Archive for March, 2013

How Budget 2013 will affect your pocketbook

March 21, 2013


Federal Finance Minister Jim Flaherty tabled the Federal Budget in Parliament today. Unlike previous budgets, there is nothing concrete to report but there are some interesting measures that may impact your pocketbook.

Another Budget, Another Tax Credit

Budget 2013 introduces a new temporary tax credit called the First-time Donor’s Super Credit (FDSC). A first-time donor is an individual (or her spouse or common-law partner) who has not claimed the Charitable Donations Tax Credit (CDTC) or FDSC in any taxation year after 2007. The first-time donor will be allowed to claim a 25 percent tax credit on up to $1,000 of donations once in 2013 or a subsequent tax year before 2018.

Deduction for Safety Deposit Boxes Eliminated

Currently, tax payers are allowed to deduct expense incurred for renting a safety deposit box provided they use it to store and protect papers relating to the portfolio. These days most records are available in electronic form and the importance of paper copies is declining. Therefore, starting in Financial Year 2014, the cost renting safety deposit boxes cannot be deducted as a carrying charge on the income tax return.

Increase in Tax on Non-Eligible Dividends

A non-eligible dividend refers to income received from corporations that are not taxed at the general corporate rate (such as private, small business corporations). If all you receive are mostly dividends from Canadian public companies, this measure will not impact you.

Budget 2013 proposes to reduce the gross-up factor applicable to non-eligible dividends from 25 percent to 18 percent. The Dividend Tax Credit will change from 2/3 of the previous gross-up amount to 13/18 of the new gross-up. The combined effect of this measure will increase the personal tax rate on non-eligible dividends received from corporations. (Note: KPMG reported that the net result of this measure will increase the federal effective tax rate on non-eligible dividends to 21.22 percent from 19.58 percent).

Crackdown on Charitable Donation Tax Shelters

It appears that Budget 2013 is proposing measures that may turn out to be final nail in the coffin of Charitable Donation Tax Shelters. First, the Budget proposes to extend the reassessment period for a participant in a tax shelter by three years to six years. Second, the Budget permits CRA to collect 50 percent of the any tax, interest or penalties resulting from a reassessment of a participant in a tax shelter even if a notice of objection is filed.

Hasta La Vista to Labour-Sponsored Venture Capital Funds

Labour-Sponsored Venture Capital Funds have, in general, turned out to be a poor investment for Canadians. Therefore, it is heartening to see that Budget 2013 is proposing to eliminate the 15 percent Federal Tax Credit for investments of up to $5,000 in Labour-Sponsored Venture Capital Funds gradually by 2017.

There are other interesting measures in the Budget regarding reporting requirements for foreign assets that we will take a look at in future posts. Meanwhile, if you are looking for some bedtime reading, you can find the entire Budget 2013 document here.

Teksavvy’s fly in the ointment

March 19, 2013


A couple of years back, frustrated with Bell’s pricey Internet service, we switched to Teksavvy (See post Goodbye Bell, Hello Teksavvy). Teksavvy still offers significant savings over Bell but my initial enthusiasm has cooled considerably. I’ll explain why in this post.

Teksavvy’s 6Mbps, 75 GB per month DSL Internet service costs $29.99 per month. We find that sufficient for our moderate usage, which includes bandwidth intensive activities such as watching movies over Netflix. A similar package, albeit one at a slightly slower speed and much lower bandwidth, at Bell (5Mbps, 20 GB per month) costs $43.95 month. There are other minor differences between the two. Teksavvy requires customers to purchase their own modem while Bell rents it to subscribers. Also, it should be pointed out that Bell offers a discount for bundling with other services and might knock down the rate even more for some customers for a limited time.

At first glance, Teksavvy appears to offer a better Internet package at a significantly lower price but there is a catch. Teksavvy is essentially a reseller for Bell Canada, which owns and operates the telephone wires running to your home and charges a fee for doing so at a price set by the Canadian Radio-Television and Telecommunications Commission (CRTC). Therefore, when a Teksavvy customer orders a new service or a change to an existing service or reports a problem, the service order is often routed through to Bell Canada. Bell Canada, which offers its own suite of competing products, now has every incentive to be less responsive to the needs of a competitor’s customer compared to its own.

A case in point: last year, we moved to a new residence and called Rogers, Bell and Teksavvy to move our cable, phone and Internet services respectively. Rogers and Bell sent technicians to perform the move within 1 business day and followed up to check whether the service was up and running. Teksavvy said that it would move the Internet service one week later. And when the next week rolled around, Teksavvy could not complete the move saying that Bell claimed the phone service was still at the old address even though I had put in a move request to Teksavvy *after* moving the phone service and the move will be delayed one further week. We did get Internet service at the new residence the next week after a two week downtime and we have had no problems since. It turns out that my experience isn’t an isolated one. You can check out negative reports on Teksavvy on this forum but in fairness, it should be pointed out that positive reports far outweigh negative ones.

The bottom line: Teksavvy offers DSL Internet at a much cheaper price than Bell but you should be aware that if you run into problems, you may fall between the cracks because Teksavvy depends on Bell to fulfill its customers’ service orders.

This and That: 4 percent rule, Dow milestone and more…

March 14, 2013


The 4 percent rule says that a traditional retiree can withdraw 4% a year from a balanced portfolio of stocks and bonds without running out of money for 30 years. But there are many potential scenarios in which the rule comes up short. The Wall Street Journal suggested three ways in which retirees can boost the odds of a portfolio outliving them.

The New York Times reported the story of a woman who suddenly lost her husband and spent countless hours tracking down financial accounts and urges people to get their acts together on her website. I recall writing a post on this topic when dealing with the estate of a family member who had passed away.

With the Dow Jones Industrial Average in the news for setting multiple new highs since 2007, Larry Swedroe says his message remains the same: just stick to your plan.

The Economist weighed in on the Dow Jones milestone by saying that the best that can be said for stocks now is that they look better than the alternatives such as cash and bonds.

In client meetings held across the country, Steadyhand’s Tom Bradley discussed what he expects from the markets in the near future. It is interesting to note that Tom is overweighting cash within fixed income and foreign equities within stocks. The entire presentation is available here.

Unlike large capitalization stocks that make up the Dow Jones index, small cap stocks are setting all time highs. Some market watchers are saying that the period of small cap outperformance that started in the year 2000 may soon be over.

Ellen Roseman pointed out that one can save on tires by shopping online. Perhaps, but I’ve found that my local Costco often has the same or cheaper pricing on tires.

It is just a trickle now but The Atlantic magazine says that a surprising new trend called insourcing — manufacturing jobs coming back to high labour cost geographies — appears to be gathering steam.

In an interview with CNBC, Warren Buffett said that Main Street investors can get their “fair shake” on Wall Street by buying very low cost index funds and hanging on for 20 or 30 or 40 years.

In an article on, John Bogle defends his view that while exchange-traded funds can be used wisely, the record shows that they are significantly more likely to be used for speculation.