When the mechanic handed me the $1,250 estimate for repairs on our vehicle's air conditioner, I gave it some serious thought... for about 30 seconds.
"How much do I owe you for the estimate?" I asked.
After paying about $50 for his preliminary work, I went home and talked it over with the family that night.
It turns out that my three teenage kids are pretty pragmatic.
"Don't whine about your first world problems, dad! We'll be fine! You said you are getting rid of that old vehicle anyway, so don't fix something so cosmetic on it now."
We had planned to replace the aging vehicle soon, and ultimately agreed that we couldn't justify the additional cost which worked out to somewhere around $50 a day for the comfort of a short-lived, climate-controlled environment.
Before we left on the trip, we bought some spray bottles. It was the hottest part of summer, and we would be in the vehicle for some very long drives on the two-week vacation.
It would be a throwback from the '70s when rolling down the window was standard reaction to the heat.
The constant wind through the passenger area meant that the spray bottles worked reasonably well. This also meant that the usual video menu was not very functional, the airflow too noisy to make watching enjoyable.
For entertainment we looked out the window, told stories, sprayed each other with water bottles and goofed off, like we did in the '70s, but with seat belts.
At one point in the western U.S., with temperatures above 40 C, we were nearly overcome.
Stopping in at a local waterpark, we looked at the burgeoning crowds, and decided that they were just too big - we didn't want to wait in line in the heat of the day, on that sizzling sidewalk.
A stone's throw away, we saw that a local government building had a lush green lawn with a sprinkler system shooting fresh cold water every which way around it. Lightbulb!
Another throwback. No lineup. No entry fee. Perfect.
Ten minutes later we were climbing back into our slow cooker, picking blades of grass out of our hair, and feeling very refreshed.
Whether raising a family or just living life, there are some expenses we can avoid and some we simply can't.
The three big ones I can think of, which we can deliberately plan to reduce are: 1) taxes, 2) debt interest, and 3) vehicle depreciation (and unnecessary vehicle luxuries).
The Tax Free Savings Account (TFSA) is a relatively new idea in Canadian finance, and one that has grown to become a more substantial tax reduction strategy than it was even a few short years ago.
TSFA overview
TFSAs are a type of registered plan, and like all registered plans your contributions grow inside the plan without attracting tax; but the TFSA has some additional flexibility.
Funds can be withdrawn tax-free at any time.
This means they can be used for a wide range of goals - from emergency savings, to renovations and other special purposes, or to supplement your retirement income.
There are also some opportunities to income split to reduce the overall household income tax.
You don't need to have earned income to contribute to a TFSA, although you do need to watch your contribution limits to avoid paying penalties for inadvertently contributing too much.
Income-splitting opportunities, gifts to your spouse
If there is a higher-income spouse and a lower-income spouse in your household, you may be able to benefit from income-splitting using the TFSA.
When a higher-income spouse provides funds to their spouse's TFSA, there is no attribution back to the higher income spouse.
Unlike a non-registered account, the income attribution rules will not apply to the income and capital gains earned in the TFSA.
This may help achieve family income splitting, plus, as the funds in the account accumulate tax-free, there is no impact on any spousal tax credits that the higher-income spouse may be able to claim for the lower-income spouse.
Conventional income-splitting strategies consider the source of the funds being invested to determine the tax consequences.
In contrast, when you gift funds to your spouse to invest in their TFSA, both you and your spouse can earn tax-free investment income, irrespective of which spouse provided the funds.
It is also worth noting that if you have a lower-income spouse who has little or no earned income with which to build registered retirement savings plan (RRSP) contribution room, they may still be able to accumulate some additional retirement savings using their annual TFSA contribution room.
The TFSA contribution room will continue to accrue throughout their lifetime whether or not they have earned income.
More on this next week, but for now, just a reminder that this article is not meant as tax or legal advice.
Readers should consult their own professionals before proceeding with a strategy.
Mark Ryan is an advisor in Prince George with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected] or 250-960-4927.
