Canadians are among the most heavily taxed in the industrialized world

To paraphrase Benjamin Franklin, nothing in life is certain except for death and taxes. It is a legal requirement that we must pay tax on earnings and purchases in addition to other more specific levies that pay for our public services. This is a necessity, but that does not make it any less galling when the time comes to give up a portion of the money we have earned. Taxes are indeed such a vexed issue that those of us who can afford to often employ a financial advisor or accountant whose knowledge of the system can spare us at least some of the unnecessary tax expenses that often go unnoticed due to the less than total comprehensibility of the system.

One way to defray at least some of your tax burden is to invest some of your money in bonds. When a bond matures it is seen as a capital gain, and only half of the proceeds of capital gains are taxable under Canadian law. There are jobs that pay a portion of their salary as bonds for this very reason, although this is obviously unpractical for those whose income falls below a certain threshold. However, as Canada’s taxation system is progressive, with a higher rate paid by those on larger incomes, some people argue that this legal tax avoidance measure is simply a way of redressing an unfair balance.

Sales taxes also account for a portion of each Canadian citizen’s tax burden. Depending on which province the sale takes place, the tax on a sale can rise as high as 13%. Certainly all provinces other than Alberta have a Sales Tax level of 10% or more, with Alberta clocking in at a comparatively tiny 5%. Therefore, if it is practical for you to do a large amount of your purchasing in Alberta, this is one way in which you can avoid being stung for more cash. Prince Edward Island is comparatively a high sales tax area, with a  taxation level of 15.5% of the cost of the sale. Thus, an individual who pays most of their Sales Tax within Prince Edward Island can, at least in theory, unburden themselves of more than two-thirds of their tax loss by doing their shopping in Alberta.

Unlike most of the Western world, the Canadian government does not impose Inheritance Tax on its subjects. Inheritance is seen as another form of capital gain and therefore subject simply to Capital Gains tax just like bonds or stocks. Though to benefit from this absence of Inheritance tax, someone needs to die – which takes us neatly back to the words of Benjamin Franklin all those years ago. One other thing – if you like a cigarette and a beer, and drive an air-conditioned vehicle, then you are paying four different kinds of Excise tax. It might be time to look at whether you can walk to the liquor store.

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Please visit Canada’s Personal Finance Blog  to read this Canada Budget 2009 article I just posted.

 Personal Finance For Students

Third-level education is becoming more and more important in terms of getting a job in many sections of the economy. Some employers are unwilling to consider applications from candidates without a college diploma, and some of those employers will only to consider applicants with diplomas from certain schools. The problem for the prospective scholar is that college education doesn’t come cheap, with tuition, course materials, travel and accommodation costs often being prohibitive for the many students who cannot attend a college close to home.

Fortunately, for the needy prospective student, the Canadian government does have a program where they fund Student Loans for eligible scholars. Eligibility is decided on a number of factors including location (both of the pupil and the learning institution), current living costs, savings and parental income. For students who fall into the bracket of eligibility, a government-backed student loan is a godsend, allowing them to concentrate on their studies free of at least part of the worry of funding their education.

A student loan, as the name suggests, does have to be paid back when the student has graduated and is earning a salary, so it’s not free money and its use has to be priority-based. These priorities are in part, much the same as those that require the attention of a home owner – keeping a roof over one’s head, putting food on the table and paying bills. Even in subsidised student accommodation, these priorities are non-negotiable and in large this helps a student prepare for life after college.

Being responsible for your own budget teaches you to look after the pennies, which becomes all the more important when there is a mortgage to keep on top of and failure to pay that may result in your home being repossessed. Having to set aside cash for tuition fees keeps the importance of your studies at the forefront of your mind, reminding you why you’ve taken this step. When there are parties to attend most nights and a level of freedom beyond what you’ve known in the parental nest, it’s easy to feel that student life is all about the social side of things. But without responsible financial behaviour you could end up having to drop out and, without doubt, the restrictions of living back at home are felt all the more when you’ve lived without your parents for a spell.

If you don’t qualify for a government-backed student loan, there are still options available. Private student loans are one such option. Although they are not quite as secure an option as a government loan – being based on credit and therefore often necessitating that a parent acts as a co-signee- they are given by lenders at a low rate of interest and tend to be generous enough to cover the important costs of student life. Then, depending on the intensity of your course, it is possible to take on a part time job – which will often provide adequate money for as many toga parties as you want to attend.

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Canada Tax Deadlines 2009

Source: Canada Revenue Agency

Credit Cards

With the amount of talking that is done about credit cards, very little pertains to the actual details of how they work, how they should be used, and the different kinds of cards available. It is known more or less by everyone that when a person is in a lot of personal debt they tend to owe large amounts on credit cards – what are less widely known is how this situation comes about, how to avoid it and how a borrower can use a card to their advantage.

As short a description of how credit cards work as possible, first. A customer looking for greater spending power enters into an agreement with a bank, where the bank issues a card allowing a certain amount of spending (a credit limit). Any purchases made go on the balance of the card, against which a payment must be made every month. Should the balance reach or exceed the credit limit, no further spending will be possible until a payment is made to bring the customer in line with the agreement.

Debt problems with credit cards occur when a customer borrows beyond their means or their circumstances change. In theory, the bank will not lend an amount that the customer will not be able to pay back. However, the checks put in place to prevent this happening are not foolproof, and circumstances are always liable to change. A credit agreement is given based on a customer’s earnings, but should they suddenly lose their job they may find themselves unable to make full payments to their card. For this reason, it is wise to have some savings should you take out a credit card.

There are now more choices than ever for a customer looking to take out a credit card – these different options take into account the varying circumstances and needs of customers. A popular type of card is the low-interest/no interest credit card, which allows the customer to borrow money for a large purchase and then use a “zero interest” period to pay off the balance over the course of a number of months.

Interest-free periods when they were first introduced tended to last three months, but as banks compete for an increasingly crowded market it is becoming the norm for banks to offer as long as a year interest-free. When this period is ending, a customer will often transfer the balance to a new card. If done assiduously, this can see the customer avoiding having to make a payment for years at a time.

Other cards take account of the spending habits of the customer by offering cash back on purchases, Air Miles when the card is used in certain locations, and reward points for frequent use. A recent innovation making it possible for the customer to use plastic even when they find credit hard to come by, the Secured Credit Card allows the customer to “load” money on to their card and use it like a bank account – meaning they never spend money they do not have. These cards also enable the customer to build a good credit rating through regular loading.

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Canadian Banking System Gets A+

Good news if you do your banking in Canada – you are storing your money in what is accepted to be the safest banking system in the world, ahead, even of banking paradise Switzerland. This means that even in the current global financial crisis, there is no cause to worry about the safety of your banking deposits, and that putting your money into a Canadian bank is as close as you can get to a guarantee that it will be handled in the most efficient way imaginable. After the annual study by the World Economic Forum polled bankers worldwide, Canada came out on top – well ahead of near neighbours the United States, which came in 40^th.

The World Economic Forum polls its members every year, asking them to award marks out of seven for the soundness of a countries banking system. Canada polled a remarkable 6.8 out of seven, ahead of the previous leader as well as other notables such as Sweden, Luxembourg and Denmark, all of which are known for unshakeable fiscal probity.

This is news worth shouting about, as banks in many other countries have had to rely on government bailouts while others have gone to the wall. Canadian Finance Minister Jim Flaherty is a man with plenty of reasons to smile. As his counterparts in supposedly more prestigious economies flounder against a seemingly unstoppable wave of financial doom, Flaherty is presiding over a competitive economy with a lessening level of debt. As other governments borrow to escape the meltdown, Canada’s surefootedness is likely to reassure banking customers.

Canada has a progressive banking system too. It is a lot less stressful to try and get hold of your money here, with more Automated Bank Telling Machines per capita than any country in the world. Anybody who has ever spent time in a city or town with a dearth of ABMs can tell you that it’s a frustrating experience trying to withdraw money that you know you have. Sometimes it’s like they don’t WANT you to spend your money.

Electronic banking plays its own part in this most efficient bank system. Canada has the highest penetration levels worldwide of debit cards (enabling you to make use of your account even if you can’t find one of the country’s many branches or cash points), Internet banking (so if your bank doesn’t have one of the many branches nearby you can still conduct any transaction you care to name) and telephone banking. It’s a quite impressive story overall, to be honest. Knowing that your money is safe and that you face the fewest restrictions imaginable should you wish to make use of it means Canada should be in a position to ride out the crisis and come out the other side ready to compete.

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