I’m going to apologize in advance for the slew of RESP posts that I’m planning to unleash on the blog. I’ve been working on the 2nd edition of The RESP Book and what started as fixing up a few typos ended up being a bit of a rewrite with a lot of new material. Fear not if you bought the first book – all the new material will be published on the blog and there will be a “change page” so you can see all the changes I made.
My plan is to redo the book and then release in Kindle format as well. I’m also going to create a smaller e-book which will just cover the withdrawal phase of the RESP.
Krystal from GMBMFB breaks down her new mortgage and budget for us. Krystal is about as good a cash manager as anyone I’ve ever seen. She has a decent paying job, she works various part time jobs and freelance gigs to make extra money. She manages to save a lot of money and most importantly, she spends money on things that matter to her. She doesn’t seem to have any waste in her budget.
Larry MacDonald had a really good piece asking if house prices are going to tumble. Some of the indicators used by real estate bears might be flawed.
John Warrillow of the Globe and Mail says that if you want to hire entrepreneurs – screen out the MBAs. I would think successful entrepreneurs wouldn’t be applying for many jobs.
I recently booked a hotel room in downtown Toronto. It was for my wife and I to have a short getaway, while my Mom looked after the kids. It wasn’t the most frugal thing we’ve ever done, but it was well worth the money.
A friend of mine told me to try PriceLine – it’s a travel site where you can bid for things like hotel rooms and hopefully get a discount off the regular rate. It sounded like a neat idea, so I used it to book our hotel room.
Set up an account
If you don’t already have an account, go to priceline.com and sign up. In order to put in a valid bid, you must be signed into your account and have a credit card registered in “my profile”.
How it works
The hotels have a “floor” price for any available rooms. If your bid is below the lowest floor price, it will get rejected.
If your bid is rejected, you can’t bid again within 24 hours, unless you change two factors – normally you would change the price (upward), you can also change the location. Now, obviously if you want downtown Toronto, you don’t want to end up somewhere else.
In order to get the best price, closest to the floor price, you want to be able to bid many times, slowly increasing the price as you go. The problem is that Priceline limits your bidding to prevent you from doing this.
Their rule is that you have to change either the location or star rating if you want to bid again within 24 hours.
It’s very important to know that if your bid is accepted – your credit card will be charged right away and it will be non-refundable.
Timing
You should start checking about 4-6 weeks prior to your desired dates. It doesn’t hurt to start earlier, but it’s less likely that hotels will be willing to reduce their rates.
The simple time-consuming strategy
The simplest way to use Priceline is to pick your area and start putting in bids. The problem is that you can only put in one bid per day, so it might take a while before you get an accepted bid.
The complicated, quicker and riskier strategy
First step is to figure out an area. For bidding purposes, large cities are divided up into different areas. For example in Toronto, there are two “downtown” areas. The specific boundaries of each area are shown on the Priceline site. I wanted a hotel in “Downtown Toronto South”.
For more information about possible hotels and successful bids – check out these Priceline forums.
Here is the Toronto/Ottawa hotels list – This shows all the Toronto/Ottawa hotels participating in Priceline as determined by successful bookings by forum members.
Here are some tricks to increase the number of bids we can enter in one session. What we are trying to do is to keep bidding slightly higher bids in order to minimize the price we end up paying. These tips are more effective in larger cities where you can set up different area combinations.
Change the number of stars
Tip – If you are looking for a 4-star end hotel downtown – you can create a new location combination by including an area that you don’t want, but it doesn’t have 4-star hotels. This new area combination allows you to rebid on your desired area, but there is no chance of getting a hotel room in the undesired location.
For example, I might bid $85 on Toronto downtown south – 4-star. It gets rejected.
I want to bid again and increase the price to $90, but I can’t rebid within 24 hours unless I change something else – I can choose a different star rating or I can include a different location that doesn’t offer 4-star hotels.
To determine which areas don’t have 4-stars, select one location and see if the 4-star location is highlighted. For example, Brampton does not have any 4-star hotels that are participating in Priceline. By including Brampton in the area search (along with Toronto downtown south), I can now bid again. Because Brampton does not have any 4-star hotels on Priceline, there is no chance I’ll end up in Brampton.
Keep track of your bid combinations so you aren’t wasting bids.
Try a new credit card
This will allow you to start over with the various combinations necessary to make more bids.
Case study – downtown Toronto
Let’s take some of the lessons from this post and apply them.
Step 1 Determine the area
Toronto Downtown South
Step 2 – Check for possible hotels
From the forums, I can see that the following 4 star hotels are possibilities in the Downtown Toronto South area:
Hilton Toronto
Hyatt Regency Toronto
Intercontinental Toronto Centre
Le Meridien King Edward
Renaissance Toronto
Sheraton Centre Toronto
Westin Harbour Castle
The Fairmont Royal York (a possible hotel; not reported yet)
Thompson Toronto
Step 3 Research the market price
Now I’m going to check out a few of the hotels for March 25th and see what quotes I can get. First I got a quote from the hotel website, then I checked on Expedia. The dollar figures are the website price, followed by Expedia.ca.
Hilton Toronto – $119/$119
Hyatt Regency Toronto- $279/$279
Intercontinental Toronto Centre – $219/$259
Le Meridien King Edward – $269/$269
Renaissance Toronto – $209/$169
Sheraton Centre Toronto – $229/$249
Westin Harbour Castle – $269/$269
The Fairmont Royal York (a possible hotel; not reported yet) – No vacancy
Thompson Toronto – $179/$179
I found it interesting that the average Expedia price was slightly higher than the prices quoted on the hotel websites. Not sure if this research proves that Expedia is useless, but that’s what I’m thinking.
From the price list, I can see one big problem – the Hilton is offering rooms for $119, which is a lot cheaper than anywhere else. Since it is a four star hotel, it’s likely that any bid will get filled from there first, if any rooms are available. This might negate the whole point of having a group of available hotels.
Step 4 – Set your opening bid
I’ve heard that 50% of regular price is a good goal for your eventual winning bid. With that in mind I’m going to bid $40 which is less than half of the cheapest hotel ($119). I don’t think this is realistic, but it’s good idea to do some lowball bids in order to get familiar with the bidding process.
Step 5 – Plan your bid combinations
The more bids you have available, the better price you can get since you can use a smaller increment when increasing your bid.
First I need to figure out which Toronto locations do not have all four hotel star categories. I can use those locations to create extra bids.
Select “bid now” for hotels.
I’ll fill in the info.
Now I .need to check all the areas for the star availability. Please note – there is nothing wrong with determining a new location combination each time you make a bid, but if you are planning to minimize your price by using small price increments, it’s easier to figure out the locations first.
If I select the first Toronto location “Brampton” – I can see that both the 4-star and 3.5-star selections are greyed out, which means there are no 4-star or 3.5-star hotels in that area.
You can see how the 3.5 and 4 star selections are greyed out.
I can use the lack of a 4-star option with the Brampton location to get one extra bid for my desired Toronto downtown south location.
So far I’ve determined that I can use the following area combinations to get extra bids:
Bid #1 Location = Toronto downtown south. 4-star.
Bid #2 Location = Toronto downtown south & Brampton – Remember, I’m requiring a 4-star hotel and Brampton doesn’t have any 4-star hotels in Priceline, so there is no way I can end up with a room in Brampton. This is really just another bid for Toronto downtown south.
After going through the list, I can see that the following areas don’t have 4-star availability:
Brampton
Burlington
Don Valley
Mississauga
Oakville
Scarborough
Toronto Airport West
Toronto East
Toronto West
Vaughn
Make a bid
I decided to bid $40 just to get started.
With taxes and service fees, the total will be $52.65 US.
When you get to the “We’re Ready To Get Your Hotel Room” screen – at this point, select the credit card (which you’ve already entered), enter the security code (three digit number on back of card) and then press the “buy” button. This is the last chance you have to cancel the transaction.
Then you get to look at William Shatner for a minute or two, while your bid is being considered.
Not surprisingly, my $40 bid was not accepted.
Now you can bid again, but you have to change either the area, the star level or check-in/check-out dates. Priceline also suggests increasing your price.
Make another bid
Ok, now I’m going to bid $50 and I’m going to include Brampton in the area list which will allow me to place another bid.
This was rejected.
Keep going
I’m going to keep increasing my bids slowly and change the area combination each time.
So far I’ve used: Toronto downtown south and then Toronto downtown south + Brampton for the areas on my two bids.
Here are my next area combinations and bid prices:
Downtown South Toronto, $40, rejected
Downtown South Toronto, Brampton, $50, rejected
Downtown South Toronto, Burlington, $55, rejected
Downtown South Toronto, Brampton, Burlington, $60, rejected
Downtown South Toronto, Don Valley, $65, rejected
Downtown South Toronto, Don Valley, Brampton, $70, rejected
At this point I’m over 50% of the price of the cheapest hotel – Hilton $119. Which leads me to think that they might know they are the cheapest hotel in their Priceline group and don’t have to mark down their price very much, if at all. If that is the case, I am probably wasting my time with any bids under $100.
More bids:
Downtown South Toronto, Don Valley, Brampton, Burlington, $75, rejected
Downtown South Toronto, Don Valley, Brampton, Burlington, Mississauga, $80, rejected
More Hilton thoughts – Now I’m wondering if the Hilton is even in this group. Perhaps they got downgraded from four stars and the forum list wasn’t updated?
Downtown South Toronto, Mississauga, Oakville, $85
Downtown South Toronto, Mississauga, Oakville, Scarborough $90
If case you are wondering why I’m not just doing single pairs (ie Downtown South Toronto plus one new list item in sequence), it’s much easier to add an area to the previous bid, then it is to start a brand new bid, which you have to do, in order to remove an area from the bid.
Downtown South Toronto, Mississauga, Oakville, Scarborough, Toronto East $95 – Success!!
Here is where I made my big mistake – on the list of available areas in Toronto, there is a Toronto Airport East and a Toronto East. Unfortunately, I selected Toronto Airport East (which has 4-star hotels) instead of just Toronto East and just bought a $95 room which I have no intention of using. F***! The total cost with fees came to $116. I wouldn’t have minded going to a different area if the hotel was anywhere else, but it’s right at the airport and there isn’t much around there. Oops.
Ok, let’s try this one again:
Downtown South Toronto, Mississauga, Oakville, Scarborough, Toronto East $95 – Success!!
Yup – I ended up at the Toronto Hilton which is what I originally thought might happen.
How much money did I save?
If I book a room at the Hilton directly, the cost is $119 plus taxes for a total of $135.
Priceline total cost was $116. So I saved a whopping $19 on this room. As I suspected, I think the Toronto Hilton doesn’t give much of a discount on their rooms, because they are in a group with much more expensive hotels.
How much money did I save really?
Unfortunately, because of my $116 mistake, I didn’t end up saving anything. My total cost was $232 for a room that I could have gotten from the hotel website for $135. A difference of $97.
Was it worth it?
One downtown hotel room – $116
One airport hotel room (unused) – $116
One fantastic Keg dinner – $162
Breakfast from room service – $64
Getting away from the kids for a night – priceless!
Thanks to Robb at Boomer & Echo for some background information.
I’m looking forward to the big Easter egg hunt that we will have at our house. Last year, the kids really enjoyed it and it went on for hours. My son really enjoyed hiding eggs and then leading me around telling me where to find them. 🙂
My pushup challenge is still going. I finished week two and then did an exhaustion test where I completed 30 pushups. This is a huge improvement over my initial test where I only did 10! Now I’m working on week three, which I expect to take a few weeks to complete. 🙂
Special mention
I was interviewed a while back by Kate McCaffery who wrote two very good RESP articles over at Wallet Pop Canada. She used some of my quotes in the articles.
Canadian Mortgage Trends reports on a renegade RBC mortgage specialist who says that mortgage brokers are no good. I’ve found that mortgage brokers are far superior to any bank “lending specialist”.
Million Dollar Journey had a guest post by Sustainable Personal Finance on Cottages and capital gains tax. I don’t remember ever seeing a blog post on cottage succession in the last five years, and now – twice in one week. I better get started on mine. 🙂
How Much House Can I Afford? – With the mortgage rates at their all time lows and the housing market still favoring buyers, this may be a good time to buy. But how could you tell how much house you can really afford and that you’ll be ready for homeownership?
Congratulations, your child has been accepted into their post-secondary school of choice. Luckily, you have a decent sized RESP account and now need to plan your RESP withdrawals. The following steps and strategies will help you deplete the RESP with a minimum of surprises.
Step 1 – Make sure the money is safe
If your child is starting school in September or is currently attending , the RESP should only be invested in safe investments such as GICs and cash. If you own any equities, you are taking an extra risk. Make sure you understand what your investment time horizon is. Don’t try to play the markets – at this point you need to make sure that the money will be there when the student needs it.
Step 2 – Learn the RESP withdrawal rules
In your RESP account, there are two kinds of money: Contributions and Accumulated Income.
Contribution amount is the sum of all the contributions that you made to the account over the years. This money can be withdrawn tax-free. These withdrawals are called Post-Secondary Education Payments (PSE).
Accumulated Income is made up of grants, capital gains, interest, dividends earned in the account. Any money that is not a contribution is Accumulated Income. Withdrawals of Accumulated Income for educational purposes are taxed in the hands of the student. These are called Educational Assistance Payments (EAP).
To make withdrawals from an RESP account, proof of enrolment must be provided to your financial institution. No receipts are necessary.
When requesting RESP withdrawals, you can specify whether the money will be coming from the Contribution or Accumulated Income portion or a combination of both. If you don’t specify which type of withdrawal you are making, most financial institutions usually withdraw the money from the Accumulated Income.
In order to plan, you need information. You should call your advisor or financial institution and ask for the following information:
Account value
Total amount of contributions made for the beneficiary
Total amount of grants paid to beneficiary
To calculate the amount of Accumulated Income (non-contributions), just subtract the contributions amount from the account value. The grant amount will be used later to determine if more contributions can be made.
Step 4 – Plan withdrawals for tax efficiency
When your child goes to school, withdrawals from the Accumulated Income portion of the RESP are taxable in the hands of the student. Ideally, you should try to manage these payouts to minimize taxes. Withdraw more Accumulated Income in years when the student has low income, and less in years where their income is higher. Full time students often have generous school-related tax credits in addition to their personal exemption. Make use of this fact to withdraw as much Accumulated Income from the RESP account tax-free as possible.
Withdrawals from contributions have no tax implications, so the timing doesn’t matter.
Here are some withdrawal strategies to consider:
Maximize the Accumulated Income withdrawal in the first semester
The year a student starts school is often a low-income year, so withdrawing more Accumulated Income could save taxes. Only $5,000 of Accumulated Income can be withdrawn in the first 13 weeks of school. There is no withdrawal limit on contributions. If the child starts school at the beginning of September, they can take out more Accumulated Income by mid-December of that same tax year.
Don’t leave Accumulated Income in the account
If Accumulated Income is withdrawn when the child is not attending school, the money is taxed in the hands of the subscriber and an additional 20% tax is applied. When planning your withdrawals, do your best to ensure that the Accumulated Income is completely withdrawn before the student graduates. You don’t have to match the withdrawal amounts to the educational expenses, you can take out extra and save it in a TFSA or non-registered account.
Accumulated Income is allowed to be withdrawn as an EAP, for up to six months after the child stops attending school. This can be useful if the child unexpectedly quits before graduating.
When requesting withdrawals from a family plan RESP – don’t give more than $7,200 worth of grant money to any one beneficiary or the government will take the excess grant money back. All payments from Accumulated Income will include grant money. Check with your financial institution to monitor how much grant money has been paid to each beneficiary.
Last chance contribution
If the amount of grants from Step 3 is less than the lifetime grant limit of $7,200, you can still make more RESP contributions. Contributions can be made up to December 31st of the year the child turns 17, even if the beneficiary has already made a withdrawal from the RESP.
The withdrawal phase of your RESP account is the most complicated phase of the RESP program. Take the time to learn the rules and you won’t have any unpleasant tax bills or grant clawbacks.
Spring is finally here and it’s so much easier to do activities outside with the kids. Mitts, hats, scarves, heavy coats, winter boots can all go into storage. Of course my daughter still insists on a hat and gloves, but I think it’s more of a fashion thing. 🙂
On with the links
Rob Carrick did a fantastic piece on inflation, where he explains why the official inflation rate differs from our personal inflation.
Lily from Explore For a Year, did something I’ve always wanted to not do: 10 day silence meditation. Sounds like an interesting experience.
How Much Money Do You Need to Retire? – This article takes you through three easy steps to help you calculate how much you need to save for retirement.
If there is one thing I hate doing, it’s preparing my tax return. Figuring out deductions and finding receipts is just not my cup of tea. One year, I filed my taxes several months past the tax filing deadline and received a quick education on the CRA penalties for late filers who owe money.
I’ve managed to get myself organized and filed my tax return on time for the last several years.
Here are my suggestions to help get your taxes filed on time:
Get organized. Set up a good filing system for your tax information and make it a priority to follow it. It’s so much easier to tackle your tax return, when you know where all the paperwork and receipts are.
Print off all electronic receipts and file them. This one has been a problem for me. I’ll file an electronic (email) donation receipt somewhere and then I can’t find it come tax time. Print everything off and put it in the appropriate tax folder.
Good tax software. This makes taxes almost fun. I’ve used TurboTax in the past and recommend it. It has an interview style where the software will ask you questions based on your entered information and will make recommendations about deductions and forms to fill out. Read this article which covers a number of different tax software programs.
Hire an accountant. Most people can fill out a regular personal tax return without professional help. If you can’t seem to make the tax deadline each year however, hiring an accountant can help motivate you to get your taxes finished. Think of it as hiring a personal trainer for your taxes. A regular non-business tax return will cost about $100 with a certified accountant.
Less late is better. If you have missed the tax-filing deadline, try to file your taxes as quickly as possible since the CRA penalty charges increase every month.
File even if you are broke. If you owe money for your taxes and don’t have the funds to pay, file the tax return anyway and work out a payment program with the CRA.
Stop owing taxes. Do you owe taxes every year? One way to avoid penalties for late filing is to not owe the money in the first place. Increase your payroll withholding tax by giving your employer a CRA TD1 form. Make an extra RRSP contribution in the first 60 days of the current year. Consider making some tax instalment payments to the CRA.
How much is the late-filing penalty?
Here are the rules to calculate the CRA penalties and interest charges if you owe money at tax time and miss the filing deadline. I used my own late-filing experience as an example.
As soon as you miss the filing deadline of April 30th, a 5% penalty on your balance owing is charged. After that, a 1% penalty on the balance is charged for every full month you are late, up to 12 months.
In my case, I owed $600 and didn’t pay the balance until early December of that year. My penalty was 5% ($30) plus 7% ($42) which was 1% for each month from May until November, for a total penalty of $72.
What about interest charges?
As if the penalties aren’t enough – the government also charges interest. The rate is currently 5% annually. The interest I had to pay on my 7 months late $600 tax bill was $17.50.
Add it up
My total penalty for the $600 taxes owing and 7 months late was $89.50 or 15% of the amount owing. I remember being quite surprised at how much the penalty was since I didn’t realize it got higher by the month. I had thought that once you are late, it didn’t matter how late you were. If nothing else – I learned my lesson and never filed late again.
Are you a repeat offender?
If you paid a late-filing penalty in any of the three previous tax years, the penalty for the current tax filing year will be double. In that case the late penalty is 10% and the monthly penalty is 2% and it will accrue to a maximum of 20 months..
Penalties are only charged on taxes owing
One key thing to remember is that if you don’t owe any taxes, there will be no penalty for filing late. The penalties only apply to taxes owing.
Conclusion
Nobody likes paying taxes or filing their tax return, but I can tell you from personal experience that paying late-filing penalties is even worse. Even if you don’t owe any money at tax time, you should make every effort to meet the deadline. Delaying your tax filing will only make it harder.
I want to point out that one of my blogger colleagues has just released a new book called “Free at 45“.
Written by Tim Stobbs at Canadian Dream , the book shows how you can retire at 45, or at least a lot sooner than you might think.
I haven’t read it myself, but I’m sure it’s worth a read.
Pushups
I’m continuing the pushup challenge and things are finally improving – I felt a lot better during the last two workouts. I’ve finished week two and now I have to do an exhaustion test before continuing with week three.
On with the links
Moneyville had an excellent, excellent article about the Risk involved with real estate. Their point about leverage is spot-on.
Who Can Claim the Home Mortgage Interest Deduction? There are several requirements to be able to claim the home mortgage interest deduction, including whose name is on the title, who pays the mortgage, and more.
Best Military Credit Cards. These credit cards are some of the best available for military members and offer a variety of great features including cash rewards, no foreign transaction fees, and 0% interest offers.
5 Tips for Finding Accountant Help for Small Business Owners – Have your business finally grown beyond the DIY stage? If so, congratulation. Accounting is one area where most business owners outsource first. Here are a few tips to help you find accountant help.
I’ve been running my business as a sole proprietorship for about four years. Any cheques I’ve received have always been made out to my name. A personal PC Financial chequing account has served admirably as my “business” account, which gave me a place to deposit the cheques.
This year was a bit different – I started a publishing company, so that I could use Lightning Source as the printer for my book. As a result, all the royalty cheques are made out to “Money Smarts Publishing”. Since I can’t deposit those cheques in my personal PC Financial account, I had to open up a business account.
After doing a bit of research, I determined that most business checking accounts are quite expensive – in and around $10 per month or more in fees. In my case, I just need an account where can I deposit one or two cheques per month and do a withdrawal once a quarter.
I found out that HSBC (Hong Kong and Shanghai Banking Corporation) offers a free business checking account. It also handles US$, which is perfect since my publishing cheques are all US$.
Free has a price
This account isn’t for everyone – it has a limited number of transactions per month (20) and if you order cheques, they are very expensive. One workaround is to order cheques from a third-party cheque printer such as ASAP Cheques . I haven’t ordered any cheques yet, but I plan to.
Other major limitations are a lack of ATMs and charges on any EFTs.
This bank account is perfect for my business, but it will not suit the needs for many other businesses. Make sure you understand the limitations before signing up.
Another drawback to this account is the lengthy account set up timeline – it will likely take 4-6 weeks to get the account fully activated.
The basic steps to set up the account were as follows:
Fill out online app at HSBC.ca
They phoned me about a week later.
We played phone tag for about two weeks (this was partly my fault).
I set up an appointment to meet with a bank rep to sign a few documents. The appointment was very fast – only about five minutes.
Items you need for the appointment:
Two pieces of I.D. – I showed my drivers license and a visa card.
Ontario master business license as well as the federal license and business number.
About a week after the appointment, I got a bank card in the mail along with a “welcome” package with instructions on setting up the online login.
Setting up the bank card pin was tough – you have to call them and they take a LONG time to answer the phone. Once they activate the card, you get one hour to get to a HSBC ATM to set your own password. Given that all the HSBC ATMs in Toronto seem to be downtown, I would imagine that someone living out in Ajax would have do an Amazing-Race style dash to the city core. 🙂
Unfortunately, I wasn’t aware that I had to go to a proper HSBC ATM, not a no-name one, so it didn’t work for me. I phoned again to clarify, and she also told me I can get the pin reset in a branch which is what I did. I deposited some cheques at the same time.
I also found out that you can’t deposit US$ cheques in ATMs, so the whole pin number is a moot point anyways. 🙂
Setting up the online banking was a small hassle, but I think that’s true of all banks. One unique feature about HSBC is that they send you an electronic token which you have to use to login to your online account. This is good from a security point of view, but bad for convenience unless you can carry your token around with you (and not lose it).
Any other business owners out there? Where do you have your business account? Are you ok with the fees and service they offer?
