A Beginner’s Guide to RRSPs and TFSAs

Happy New Investment Year! With the beginning of March, the door closes on the ability to deposit money into last year’s retirement savings accounts. It’s time to contribute towards this year. Let’s de-mystify RRSPs and TFSAs so that we can grow our wealth and reduce our taxes!

Please note: I am not a financial advisor or a tax professional. Up until recently, I was a prime example of someone who had no concept of what retirement planning involved, or what I should or should not do. Feel no embarrassment or shame if you are like me. Let this be a foundation for learning, and for building on, and I recommend seeking a professional when your situation becomes more complicated. There are different guidelines for spouses, estate planning and other special considerations.

That being said, here’s what you need to know about your retirement contributions.

 

investing in RRSP & TFSA

 

RRSPs and TFSAs

The Government of Canada sets out the limits of your contributions to RRSP (registered retirement savings plans) and TFSA (tax free savings accounts). There is a maximum allowance for contributions per person, and it’s calculated using a few different criterions.

RRSPs

Maximum Contributions

In your first tax filing year, you can contribute the lesser of 18% of your earned gross income in the previous year, OR the annual RRSP Limit. For the 2018 year, the Canada Revenue Agency has set the maximum contribution limit to $26,230.00.

Example: Sarah works at the corner store on weekends and evenings while she attends school. Last year (2017), she made $16,500. This is before any deductions, or taxes. We know Sarah made less than the maximum contribution limit, which means that she would be able to contribute a maximum of 18% of her annual earnings. She can contribute $2,970.00 to her RRSP account this year.

INCOME ALERT: If your annual income exceeds $145,723 per year, then you can contribute a maximum of $26,230.00. (No math for you!)

How to increase your contribution above the maximum

If you did not contribute 18% of your earnings (up to the maximum contribution amount) each year that you earned an income, you can carry forward the remainder. Simply calculated, if your contribution allowance is not met, the difference of what was not used can be carried forward. Your tax return or Notice of Assessment should indicate the remaining contribution limit available.

Things you need to know 

  • Expenses cannot be included in your contribution calculations. Any amounts that you paid as administration fees, brokerage fees, interest paid on borrowed money to make the contribution, and capital losses cannot be considered as part of your contribution amount.
  • Be careful when calculating your contributions! Contributing more than the allowable amount can result in being taxed. You can request special considerations if the situation warrants it.

TFSAs

TFSAs began in 2009 with the intent to provide Canadian residents a vehicle to save money without being taxed on the interest (like investment income and capital gains). You do not need to earn an income in order to contribute to a TFSA. Contributions are not tax deductible, however the income is not taxable (in most cases). Withdrawal from a TFSA does not count as income, nor will you be taxed if you withdraw funds prior to retirement.

Contribution Limits

Again, CRA sets out the annual limits for contributions, but the limits are not dependent on an income. For the year 2018, you can contribute a maximum of $5.500.00, and like the RRSP contribution amounts, you can carry forward unused credit each year.

Cautionary Points

  • Again, watch your limits, as over-contributing can lead to being taxed.
  • Check to make sure your investment is “qualified”. Tax may apply otherwise.
  • TFSAs are only available to Canadian residents.
  • While you can use foreign funds, it’s advised to check out the rules in closer detail if you wish to go that route.

For more information directly from the CRA, you can start here.

I trust that the information above simplified some of the mystery about contributing to your future self. There are other programs that help you save towards a new home, or your child’s education, but we need to start by taking care of ourselves, and then moving on. 

Keep an eye out for ways to save for your RRSP and TFSA limits. In the meantime, take a look at your income amount last year, and figure out your maximum contribution for the year. There are creative and innovative ways to save money, invest in future you and/or pay down that debt!

Be sure to join my mailing list so you are notified of each new post, and to follow me on Twitter and Instagram as XennialBlogger.  I look forward to seeing you online! 

RRSPs and TFSAs Demystified
RRSPs and TFSAs Demystified

2018: Goals

                                                                                                                   
goals
 

Happy New Year! 

Welcome to my first post of the new year. I started this blog in September of 2017 under BendNeverBreak because I wanted to be a blogger. I wanted to have an outlet to share ideas and journeys, and I wasn’t entirely sure where it would take me. In the last four months, I have met a great community of personal finance and lifestyle bloggers (through Twitter and Instagram), and learned so much. I also found out that I was a little fish in a big, big sea, and if I wanted to be heard, I needed to say something worth reading, and say it with my own words and my own voice. Anyone can go to a news site and read what the associated press says, but no one can say what I want to say better than I can.
 
This blog has given me the opportunity to meet people who care about others, and allowed me to spend their money on others. While I haven’t gained hundreds (or even tens) of followers, I have hopefully provided a little bit of insight to those that have been here. In fact, my little blog has been visited 2,108 times as of today. That’s 500+ views a month, and while it’s nothing compared to the big guns out there, it’s amazing to me.
 
I am starting out the new year with some hopes, dreams, and goals. Call them resolutions, if you will, but here are a few items I am focusing on in 2018:  

Money

 

– Paying down consumer debt
– Paying down car loan
– Investing in my future

Self

– Giving myself the permission to treat myself as I would treat others goals
– Investing in myself: giving myself permission to learn new skills 
– Scheduling my time more effectively: learning to work smarter, not harder, and being more mindful of the ways I spend my time 
– I want to give back: I am a positive-oriented  solution-seeker who is always up for a challenge. I want to find a way to support people in their journeys.  To borrow words from a new friend, it’s more of a journey of mine, than a destination.
– I want to focus on great service, and not accepting poor service. My time and money are worth something, and this year, my focus is on respect.

Business 

– Sooner than later, I am planning to move the blog to a wordpress format, once I learn the how-to. 
– To finish my step-by-step guide on building home businesses for all the side hustlers in direct sales 
– Also, I look forward to sharing more of my experiences in real estate with you, and de-mystifying the process of getting into real estate. Whether it be investing, managing rental properties as a new investor, or dealing with tenants and the rules and regulations associated with it, I look forward to talking about it.  
Again, borrowing words from a friend:
It’s easy to overestimate what you can do in a day, but easier to underestimate what you can do in a year. 
We have 365 days to make things happen, but they will only happen if you write them down. Write down your goals, share them, and hold yourself accountable. I hope to share with you all of what I learn, and all of what I didn’t do so well. I really look forward to discussing it all with you. 
I want to wish each and every one of you a very Happy New Year, and look forward to seeing what the new year will bring. Thank you for being here.
 
 
goals
 

7 Questions about Real Estate Investing from New Investors

7 Questions new investors forget to ask about Investment Properties (Ontario, Canada)

INVESTMENT PROPERTIES 

Real Estate investing is a great idea. Start with a small investment, get a mortgage, and buy a property with plans of building equity from someone else’s money. It seems relatively easy – collect money from tenants, and fix the odd thing here and there.
 
That’s not the whole picture, though few people find this out before they are waist-deep in the trenches. Here are 7 questions from investors looking to enter the rental game:
 
**Readers: I am not a lawyer or a registered professional. I write from experience only, and will always recommend that you speak to a professional or expert. **

 

 

1. I’m a first-time home buyer, and I want to buy a property to rent out. Since I am a first-timer, I don’t have to pay land transfer tax, right?

 
Not exactly. If you are a first-time home buyer, the Ontario government does offer a rebate of up to $4,000.00* on land transfer tax, depending on a few factors. One such factor is that the property must be your primary residence.
 
If you are buying a property as an investment property, and not planning to live there, you will not receive the credit towards the land transfer tax. You are only eligible on your first purchase to get this credit, so choose wisely if it will be an investment property, a multi-family property or a single family home.
 

2. I am thinking of buying a condo to rent out. I hear that’s easier because there’s no outside maintenance to worry about.

 
Condos can be excellent rental properties, but there are a few things to consider before you purchase one.
 
A condominium is a unit within a building that contains other units. Some condo buildings are like apartment buildings, with many apartments in the one building. Each apartment is purchased by people much like yourself, and it is yours to do with as you please… to a point.
 
Think of the condominium building as a company, with all the people who own the condos as employees. The building (or company) sets out a board of directors whose job is to make sure the company runs smoothly. The directors are like bosses who are responsible for many different duties. Sometimes the condo corporation hires a management company to help take care of the condo corporation. There are also costs associated with the areas of the building that are public use areas, like the entryways and parking, and owners share the responsibility of paying for all of these tasks. The money is collected as “common expenses”, which is a monthly payment to the board. These funds are pooled together, and portioned into repairs, maintenance, utilities, management fees, etc.
 
As a condo owner, you are responsible to pay these monthly fees, plus any other special assessments that might come up. Much like home ownership, there are times that a repair is not budgeted for, and the owners have to pitch in extra money to fix the issue, like a new roof. You are also responsible for ensuring that all of the rules are followed. That includes tenants. If your condo building says that each owner may only have dogs under 30 lbs, and your tenant moves in with a St. Bernard, you may have an issue. If your rules say that you cannot have more than two pets, and the tenant has four cats, you may have an issue. If you are not allowed to dry clothing on a clothesline outside, and your tenant enjoys drying his tighty-whities outside on the balcony, you may have an issue.
 
While condos are relatively maintenance-free, you will want to ensure that you know what the rules and regulations are before you buy, and you will need to have a very serious talk with your tenant so they understand that all rules are to be abided by. You will also have to factor in the cost of your mortgage payment plus common expenses, and any normal in-unit repairs that you will need to take care of. You should also know that any violations of the rules may result in fines that are your responsibility at the end of the day.
 
Time to be honest: Tenants are not as invested as an owner, and usually don’t care what the rules are. Be forewarned that you may have some challenges with getting your tenants to follow the rules, and that it may cost you some extra money to get there.
 

3. I bought a great investment property in a neighbouring county. The tenants said they would cut the grass and shovel snow, but they only cut the grass once last summer. Can I enforce that they need to cut the grass at least biweekly?

 
Welcome to owning a rental property. In Ontario, you can ask the tenant to cut grass, shovel snow, pay for water, and anything else you want, but at the end of the day, there are certain responsibilities that cannot be enforced by a lease or agreement.
 
As a homeowner, you are responsible to ensure the grass is maintained according to the bylaw of the area, snow is shoveled within 24 hours of snowfall, and water bills are paid. While each area is different, and you should look into your own city’s bylaws, the average result is this:
 
If you do not cut the grass, or hire someone to do it, and your tenant fails to do it, the city can come by and cut your grass for you. They will bill it to your taxes, and it will likely cost you $300-$400 for that courtesy.
 
If you do not have the snow removed, the same type of thing can happen. You can be fined, you could have your mail rerouted as undeliverable because of safety hazard, or you could find yourself liable for someone falling and hurting themselves.
 
If your tenant agrees to pay the water bill, and then absconds without doing so, that unpaid water bill can and will be applied to your taxes in most areas. Water bills traditionally stay with the property, and not with the account holder.
 
Takeaway: Grass cutting, snow removal and water bills are your responsibility, regardless of what the tenant agrees to do. You may have some recourse on the water arrears, but at the end of the day, you will be left holding the bill. Make arrangements to ensure these items are taken care of, by hiring a property manager or a local individual or business, and follow up.
 

4. I am looking at having investment properties, but I don’t want a tenant who smokes. Can I enforce this?

 
Good question! Short answer is No.
 
The Residential Tenancies Act is the rules and regulations that govern the landlord/tenant relationship in Ontario. The “RTA” does not discuss smoking at all.
 
As a landlord and property owner, here are some points about smoke in your units:
– If the unit shares an air exchange with another unit, it may be fair to require no smoking, if someone in one of those units is allergic or has a medical condition affected by smoking.
– If the unit is damaged by smoking, like stained walls, heavy smell, or burns, you can seek damages from the tenant as normal wear and tear would not warrant such damage.
– If the tenant smokes heavily, and it affects another tenant’s enjoyment of their home, you can seek assistance from the RTA tribunal to get an order to enforce a no smoking or regulated smoking area for the first tenant.
 
When interviewing potential tenants, take note of as much as you can. You have the right to not rent to someone if you choose. While discrimination is illegal, choosing another tenant who is a better fit is what you want to aim for. Err on the side of less is more when letting a potential tenant know their application was not approved.
 

5. Is there a difference between owner-occupied and tenant-occupied insurance?

This is a great question to ask your insurance broker. There is a very big difference between a home that has an owner living on the property and one that houses a tenant. Owners tend to care for the property more than a tenant would. Owners usually maintain properties better, and take more responsibility in making the property a safe place for both residents and guests. Tenants, on the other hand, may not care so much about repairs, maintenance or the type of guests that are in the house. I am not saying that all tenants are evil-minded trolls who lust after ruining properties, but it’s true that we take care of things we own better than the things we do not. It’s also true that some tenants are gems, and make each rental a home. Unfortunately, that is not the norm, so your insurance company wants to make sure they are insuring the right way.
 
If you had an owner-occupied policy (one that says you live in the house), and you do not, the insurance company may have the right to deny any claim you make. Be sure to tell your insurance broker that the terms of the living arrangements have changed, and there is a tenant living on the property. Insurance price will likely increase, but it’s still much less than losing your investment and still having to pay back a mortgage.
 

6. Does my mortgage company need to know if I rent out the house?

 
This question is much like the insurance question. Again, I recommend speaking to your bank or a lawyer about this, however here is an example of what could happen.
 
Let’s say you are Ms. Moneybags, and you lend Joe Smith $500,000.00 to buy a house for Joe, his wife and his three littles to live in. You have checked out the house, and you feel it is a safe investment. Joe and his wife have stable jobs and decent incomes, and you are satisfied that you have made a sound investment.
 
Six months later, you drive by your investment. Instead of seeing Joe and his wife at the house, there are 5 cars at the property. Two of the cars are parked on the front lawn, and there are young adults playing frisbee on the front yard, between the cars. There are party supplies in the driveway, and a “bedroom for rent” sign in one of the windows.
 
You call Joe to see what’s going on with your investment. It doesn’t look like things are going well. In fact, you wonder if Joe was kidnaped and someone took over the house.
 
Joe says that he and his wife decided to stay in their old home, and rent out the new one to students. Joe says that the university is just down the street, and lots of houses on that street are rented out.
 
Ms. Moneybags is not happy. See, Joe has misrepresented his situation, and you approved the mortgage because you had weighed out the numbers. Joe and his wife could afford the house, because they did not have another mortgage or rent payment. With Joe’s current rent amount, they cannot afford to pay both. What happens if the house is damaged by the tenants, or if Joe cannot find new tenants? What if the tenants don’t pay? That means Ms. Moneybags doesn’t get paid, and the house that was a good investment is no longer worth the same amount it was when the money was lent.
 
Ms. Moneybags is not happy, and asks for her money back, forcing Joe to sell the house.
 
While this example is made to sound extreme, you can see why the bank cares who is living in the property, and the bank usually will instruct you as to this. “Owner-occupied” mortgages means that the bank does not want the residents in the house to be tenants, and it also means that the bank has assessed your finances based on you living in the house.
 
I am not suggesting that it is up to the bank to make the decision for you, but there are other mortgages and products that you can seek which are for rental properties. It is possible for a lender to find out that a property is not owner occupied, and it is possible that the lender could call the loan, meaning you could be forced to find financing elsewhere or sell the house because the lender wants their money back.
 

7. I am looking at a single family home that would make a great triplex.  Before I put an offer on the house, what do I need to consider?

 
What a great investment! A triplex means three units of tenants, which can mean less chances of having an empty house with no income.
 
If the house is not a converted building already, the prudent thing to do is to look into the zoning for the area. Zoning is like a code that the city assigns to each neighbourhood and section of a city to ensure that a big box store isn’t built next to a foundry, which is next to an elementary school, a train station and four single family homes. You will want to see if the area has zoning for multi-family properties. Some will only allow single family homes, some will allow homes and small commercial buildings, and some will allow a mix of specific properties. If your area does not allow for multi-family properties, you need to know that before you start renovations, as the city could force you to close up shop if you violate zoning. This is step one.
 
So let’s say that you have received a go for converting your house into a triplex. You plan a wall here, an entrance there. You will need to look into things like:
 
– Permits for the renovations
– How can tenants get in and out of the unit if there’s an emergency?
– How big do the windows need to be? Do you need to provide access outside the building, like a ladder, if the alternate exit is a window?
– How many square feet are required for a legal unit?
– Do you need to have the smoke detectors and carbon monoxide detectors electronically linked to the fire station, or will battery operated detectors work?
– Do you need to upgrade the electricity? Do you need to meter out the utilities? How much could that cost you?
– Do you need more parking? How close are your neighbours? Will they complain about how your renovations might affect their property and property values? Do they have a valid point?
 
Don’t forget about inspections! Read more: 411 on Home Inspections: 5 Experts Weigh In
This is just a beginning list for the considerations of turning a property into multi-units. It’s not meant to be discouraging, and can be done quite easily with the right preparation. So before you start converting your basement and attic into units for people to live in, make sure you are meeting the requirements for safe living spaces, and for keeping your neighbours happy. Happy and safe tenants make for happy landlords.
 
 
I hope these questions will give you more insight into what being a landlord and property investor is all about. If you have more questions, please send them to me in the comments below, or to reach me here.                                                                                                                                                                                                                

 

Investment properties

Recommended Reading: 

Save My Rental: What You Need To Know About Tenant Selection

Mandatory Lease in Ontario: What You Need To Know

Making Housing More Affordable for Renters and Owners

 

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