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Canada: Finance, Real Estate, Insurance, Immigration

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Сайт рассылки: http://arbetov.ca
Открыта: 26-03-2010

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Михаил Арбетов

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Understanding the ABCs of Mutual Fund RRSPs




We are happy to introduce our first newsletter in English. For over than 10 years I am working as a financial advisor in Canada. I am going to publish useful information that helps you to avoid unreasonable financial losses in Canada.

Michael Arbetov , CFP, FMA
Financial Advisor


Understanding the ABCs of Mutual Fund RRSPs

Imagine a scenario in which (depending on your tax bracket) the Canadian government pays you almost half (depending on your tax bracket) of the money you require to make an investment in a mutual fund of your choice. Then when you’ve made money off the mutual fund, either through interest earned in a fixed-income fund, or capital gains generated by your equity fund, the government tells you that you don’t have to pay tax on it.

Sound far-fetched? Not at all if you are among the one in three Canadians taking advantage of the federal government’s most generous form of tax relief - the Registered Retirement Savings Plan – or RRSP.

An RRSP is a government approved program designed to encourage Canadians to save for their retirement by providing powerful tax reduction options. Millions of Canadians have taken advantage of these tax reduction options by having part or all of their RRSP investments in mutual funds. The tax breaks for a mutual fund RRSP come in two forms. The first is that once you set up a mutual fund RRSP, the financial contributions you make are deductible from your taxable income.

Take the following example: 20-year-old Samantha contributes $5,000 to a mutual fund RRSP. Samantha is in the middle tax bracket whose marginal combined federal/provincial tax rate is somewhere around 42% (depending on which province she resides in) and would therefore receive a tax refund of $2,100. Therefore, the “real” cost of the mutual fund is only $2,900, but the full $5,000 is still working inside the plan.

The second tax advantage resides in the sheltering of the income and capital gains that are generated by investments, including mutual funds in your RRSP. Simply put, your money is allowed to grow tax free. Anyone who has invested in a fixed-income fund (outside of an RRSP) knows that the interest earned is heavily taxed. Likewise, a capital gains tax is levied on investments like equity mutual funds. But all investments including mutual funds within an RRSP are effectively “sheltered” from tax and allowed to compound.

Using the same example of a mutual fund holder in a 42% tax bracket, let’s examine the effects of a fixed-income mutual fund over a five year period, assuming a 10% annual growth rate both inside and outside an RRSP. In a registered or sheltered plan where no tax is paid, a $10,000 investment would grow in value to $16,105 in five years. Outside of an RRSP, the investor would be required to pay $2,357 in tax resulting in a cumulative value of only $13,257.

So why does the government allow such generous forms of tax relief? It realized that with a rapidly aging population simply does not have the resources to support the growing numbers of retired Canadians who will be dependent on government-sponsored pension plans in the future. RRSP mutual funds are one method by which the government can encourage people to take responsibility for their financial future.

There are, however, limits as to how much an individual can contribute to an RRSP on an annual basis. Each year, taxpayers are allowed up to 18% of the previous year’s earned income to a maximum of $13,500 (provided they aren’t already members of a registered pension plan or a deferred profit-sharing plan). If the taxpayer is a member of a sponsored pension plan, they can contribute the same amount minus a calculation, called a pension adjustment, or PA.

There are many ways to invest in an RRSP, but none is growing in popularity as quickly as mutual funds. Mutual funds offer diversification not only among security and asset classes, but also internationally, through opportunities for foreign investment. They offer the easiest way to take advantage of rules which allow up to 30% of your RRSP to be allocated internationally.

Once you have determined the amount of money you can afford to invest, the next decision involves selecting which funds are best suited to you. A mutual fund RRSP can be tailored for growth, for fixed returns, or for a balanced investment strategy. It is best to explore your options with an Investment Professional – after all, it’s your money and your future.

This article was prepared by Fidelity Investments for Michael Arbetov CFP, who is an Investment Professional with Portfolio Strategies Corp.

Read a fund’s prospectus and consult your investment professional before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss.

Other articles

Understanding Mutual Funds
Does Your Portfolio Have a Healthy Heart?
Consider Foreign Investing in Mutual Funds
Mutual Funds and Market Volatility


Foreign Credentials Recognition in Canada

Skilled workers have reported that credential evaluation processes are confusing, time consuming and expensive. Only few employers recognize immigrants as professionals. Most of them (small, medium-sized businesses) do not accept foreign education and work experience either.

As a result many immigrants change their profession after they arrive to Canada.

On November 30, 2009 government of Canada announced the release of the Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications (Framework). 50 Million Canadian dollars have been aimed by government to achieve the goal within two years.

According to this initiative, the immigrants will get clear information as early as possible during the immigration process. The goal is that within one year of submitting a complete assessment application for licensure, an applicant will know whether his/her credentials have been recognized. If not, the applicant will be given specific directions what to do for certification or forwarded toward related occupational commensurate with his existing skills or experience.

By December 31, 2010, it is expected that the necessary processes and supports will be applicable to the following occupations: medical laboratory technicians, occupational therapists, registered nurses, physiotherapists, pharmacists, architects, engineers, financial auditors and accountants.

The following on-line resource HRSDC’s WiC (http://www.workingincanada.gc.ca ) has been developed Under Framework Program. Around 70,000 visitors attended the site in August 2009. It produced over 53, 000 individualized reports.

The Working in Canada Tool will help you to decide where to live and work in Canada. You will be able to receive the most recent information on job descriptions, wages, skill requirements, language training and job opportunities based on your occupation and preferred location. By learning about different occupations and Canadian regions, you will be able to make right settlement decision that will help you and your family to settle down quickly in Canada. This might make your job search in Canada more smooth.

The following question is still unclear: will Canadian employer be loyal to immigrant – job applicant? Is he/she willing to accept internationally trained worker experience and education, recognized by Canadian regulatory bodies, as benefit but not a barrier? (Resource: A Commitment to Foreign Credential Recognition: Government of Canada Progress Report 2009)

Ekaterina Potekhina

Certified employment counsellor,
Member of BC Career Development Association (www.bccda.org )
Member of Society of Translators and Interpreters of BC (www.stibc.org )


Professionals in Environmental Sector – FYI

If in your home country you worked in environmental sector and you are planning to continue this career way in Canada you should refer to ECO.

One of the largest in Canada environmental organization ECO can be a good starting point for your environmental career way in a new country.

The website contains current listing of job openings from across Canada. If you take a look at these positions you will have the opportunity to know what qualifications the Canadian employer is excepting from the potential employees.

More on two certificate programs for your environmental career >>

Ekaterina Potekhina
Certified employment counselor
Member of Career Development Association of BC
Member of BC Translators and Interpreters Society

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