Waters & Meredith

Serving Niagara..

Client Information Newsletter: 2nd Quarter 2002

CONTENTS

  • CCRA Interest Rates
  • Power of Attorney for Health Care
  • Living Will
  • Private Foundation
  • Employee Stock Options
  • Recent Interest Rates
  • How Low Can It Go?
  • Mutual Funds
  • Chasing the Rainbow
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    CCRA INTEREST RATES

    1. The interest rates for the second quarter of 2002 are:

      6% charged on overdue taxes

      2% to calculate benefits for employees and shareholders on interest-free and low-interest loans

      Tax-planning tip - the 2% is the lowest rate we have ever seen. If you have excess cash, you could lend to a spouse, child or grandchild that they could invest, it might make sense to do so before June 30th. There should be proper documentation for the loan and interest must be paid.

    Back to Contents

    POWER OF ATTORNEY FOR HEALTH CARE

    1. It is possible to execute a Power of Attorney that only comes into effect when a physician or some other named person certifies you can no longer handle your affairs. That same power can be drafted to cease if and when you recover your faculties.


    2. We strongly recommend everyone should have this type of Power of Attorney. Please consult your lawyer.

    Back to Contents

    LIVING WILL

    1. This is not a legal document. It is the stated wishes with regard to medical treatment (or the cessation of such treatment) where the person is not able to communicate.


    2. This type of document can ease the burden on family by letting them know what you would want to happen in certain situations, including donating organs on death.

    PRIVATE FOUNDATION

    1. An individual may establish a private foundation to make charitable donations.


    2. The capital contributed would be deductible in the year of the donation.


    3. The individual or the family may govern how the foundation distributes the donations.


    4. A private foundation is subject to an 80% disbursement quota of donation receipts. In addition, there is a 4 1/2% disbursement quota relating to the value of the investments.


    5. Where a gift is made on account of capital, there is no requirement to distribute 80% of the gift for the first ten (10) years of the foundation.

    EMPLOYEE STOCK OPTIONS

    1. Under the Income Tax Act, employee stock options are normally taxed preferentially.


    2. An employee who exercises a stock option granted by the employer is deemed to receive a taxable benefit equal to the value of the shares at the time they are acquired, minus the amount paid for the shares and the amount paid for the option.


    3. In most cases, the employee will be allowed a deduction equal to one-half of the amount of the benefit.


    4. If the employer is a Canadian-controlled private corporation, any benefit is tax deferred until the year in which the employee sells the shares.

    RECENT INTEREST RATES

    1. As everyone knows, money sitting in a bank account does not generate much interest. There are alternatives one may consider:
    1 Yr 5 Yrs 10 Yrs
    Gov't of Canada 3.2% 5.2% 5.6%
    Provincial 3.3% 5.3% 5.9%
    Strip Bond 3.4% 6.1% 6.9%
    GIC's 3.6% 5.2%

    HOW LOW CAN IT GO?

    1. An investment could go to zero value.

      Example:

      Invest $20,000 - total loss $20,000 maximum


    2. There is a worse scenario, buying an investment on margin or borrowed money.

      Example:

      Invest $20,000 - half of which is borrowed. Maximum loss is still $20,000, but your investment may have decreased to zero and you still owe $10,000 plus interest


    3. Borrowing to invest entails significantly more risk than investing your own capital.


    4. For most people, this is not a good idea. The positive side is that if the investment increases in value, the leverage of borrowing increases your investment gain.


    5. One must consider the tolerance for the financial pain of losses before borrowing to invest.

    MUTUAL FUNDS

    1. Managers who adopt the value investment approach look for stocks that are out of favour and regarded as inexpensive, but are expected to rise in value once they are recognized by the market.


    2. Growth managers tend to be more aggressive and buy stocks that are expensive by market standards, believing the stocks have further upward potential.


    3. Market-oriented managers tend to have portfolios that reflect broad market averages.


    4. Your investment advisor can help you determine what type of investment any mutual fund is.

    CHASING THE RAINBOW

    1. Many investors are lured by the pot of gold at the end of the rainbow.


    2. It is not unusual to see a mutual fund increase 30% or more in a given year.


    3. Rather than this being a trend, there is a reason. It is not unusual for last year's hot fund to drop in value in the following year.


    4. We believe it is generally safer to look at funds with a longer time record of being successful.

    We welcome comments you may have on this newsletter as well as suggestions for future topics.

    The information herein is provided for your general information and action should not be taken on the basis of this newsletter, but only on the advice of your own individual advisor, applying this advice to your individual situation. Please call if you have any questions.

    Waters & Meredith
    Chartered Accountants
    Telephone: 905-356-4324
    Fax: 905-356-0964
    E-mail: wm@watersmeredith.com

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