Year: 2009

Categories
Personal Finance

GE Cuts Dividend – First Time Since 1938

General Electric (GE) announced today that they will be cutting their dividend from 31 cents per share down to 10 cents per share which is a whopping 68% drop.

This is significant because GE is considered to be the proxy of the American economy as it covers a number of different industries and is the 10th largest company in the world.  Cutting a dividend is not the worst thing in the world however since it indicates that management is in cost-cutting mode and willing to do whatever it takes to make the company profitable again.  Companies that hang on to their high dividend too long for public relations reasons could very well end up suffering for it.

Of course, not all companies are cutting dividends – so don’t go and sell all your dividend stocks just yet!

Categories
Announcements

Linkstuff Feb 27

The weight

I was brave this week and weighed myself – 182.5 which is down a bit from the last couple of weigh-ins.  I need to keep working at it however.  I’ve been doing a lot of running lately (3-4 times per week) so I’m doing very well on the exercise side but the diet needs a bit more discipline (as always).

The links

Moolanomy wrote a very entertaining post about a bad car buying experience – all I can say is that I’m glad he ended up walking away from those crooks!

The Wisdom Journal says you should stick your strengths.  Excellent post.

Canadian Capitalist warns us about The Danger in Chasing Yield. Good thing I’ve never done that!!

Michael James discusses the Canadian Auto Bailout. Like me, he doesn’t think it’s a great idea.

Financial Blogger has an interesting take on predictions in The Danger of Rationality.

The Oblivious Investor asks Have You Run the Numbers?

Million Dollar Journey talks about Holding a Mortgage Within an RRSP. Sounds like too much hassle.

Money Ning challenges us with What Would Happen If You Plan and Budget for All Spending?

Good Financial Cents asks Are You Vested?

The Consumer Boomer follows up on his rant about a certain credit card company.

Blunt Money tells us that Fear is a Stronger Motivator than Greed.

Preet discovers How the Pros are Investing Their Money.

The Intelligent Speculator looks at When Investing Becomes a Big Giant Gamble.

Investing School gives us The First Guide on dividend Yields.

ABCs of Investing wrote about  Taxable Vs Non-Taxable Investment Accounts and Market Orders.

Carnivals

Carnival of personal finance was held at Broke Grad Student.

The Skilled Investor hosted the Carnival of Financial Planning.

Categories
Real Estate

Selfish Reasons to be a Good Landlord

I recently enjoyed a post about a tenant referring her friends as potential new tenants on Single Guy and Money.  It might just be a specialized case of what I’ve wrote about before as “statistical karma” but I’ve found that being a good landlord to your tenants is a good way to help YOURSELF out.

My current (and first) tenants in my condo just extended their lease for a second time.  After we had updated the lease and when I was leaving, they told me that a friend wanted to move into the building, but they’d warned her that I just owned their unit, other landlords in the building might not be the same as me.  They told me I was “the nicest landlord they’d ever had”.

Everyone likes being told they’re a good boy (except girls maybe), but my motivations for treating my tenants well are very self-serving.  I view my condo as a business, and they’re my customers.  They’ve been good customers for the last two years (never bounced a check or paid late, have maintained the unit well, and haven’t bothered me with frivolous problems), and I want to keep them.

I didn’t raise their rent again, and I think John T. Reed would chastise me for not doing so (he advocates always raising rents to market rate).  My reasons included not being sure that the Toronto rental market could sustain a higher rate (I didn’t want to drive them out, then end up with new tenants paying the same rate) and not wanting to go through the aggravation and expense of finding a new tenant (and having to travel to Toronto to do so).  With the recent real estate turmoil, I wasn’t sure what the rental market looked like (Thicken My Wallet had an interesting post on this topic recently) and decided it was better to keep the tenants I had then risk finding new ones.

I don’t think they’re staying because of the lack of a rent increase, instead the examples they cited as bad behaviour on the part of their previous landlords were all long delays in making repairs. They told me at one place they had a closet door that wouldn’t open and close properly, and although they lived there 8 months and the landlord lived UPSTAIRS, he never fixed it.

At the current place I’m staying our landlord took 2.5 months to replace a broken dryer (I was smelling pretty ripe by the time the new one was installed).  The $375 dryer she bought isn’t any cheaper this month than it would have been in December.  All she accomplished was saving a TINY bit of depreciation of the dryer and aggravating the women who live upstairs and myself.  We’re all debating whether to stay here at the end of our leases or not, and this is a BIG part of why we’re considering leaving.

To me promptly making repairs doesn’t cost any more than delaying, and it isn’t any more work to deal with it now instead of later.  I can’t for the life of me figure out why landlords don’t make prompt repairs as a free way to keep tenants happy.

The one concern a property owner MIGHT have is that the tenants are making a frivalous repair request and that if he honours it he’ll just get a whole bunch more.  This is fair, but if the repair request is a reasonable one (like a broken dryer), FIX IT! If its an unreasonable request (one of my buddies had a tenant complain to him that another tenant’s children wouldn’t play with her kids) explain that it’s unreasonable and tell them you won’t take responsibility for it (instead of just delaying and hoping they give up on the request).

Categories
Personal Finance

TFSA Institution Transfer Strategies

You know you are a financial keener if you set up a new TFSA and after 2 months, are thinking about transferring to a different financial institution.  Reader Kim commented on a recent TFSA post that he is thinking of doing exactly that.
Here is his comment:

Great information…and I have $5000 in an ING TFSA.
I was wondering if there are consequences of taking some of the money out of my ING TFSA and opening another TFSA at a different institution that allows Stock purchases in the account rather than just cash? As I understand it, any increase in the value of the stock is tax free which COULD be quite substantial.

This brings up a number of very interesting issues and a couple of possible strategies for transferring TFSA money from one institution to another.

First of all he mentions having $5,000 in his TFSA – since that the annual contribution limit and the TFSA program is in its first year – obviously he doesn’t have any contribution room left for 2009.

TFSA transfer to new financial institution

TFSAs are similar to any other kind of account such as an RRSP – you can do a transfer to a new institution without having to withdraw from the TFSA.  You can either transfer-in-kind which means that any investments in the TFSA get moved over to the new institution – for example if you own shares in the TFSA, they will be moved without having to be sold and then bought again.  Transfer-in-cash means that the investments are sold and only the cash amount is moved to the new institution.

In this case the transfer will be in cash.   As a result of this transfer there will be no withdrawal or contribution to the TFSA.  One thing to be aware of is the transfer fee.  Most institutions charge this fee which is generally $100 to $150.  If you are transferring to a discount brokerage and have sufficient assets then you might be able to get them to cover this transfer fee.  Given that the TFSA only has $5,000 of contribution room, it is unlikely that anyone has enough in their TFSA to get a free transfer (unless of course they have made some incredible trades).  Of course you should check if your institution charges this fee and how much it is.

TFSA withdrawal and contribution strategy – aka “The December Strategy”

Another strategy to think about if you are looking at a steep transfer fee is to just withdraw the TFSA money from the existing account and then contribute it to the new TFSA account.  The TFSA rules state that any withdrawal will result in an increase of the available contribution room by the same amount in the following calendar year.  Assuming that withdrawals are not charged fees (or less fees than the transfer) then someone could do this strategy with the only problem being that they can’t recontribute the money in the same calendar year unless they have enough unused TFSA room which is not the situation in Kim’s case.  This is a valid strategy in December (preferably the end of December) because then you can take the money out, wait a couple of weeks and then recontribute it at the new company.

In a few years, most Canadians will probably end up with a lot of unused TFSA contribution room.  Let’s face it – between mortgages and the RRSP – there is only so much money available for the TFSA.   For those people, there won’t be an issue if they want to move their TFSA – they will be able to just withdraw and recontribute in the same year by using their unused contribution room.

What kind of investments are suitable for the TFSA?

And finally on to the point that I think Kim was actually asking about – should he invest in stocks vs high-interest savings account in a TFSA account for tax reasons?

First of all – the tax considerations should not be the driver of your asset allocation.  The first step should be determining what type of investment (cash, stocks, bonds) you want this money to be in.  The next step is to figure out what type of account (TFSA, open, RRSP) it should be in.

As far as the potential tax savings – it’s hard to estimate without being able to predict the future but here are a couple things to think about:

  • You can’t claim a loss inside a TFSA.
  • 3% interest on $5k at 40% marginal rate will save $60 of income tax per year.  To have an equivalent capital gains tax benefit you would need a 6% return.  Because capital gains tax applies to half of the profit – the rate of return has to be twice the interest rate to break even.  6% stock appreciation is not unreasonable over the long term but will interest rates stay at 3%?
  • Transaction fees for the stocks.  I didn’t include these in my break-even analysis but they would be a factor.  Kim mentioned buying stocks with “some” of the TFSA money – less than $5k is not a lot of money to buy individual stocks with so maybe an index mutual fund would be better.  He should look into TD e-funds for that.

If you are looking for more information on mutual funds, index funds and ETFs then sign up for a Morningstar free account.  Morningstar is the industry leader in investment information.


Categories
Money

COBRA Insurance Subsidy Details – 2009 Economic Stimulus Package

COBRA insurance is temporary health care insurance for people who have just lost their job and their health insurance coverage.  It is also used by recent retirees and commonly covers spouses and children as well.  Typically it is used by workers who are between jobs that provide health care and is provided by the previous employer’s medical plan.

Previously, the unemployed person had to pay 100% of the COBRA insurance premium in order to be covered which can be quite expensive.

65% subsidy to COBRA insurance costs

In the new 2009 economic stimulus package – the government will cover 65% of the COBRA premiums for 9 months – given that these costs can be $1,000 per month for a family – this is a significant saving for someone who has just lost their job.

Who is eligible for this?

Anyone who:

  • Was laid off between Sept 1, 2008 and before Dec 31, 2009.
  • Income is less than $125,000 for single personal and $250,000 for couples.

Longer window to apply for COBRA

Another change is that workers who were laid off after September 1, 2008 have another 60 days added to the window where they can apply for COBRA.  This is on top of the traditional 62 day window.

Did you know?

COBRA is short for Consolidated Omnibus Budget Reconciliation Act.   This act was passed in 1986.

Categories
Money

Economic Stimulus Bill 2009 – $8,000 Home Buyer Tax Credit

As part of the recent economic stimulus bill of 2009 – an $8,000 home buyer tax credit was created.  This credit will apply to home buyers who buy a home this year.  Clearly this is an effort to try to keep up house values and given how much they have fallen, perhaps it is a good time to buy.  The important thing to note is that this credit is not a loan – it does not have to be paid back.

[edit July 8, 2010 – closing deadline extended for first time home buyers tax credit to Sept 30, 2010]

[edit Sept 20  $8,000 first time home buyer credit extended.]

Who is eligible for the $8,000 home buyer tax credit?

Any one who buys a home between January 1, 2009 and November 30, 2009 and meets the following conditions:

  • You must not have owned a house in the past 3 years.  This is the “first time” homeowner condition.
  • Your income must be less than $75,000 for singles or $150,000 for married couples.  Keep in mind that singles who make up to $95k and couples who make up to $170k can get a partial credit.

Is this credit a loan?

No, this credit does not have to be paid back.

Are there any strings attached?

Yup – you have to stay in the house for 3 years otherwise the credit has to be paid back.

What is a “first time home buyer”?

A first time home buyer is someone who hasn’t owned a house in the past 3 years or has never owned a house.  For couples – this applies to both spouses.  It is important that if you sold your last house in 2006 that you don’t close on the new house within 3 years of the previous selling date or you won’t get the credit.  For example if you sold your last house on June 1, 2006 then don’t close on a new house before June 1, 2009.

Is the tax credit $8,000 for everyone?

No, the actual credit is $8,000 or 10% of the house value – whichever is less.  For example if your house is worth $200,000 then you would get $8,000.  If the house is only worth $70,000 then you would only get 10% of $70k which is $7,000.

This is a refundable tax credit

The $8,000 credit means that anyone who is eligible for this credit can subtract $8,000 from the amount of tax owed to the IRS.  If you don’t owe $8,000 in taxes then you will get a refund for the difference.

For example if Bob owes $30,000 in taxes and is eligible for the $8,000 credit then he will deduct $8,000 from $30,000 and will owe only $22,000 in taxes.  Steven only owes $5,000 in taxes so if he qualifies for the credit then he will not pay any taxes and will get a refund of $3,000.

Categories
Money

New Car Buyer Tax Deduction In 2009 Economic Stimulus Package

One of the more interesting aspects of the recent economic stimulus bill was the introduction of a federal income tax deduction on any taxes and excise taxes paid on a new vehicle.  This was introduced because of the poor condition of the big 3 car companies since this deduction will help encourage some people to buy cars.

What kind of vehicles are eligible?

To be eligible for this deduction – it must meet the following criteria:

  • Vehicle has to be purchased between February 17, 2009 and December 31, 2009.
  • Vehicle has to be a new.  Used or leased vehicles don’t qualify.
  • Foreign or domestic makes are eligible.
  • Purchase cost has to be less than $49,500.
  • Weigh has to be less than 8500 pounds.  This would include SUVs and light pickup trucks.
  • The buyer has to have an income of  less than $125,000 if single and $250,000 for families.
  • Must be a car, light truck, recreational vehicle or motorcycle.

Please note that a partial deduction is available to single buyers with incomes up to $135,000 and families with incomes up to $260,000.

What about hybrid cars?

Plug-in hybrid cars are eligible for a larger tax credit of  up to $7,500.  The credits will range from $2,500 to $7,500 based on the size of the battery.

How does it work?

Basically you can use the sales tax and excise taxes paid on the new vehicle to reduce your taxable income.  This isn’t going to be a large benefit but it’s worth thinking about if you need to buy a new vehicle in 2009.

Find out about more available tax incentives in the 2009 stimulus package.

Categories
Money

Unemployment Benefits Extended In 2009 Economic Stimulus Package

The recent 2009 economic stimulus bill was recently passed and it features a number of changes to unemployment benefits.  Unemployment benefits are being extended which should come in handy given the large number of layoffs in recent months.

Unemployment benefits extended in the 2009 economic stimulus plan

Previously, unemployed workers were eligible for 26 weeks of unemployment benefits.  As as result of this bill, unemployment benefits will be extended by 20 weeks regardless of which state they live in.  In some higher-unemployment states such as California, there will be another 13 weeks of unemployment benefits available as well.

Total weeks of unemployment available:

  • Low-unemployment state – eligible for 46 weeks of benefits.
  • High-unemployment state – eligible for 59 weeks of benefits.

Increased unemployment benefits by $25 per week.

Although it varies from from state to state, the average unemployment benefit payout will be increased by $25 to about $325 per week.

Increased coverage to part-time workers

This stimulus package will also provide money to encourage the states to give employment benefits to part-time workers and more low-wage workers.

Tax change for unemployment benefits

Another change was that the first $2,400 of unemployment benefits will be tax-free which was not the case before.