a charity rather than to sell them, incur the taxable capital gains, and then donate cash to your selected charity.

For charitable donations made by Will, or in the last year of your life, they may be claimed against 100 per cent of net income on your final income tax return. Any unused tax credits can be carried backward to the year immediately preceding the death. In contrast, the contribution limit for charitable donations during your lifetime is only 75 per cent of net income.

A Will can also reduce income tax at death by enabling the executor of the will to distribute assets to the chosen charity in their original form (“in specie”). “In specie” gifts of publicly traded securities, employee stock options, and ecologically sensitive land all receive the reduced capital inclusion rate. This rate was reduced to zero in the most recent federal budget, making it very tax effective to transfer securities “in specie” rather than selling them first and transferring the sale proceeds to the charity. It is vital that the charity’s full legal name be used in the will to ensure the success of the donation.

A charitable donation during your lifetime and in a Will is shaped by your values and personal priorities as income tax incentives only support existing values and priorities. In establishing a charitable giving plan or an estate plan, it is important for you to review your personal experiences and determine whether a charity has touched you. Through consultation with legal and financial advisors, an informed decision can then be made which balances personal and family needs with philanthropic wishes.

Bev Moir is a Senior Investment Executive and financial planner with The Moir Team at ScotiaMcLeod,Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member Canadian Investor Protection Fund (CIPF).

This article is for information purposes only. It is not a substitute for tax advice. ScotiaMcLeod does offer tax advice, but working along with a Team of Experts we take a complete look at your life to provide a complete financial solution. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.