Home Renovation Tax Credit

I am a new  home owner, and like every other first-time home buyer, we got a nice place that needed some work to make it “perfect”.   The most important factor, according to my husband, is the garage.  If it were up to my husband, we would live in a giant garage and/or warehouse with little else.  I’ve never asked where we would sleep, because I’m afraid the answer would be something like “in a van down by the river”.

In that vein, our garage needed fixing-up to meet his exacting standards – and who better to do the manual labour than us!  We diligently took measurements of the space, did research on which supplies and tools we would need, and budgeted months in advance.  That part went quite well – even though our final estimates were double the original.

The biggest disappointment were our dashed expectations when we looked into the home renovation tax credit.  We realized what a tiny amount we would get back from spending literally thousands on building materials and supplies.  Really – you get back 15% of your costs.

Here are the calculations they use:

$10,000 (max allowable claim) – $1,000 (base amount you have to subtract)
= $9,000

Return:
=$9,000 x 0.15
= $1350

In reality, you are getting back:

$1,350 / $10,000
= 13.5%

Now, I’m not one to turn up my nose to a tax credit, but this falls seriously short.   Like I’ve mentioned before, taxes are the biggest financial investment you make in your lifetime.  A person in the middle class pays more income tax in a year than they pay down on their mortgage!

Anyone who can afford to put thousands of dollars worth of renovations into their homes will likely not feel “credited” by this system at all.  If you make monthly contributions into an RRSP or RESP you would get better tax savings.  If your pay office over-deducted you in the course of the year you would have a balance owing on your return.

Now maybe I was so disappointed because I thought the Home Renovation Tax Credit was going to work like an RRSP.  The amount contributed into renovating your home would be taken off of your taxable income – that would make a big difference in the amount of taxes owed! Alas, it will never be.

I should have known better.  There are very few methods for legally and simply reducing your tax burden, and the best is to contribute to RRSPs.  Now there may be others, but none that can be explained without the use of flow charts.

Nevertheless, the garage is now nearly perfect – and soon my husband will be tinkering away blissfully.  Tax credit or no, it’s worth it to him.

Financial Management Software

I’m a pretty low-tech kinda girl, and I use the old steady Excel spreadsheet function to manage my finances.  I’ve been looking into other software options, and have come up with some criteria that I need in good financial management software.

Firstly – I need something that doesn’t drastically change the method I already use.  A spreadsheet is nice and simple, and I can just make a copy of it when I want to manipulate numbers, or tweak formulas.

Secondly – I want something that isn’t expensive, and doesn’t have yearly user fees.  I hate paying user fees.  This particularly annoys me, because as I’m getting my business up and running smoothly, I’m noticing all of these monthly and annual costs.  They really add up.

Thirdly – I need something that does my taxes.  I like doing my taxes – only because taxes are the biggest financial investment I will make in my lifetime.  I heard that somewhere (don’t know where – too bad I can’t give them the credit).  It’s true – every year I pay over 20% of my income in taxes – that’s over $12,000!  That’s more than I will make in mortgage payments in a  year, and more than I can contribute to my RRSPs, which maxes out at 12% of your income.  Taxes are a huge investment – so I think it’s the most important thing to do well.

Fourthly – I don’t want to have to do a whole bunch of data entry.  I don’t itemize every purchase I make by category now – nor will I ever.

Fifthly – I want a financial management software program that has some valuable calculators.  The older versions of Excel have what’s called an Amortization calculator that figures out the payments, interest, and period of an amortized loan.  By playing around with it, you can clearly see what a difference it makes when you make a few extra mortgage payments a year.

Lastly – I ask myself if my expectations are just too high – or if I’m just looking for what I already have – but more willpower to use it properly?

Economy in Recovery

It’s great to hear on the news that the economy is finally in recovery – but I started to wonder how I had personally been affected by it over the last while – nearly two years.

Signs of a depressed economy –

I have a very stable job, and wasn’t worried about losing my income, so I can say that in that regard, I didn’t feel the pressure of a downed economy.  I thought that I would see greater impacts on my friends and family who are skilled tradesmen, working in Alberta and Saskatchewan.  Yet, everyone I know continued to work throughout the entire recession.  That must be a lucky thing for the people I know – because there certainly were tons of reports of people who lost their jobs.

How was I affected?

I could tell when the recession began, because around mid-2008, my investments started to take a nose dive, and they have just started to recover now that the the recession has lifted.  But I wasn’t that seriously affected.

During this past year, I used the Home Buyer’s Plan to use my RRSP investments as a down payment on my first home.  The market was great for first time buyers, and I bought a beautiful home for a great price. 

I would say that was a positive aspect of the recession for me.  But on the other hand, I had to use my investments, which were significantly reduced to purchase the home.  So, in reality, I lost money on my investments.

Despite all of that, I still managed to put down a decent downpayment, and bought a dream home.  If I had lost my job, or been harder hit, I certainly wouldn’t have been able to take advantage of lower house prices.

Things were cheaper to buy –

I noticed that everytime I went shopping – everything was on sale.  Recession prices were fantastic.  I don’t think I’ve paid full price for a single item in the last 2 years!  I almost feel like I came out on top – only because I was still making the same salary – but everything else was so much cheaper.

When we bought our house, we needed all kinds of furniture to go with it.  And we got a great deal with recession prices.  It almost feels like the higher prices that will come from this recovery will hurt more than the recession did.

What does the recovery mean to me?

In the recession, everything was cheaper.  Groceries, a tank of gas, vacations.  We could buy just about everything for less, and it left more money in our pocket.  With the recovery, everything will be a bit more expensive – but I think that the cost of things will be balanced with a greater sense of calm by everyone. 

People will feel more confident and secure with their finances, knowing that the crisis is behind us.  And what does that mean for me?  Well, I do own a small business that hinges on people’s ability to spend disposable income.  So, with people feeling better about spending money – I’m sure my business will flourish.

Until the next turn of the wheel, that is.