Blog

Executive Summary

Dealing with dementia with financial services and investment clients will become increasingly complicated over time. The number of people who are aging, the ever-extending length of their lives, and the activity that they display well into retirement, coupled with the complexity of capital markets and products can produce a difficult situation for many.

The boundaries of the Boomer generation has them aged from 55 to 75 in 2024. Advances in all types of medical diagnostic and treatment regimens has increased the life expectancy well into the 80s for both men and women in Canada and the United States.

The legislation and regulation regarding clients with dementia will continue to evolve, but it squarely falls under the Know Your Client area. As you suggest or receive investment recommendations and choices to or from your clients, you must feel confident that they are capable of making decisions on their behalf.

And as much as Advisors may feel that Compliance can make their lives miserable at times, this is one situation where involving Compliance will be the smartest decision to make. It is paramount that you maintain your clients’ interests above all else and if you embark on this journey too quickly, without guidance, and, frankly, as the friend and trusted advisor who is now discussing potentially personal and emotional issues, the relationship could be irreparably damaged.

Involve a third-party like Compliance, branch or regional management to assist with each case.

If one of your clients displays the following characteristics, it may be time to act.

1. Rapidly forgetting items and details, and the inability to retain new information
2. Difficulty performing familiar tasks
3. Forgetting words or using words out of context
4. Disorientation in time and space by not knowing the day or a familiar place
5. Impaired judgment with the inability to analyze and act on a situation
6. Problems with abstract thinking like telling time or performing mathematics
7. Misplacing items or putting them in unlikely places
8. Severe mood swings from easy-going to anger
9. Changes in personality
10. Loss of initiative and interest in friends, family and favourite activities

If you see several of these activities and conditions in a client, especially when they haven’t been previously present, it is time to act.

Each situation is different since each of us are individuals. But several steps are common to every situation:

• Review the Power of Attorney documentation on file
• If family members are involved, encourage your client to include them in your next meeting or conversation
• Discuss your concerns with your branch or regional management to receive the latest direction from your firm’s legal and compliance departments

The sources of dementia are many; they range from strokes, sleep disorders, nutritional deficiencies, thyroid conditions, Parkinson’s disease, Huntington disease, mental illness and the most discussed cause, Alzheimer’s Disease.

The source of the dementia will determine the appropriate course of treatment, naturally. In nearly every case, as a percentage of the total, the reversal of symptoms is almost always impossible to achieve.

Canada, along with the rest of the G7 countries, has some of the best dementia diagnostic and treatment in the world. As developed nations the life expectancy is consistent, and the incidence of dementia is similar across the seven countries. In 2023 the number of cases is estimated at nearly 14 million, or 30% of all dementia cases worldwide.

Each province and territory has a well-developed system of provincial, regional, and local dementia and Alzheimer’s societies. Each provide educational and support resources for individuals and families.

If your practice is skewing toward older clients, and this is an area of interest to you, volunteer opportunities are plentiful on the fundraising and care dimensions. Special areas have been established in many care facilities where well-mannered and tempered dogs are brought in to provide later stage dementia patients with comfort, for example.

Key Factors to Know

Dementia, whether it is Alzheimer’s or another source, will touch almost every family. Globally almost 50 million people have been diagnosed, with a new case identified every 3 seconds according to the Alzheimer’s Society in the United Kingdom.

The cost of dementia globally is estimated at $818 billion USD for 2015. A significant amount of healthcare resources are being poured into this area since it has a debilitating effect on those directly and indirectly afflicted.

Memory loss and diminished mental abilities, like reduced joint flexibility and endurance, are a normal part of aging. According to the Alzheimer’s Society of Ontario the symptoms typically follow a pattern of increased frequency of forgetfulness, and the forgetfulness of increasingly important and personal details of one’s life.

The Bottom Line

Stay attuned to your client’s personal situation and stay in-contact closely enough to understand if any physical or mental abilities are being impaired.

The best pre-emptive steps are to include multiple generations in your client base and include multiple generations in your discussions for family financial planning. Obtain consent to discuss your client’s situation with their adult children.

And don’t assume that the older generation, who may be losing some mental acuity, and may be experiencing dementia, does not realize this and want assistance.

Executive Summary

The amount deposited into a Tax Free Savings Account (TFSA) is subject to a yearly contribution limit.   For 2024, the annual limit has been set at $7,000.   The lifetime maximum contribution has grown to $95,000.

If an over-contribution is made Canada Revenue Agency will levy penalties.

What You Need to Know

CRA will inform you when an over contribution on the account has been made and request an immediate withdrawal.  Once you have made the correcting withdrawal, you must submit Form RC243 (https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/rc243/rc243-19e.pdf) and its Schedule A (https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/rc243-sch-a/rc243-sch-a-17e.pdf)  to calculate the penalty.

As a rule, CRA charges 1% per month on the excess contribution. The 1% penalty will be charged against the highest amount of excess during a month until the excess amount is withdrawn.  The CRA does not pro-rate this penalty.  If an over-contribution exists at any time during a calendar month, the CRA treats it as an entire month.  If you correct your mistake on the first or second day of the month, you will be penalized the same 1% as you would if you corrected your error on the 31^st.

To make the necessary withdrawal of funds, you will need to contact your financial institution and request the withdrawal be made.

Two common scenarios lead to most over-contribution errors:

• TFSA Management
  • If you have multiple TFSA’s, especially when spread across several financial institutions, it can be difficult to correctly track all of your contributions. This becomes more difficult as time passes and the balances in each TFSA reflect its current market value, not the sum of its contributions.
• Withdrawal Management
  • TFSA withdrawals are tax-free and, unlike RRSPs, your contribution room never goes away. However, the contribution room is not returned to you until the following calendar year begins.  If you have contributed your maximum lifetime amount to your TFSA you must wait until the following January before contributing to your TFSA or incur the wrath and penalties of the CRA.

The Bottom Line

TFSAs are relatively simple but require some fundamental monitoring.  Proper planning with this tax-saving advice can also avoid penalties.

Executive Summary

A financial plan is like a roadmap to achieving the financial future you envision. It starts by identifying where you are financially and provides directions for getting to where you want to go. There are many areas that make up your finances: your assets and liabilities, investment portfolio, cash flow, tax situation, retirement income, insurance and estate plan (or lack thereof).

Your lifestyle also plays a role. For a financial plan to be effective, each one of these areas must be addressed in a coordinated way to provide a personalized, comprehensive financial solution.

What You Need To Know

As with any goal or strategy, a financial plan must have objectives. How do you see yourself five, ten or 20+ years in the future? After determining your current financial state in the areas mentioned above, you will need to establish a clear vision to start creating and implementing a plan. This includes what your retirement lifestyle will be, because only then can you determine needs for investments and income. If you have children, it may also include funding for their education or other endeavors.

Once you’ve clarified your current financial situation and understand your vision for the future, calculations can then be made to determine how your assets need to grow to reach those goals. This will determine the investment plan that you’ll need to produce the necessary returns from your assets.

A comprehensive financial plan must also consider the tax ramifications of your finances and identify strategies to minimize your tax liabilities. Additionally, your financial plan should mitigate risk and protect your wealth using tools such as insurance products. The use of insurance can also be beneficial in your estate plan, as there are ways to minimize taxation and maximize the wealth of your estate.

If all this sounds a bit complex or outside of your comfort zone, consider working with a financial advisor. Find someone who understands the implications that each area of your financial plan has on achieving the goals you’ve set. He or she may need to liaise with other professionals, such as your lawyer or accountant, to do a complete and thorough job.

Bottom Line

A proper financial plan is more than managing your investments, creating tax minimization strategies or planning for your retirement. It is all these things plus others, including risk management (insurance) and estate planning.

A comprehensive financial plan requires the coordination of all these areas to maximize the wealth potential from your current financial situation. It begins with setting clear financial goals and working through all the aforementioned areas. This is generally best done by working with a capable financial advisor, as all these areas must be addressed in a coordinated way to create an effective, holistic financial plan.

Book an appointment with us to get started on your financial plan today!  CLICK HERE

Executive Summary

Investing today, whether for the short-term, long-term or in-retirement, can be complicated. An Advisor can guide you but there are many terms that investors should know in order to best understand the direction, recommendations and outcomes of their investments.

The following is a glossary of terms to help you understand some of the jargon and technical terms you have heard, and will likely hear again.  Please use it as a reference tool.

Investment Terms

1. Rate of Return: gain or loss of an investment expressed as a percentage of the invested capital and is calculated on an entire investment portfolio to determine performance. Planning your Rate of Return to match financial goals and your risk/reward profile is a necessary step to successful investment planning.
2. Asset Allocation is an investment strategy that balances Risk and Return by placing investments inside an investment portfolio into different Asset Classes like equities/stocks, fixed income, and cash. Each class has its own characteristics and can contribute more to the total as proportions increase. Asset allocation helps manage risks and rewards to meet your financial needs.
3. Equities is a broad term used to describe ‘stocks’ or shares of a company. Most owners of shares believe they own shares, but, in fact, they own the company. In the case of publicly traded companies people investing for retirement own a very small percentage of the company, but they are the owners.
4. Fixed Income is a category of investments that generate interest at a predictable, stable amount. Fixed income instruments inside a portfolio are often meant to be the safest investments. In the case of GICs, the balance is guaranteed by insurance and the interest payments typically have a very strong track record of occurring.
5. Cash and Cash-like instruments are highly liquid investments. These investments can take advantage of market opportunities, and accommodate short-term unexpected personal expenditures without forcing the sale of an investment at an inopportune time.
6. Capital Gains: Increase (or loss) in the value of a security at the time it is sold versus its cost when purchased. Since capital gains are taxed in Canada at a lower rate than interest income, depending on the province or territory, the highest marginal tax rate for capital gains is approximately 25%.
7. Interest Income: Payments made to the owner of capital for the use of that capital and is calculated by multiplying the capital amount by the interest rate being paid for a particular period of time. Example – a $10,000, one-year annual-pay GIC paying 1.5% generates $150 of interest income each year, and would be paid on the anniversary date.
8. Dividends: Payments made monthly, quarterly, semi-annually or annually to the “owner of record” of a share of a company. The dividend yield is calculated by dividing the expected dividend for the next year by the current share price.
9. Basis Points a single basis point is one-one hundredth (1/100^th) of a percentage point (1%) or 0.0001. Mathematically, a basis point is equal to one ten-thousandth.  Basis Points are used to express very small changes in numbers like percentages or the value of the Canadian dollar compared to the US dollar, for example.
10. Volatility: the reaction of an investment to changes in the overall market. In other words, if the market goes up by 10%, will the stock react more, less or the same. Volatility is called ‘Beta.’ An investment’s Beta expresses how it reacts relative to the market, meaning the stock market in total.
11. Diversification is a way to mitigate risk by placing investments in different kinds of investments (see Asset Allocation above) and by placing investments within an asset class in different industries, sectors, countries, etc. Diversification is a method used to manage risk by not having all of your eggs in one basket. If a country or an industry or a single company has a bad day, month or year your entire portfolio will have a measure of protection by being spread around.

The Bottom Line

We are here to help guide and advise you through the sometimes complicated world of finances and investments. To best understand our recommendations and their implications it is important for you to understand investment terminology. Keep this filed away as a tool for your reference or contact us for assistance or clarification anytime.

Introduction:

Life is a rollercoaster, and as it takes unexpected twists and turns, our financial situations evolve with it. As a responsible investor, staying connected with your financial advisor is essential. By keeping them up-to-date on changes in your life, such as income fluctuations, marital status, or the arrival of a new family member, you empower them to tailor your financial strategy to meet your evolving needs. In this blog post, we’ll explore the vital importance of maintaining open lines of communication with your advisor and how it can lead you to long-term financial success.

“The Secret Sauce to Financial Bliss:  Honesty and Communication!”

The Power of Honesty:  Trust and transparency are the bedrock of any successful relationship, including the one you have with your financial advisor. Being honest about changes in your life allows your advisor to accurately assess your financial situation and make informed decisions. Whether it’s a raise or a pay cut, updating your advisor about your income can help optimize your investment strategy and maximize returns.

“The Butterfly Effect:  How Life Changes Impact Your Finances”

Navigating Major Life Events:  Life is full of milestones that can significantly impact your financial landscape. When you tie the knot, welcome a child, or experience other major life changes, it’s crucial to inform your advisor promptly. Marriage may require updating beneficiary designations and insurance coverage, while a new addition to the family may lead to college savings planning. By sharing these developments, you empower your advisor to adapt your financial plan accordingly, ensuring a solid foundation for the future.

“Baby on Board:  Secure Your Child’s Financial Future!”

Preparing for the Future:  Your financial advisor is your guide through life’s financial journey, and as your circumstances evolve, so should your investment strategy. Regularly updating your advisor about significant life changes enables them to align your portfolio with your long-term goals. Whether it’s retirement planning, estate management, or funding your child’s education, your advisor can help you take proactive steps to secure a prosperous future.

“From Success to Significance:  Empower Your Advisor to Help You Make a Difference”

Philanthropy and Legacy Planning:  If making a positive impact on society is a priority, discussing your philanthropic goals with your advisor is essential. By sharing your desires to support charitable causes or leave a legacy, your advisor can integrate philanthropy into your financial plan. Together, you can develop strategies such as donor-advised funds or charitable trusts that align with your values and make a lasting difference.

Conclusion:

Regularly updating your financial advisor about changes in your life isn’t just a courtesy—it’s a proactive step toward achieving your financial goals. By fostering open lines of communication, you provide your advisor with the information necessary to tailor your investment strategy, navigate major life events, and secure your financial future. Remember, your advisor is your trusted partner in building wealth, so keep them in the loop, and together, you can pave the way to long-term financial success.

Let’s dive right in on a powerful savings strategy that can make a significant impact on your financial well-being: automated contributions. By leveraging technology and setting up automatic contributions, you can effortlessly save money and build a stronger financial future. Let’s explore how this simple habit can pave the way to financial success.

“Set It and Forget It: Automate Your Savings for Stress-Free Financial Growth!”

The Power of Automation: Life can get busy, and amidst the hustle and bustle, saving money often takes a backseat. However, by automating your savings, you can remove the mental burden of manual transfers and make consistent progress towards your financial goals. Setting up automatic contributions ensures that a portion of your income is saved without requiring any active effort from you.

“Make Savings a Priority: Pay Yourself First!”

Pay Yourself First: One of the fundamental principles of successful saving is to prioritize yourself. Instead of saving what’s left at the end of the month, make it a habit to save first. When you receive your paycheck, allocate a predetermined percentage or fixed amount towards savings and have it automatically transferred to your investments. This way, you ensure that your future self is taken care of before other expenses arise.

“Small Steps, Big Impact: Watch Your Savings Grow!”

The Magic of Compound Interest: Automating your savings not only instills discipline but also allows you to take advantage of the power of compound interest. Over time, even small contributions can grow exponentially as interest compounds on your savings. By consistently funneling money into your investment, you can harness the magic of compound interest and watch your wealth grow steadily.

“Incremental Increases: Boost Your Savings Effortlessly!”

Incremental Increases: As your income grows or expenses decrease, consider increasing the amount you automatically contribute to your investments. Gradually bumping up your savings rate can be painless, as it adapts to your financial circumstances without disrupting your lifestyle significantly. Aim to periodically review and adjust your automated contributions to ensure they align with your financial goals and aspirations.

Conclusion:

Automating your savings is a game-changer when it comes to achieving financial success. By making consistent contributions to your investments without the need for constant monitoring, you can build a solid financial foundation. Remember, every small step you take today will lead to a brighter financial future tomorrow. So, set up those automated contributions, pay yourself first, and enjoy the peace of mind that comes with knowing your savings are on the right track. Happy saving!

Executive Summary

Tax season is hardly anyone’s favourite time of year.  What can make it even worse is seeing a negative balance on your tax account and having to pay extra income tax to the CRA.  Simply being aware of a few tax planning strategies can help ensure that you don’t get hit hard when tax season rolls around.

What You Need to Know

1. RRSP Contributions – Contributions to an RRSP are deductible against your income tax, which can result in either a deduction in your taxes or even a refund.   RRSP contributions are reported on line 208 of your T1 General Tax Return. The financial institution that holds your investment will issue your tax receipts.  Contributions from March-December 2023 will be taxed on your 2023 return, but any contributions made between Jan 1, 2024- Feb 29, 2024 can be taxed on either your 2023 or 2024 return.  Taxpayers can contribute up to 18% of their income every year to their RRSP.

2. Capital Gains/Losses – Many people are aware that any capital gains on their investments must be reported on their tax return; however, you can also report your capital losses.  Capital losses can offset capital gains on your tax return, therefore lowering your tax bill.   While there are a few exceptions, capital losses can generally be carried forward indefinitely and carried back three years.

3. Carrying Charges – If you earned investment income last year, the CRA would allow you to claim carrying charges against certain types of income.  There can be some gray areas with carrying charges, it is always best to check with a tax professional regarding what can and cannot be claimed. Types of charges can include:

• • Investment fees and fees for looking after your investments.
  • You may be able to claim fees involved with obtaining financial advice.
  • Fees paid to an accountant.
  • Any interest paid for a policy loan that was used to earn income.
  • Legal fees involved in getting support payments that your current or ex-spouse will have to pay to you.

4. Changing Tax Rules – Last but not least, the best way to make the most of your taxes is to keep up with the ever-changing tax rules.  New deductions and credits are being added all the time though they may not be widely advertised.  Taking some time to find out what’s new this year might present you with a tax-saving opportunity you may not have otherwise known about.

Executive Summary

The question of reducing debt or contributing to savings will continue to be debated for as long as people plan to retire in Canada.

Of course opting for both: reducing debt and increasing savings is the ideal. As for which is better, however, really depends on the individuals involved, their goals and feelings and their unique financial situations.

If you find you just can’t decide whether to save or pay off, start by contributing to a TFSA; those deposits can easily be withdrawn and applied to your mortgage.

What you need to know

Tax implications are not a consideration.  Mortgages and TFSAs both deal with after-tax dollars.  Any additional payments against your mortgage or sent to your TFSA will be after you have paid income tax, and there is no reduction in taxable income for making contributions to a TFSA.  Also, when the capital gain from the home (assuming it’s your principal residence) and any growth and withdrawals from your TFSA will not be subject to income tax.

To simplify the matter, the question becomes ‘can I earn more inside my TFSA than I pay in mortgage interest?”  If your mortgage interest is 4% per annum, paying down your mortgage by $10,000 will save you $400 in interest charges each year.  Placing the same $10,000 in your TFSA earning 4% per annum will earn you $400 each year.

One difference is that next year the original $10,000 will be $10,400 and at the end of year two at 4% become $10,816 with compound interest.

For some people becoming debt-free as soon as possible buys peace of mind and freedom, for others a nest-egg and the security and flexibility it provides is more important.

Bottom Line

If you find yourself torn between building a nest-egg and paying off your mortgage, we encourage you to get in touch to set up a short conversation where we discuss your goals, crunch some numbers and find the perfect solution for you.

A Tax-Free Savings Account, more commonly known as a TFSA, is a savings that can hold cash as well as investments.  The TFSA was introduced to Canadians in 2009 as a tax-free account that could. Any Canadian over the age of 18 who has a SIN number can open a TFSA.

How a TFSA Works

The TFSA is easy to understand since it works similarly to a “regular” savings account, and like an RRSP, but with a few important differences.

Firstly, there are deposit limits. The allowable, annual TFSA contribution is determined by CRA.  Canadians begin building contribution room at age 18 and “room” accumulates until it is used.  That is, if you have never contributed to a TFSA, you can catch-up by contributing the total “room” that you have accumulated since age 18.  The lifetime limit as of 2024 is $95,000.

Secondly, the TFSA can hold investments such as stocks, bonds, mutual funds, and GICs, like an RRSP.  Many TFSAs hold only cash, because many investors opened these accounts without understanding all of their potential benefits.

Thirdly, income inside a TFSA is exempt from income tax.  A TFSA can earn interest, dividends, or capital gains without limitation, and without a tax bill.  TFSA withdrawals are not subject withholding or income tax to the account owner.

Lastly, in the year following a withdrawal the contribution room is recouped.  For example, if a withdrawal of $14,000 is made on February 3, 2024, on January 1, 2025, an additional $14,000 of contribution room is available to the account owner in addition to CRA’s annual limit for 2025.

TFSAs are as easy to open as a bank account and require no additional effort when filing annual income taxes and can deliver significant financial benefits.  A married couple with $190,000 in their TFSAs, collectively, earning 5% annually with a marginal tax rate of 50% would save $4,750 each and every year in income tax.  In this example, each year they earn $9,500 tax free.

Advantages

TFSAs are suitable for both short- and long-term investing goals due to the ease of withdrawals. The main advantage of a TFSA is that it allows investors to benefit from tax-free growth of their investment.  This is an invaluable tool that investors have available to them to grow their wealth.  While there are no immediate tax breaks to contribute to the TFSA, investors will benefit over time from tax free growth and withdrawals from the account and recouping of “contribution room”.

Limitations

Annual contribution amounts are the same for everyone age 18 and above.  Over-contributing earns a penalty of 1% per month on the amount in excess of your lifetime limit until it is resolved.  More than one TFSA can be owned, and they can be owned at different financial institutions.  It is simplest to track your lifetime contributions when you own only one TFSA or confine them to one institution.

Understanding Contribution Limits

The contribution limit for 2024 has been raised to $7,000 from $6,500 in 2023, and the lifetime contribution limit has reached $95,000.

Time Frame (# of years) x Annual Contribution Limit = Total

2009 – 2012 (4) x $5,000 = $20,000

2013 – 2014 (2) x $5,500 = $11,000

2015 (1) x $10,000 = $10,000

2016 – 2018 (3) x $5,500 = $16,500

2019 – 2022 (4) x $6,000 = $24,000

2023 (1) x $6,500 = $6,500

2024 (1) x $7,000 = $ 7,000

Lifetime Contribution Limit $95,000

The annual limits are set in increments of $500 by the CRA based on the rate of inflation.  It is not uncommon for the limit to stay the same from year to year as it did from 2009 to 2012.   Each person over the age of 18 in Canada is subject to the same contribution limits, regardless of income.

An individual gains the full amount for the year that they turn 18, and contribution room is not pro-rated.  The owner must be a resident of Canada for the entire year, and contributions must be made under a valid Social Insurance Number.

Contribution room can be carried forward indefinitely from years when it is not used.  Also, the withdrawal amount from your TFSA is added back to your TFSA contribution limit in the following calendar year, so you can recontribute the amount you withdrew once a new year begins, or if you have available contribution room.

The Bottom Line

Tax Free Savings Accounts are one of the most effective financial tools available to Canadians and should be viewed as much more than just a simple savings account.  TFSAs provide significant investing opportunities and tax advantages that can help you reach your financial goals faster.

Additional details can be found HERE.

If you’re retired, or soon to be, you’re likely a Canadian baby-boomer.  You are seeking more information about your retirement beyond merely finances, and advisors are uniquely positioned to provide you with additional retirement insight and planning.

Currently, Canadians aged 65 years old, can expect to live an additional 22 to 24 years, on average.  Not only are people living longer, they are leading more active retirements.  Achieving success in retirement no longer requires the bills to be paid, and to sit at home awaiting the arrival of the grim-reaper!

To gain access to the investable assets today, and manage them into retirement, advisors should examine their clients in a broader, more complete perspective.

What you need to know

The Bottom Line

Without planning that includes more elements than just finances, retirement and the years leading up to it can be anxiety laden.  The period that should be relatively carefree will be the opposite.

Financial planning is a critical element of all retirement plans, but an analysis that focuses solely on money will not prepare you for a successful retirement.  Additional items like those mentioned above must also be addressed.

Investments can deliver a major source of income and tax implications for individuals.  Each major type of investment income is subject to special tax treatment.

Understanding how your investments are taxed is an important consideration for investment planning since after-tax yield is more important than gross returns.  The most common types of income most investors will receive are interest, dividends, and capital gains.

Inside a registered account, like an RRSP or TFSA, these earnings are not taxed.  The total withdrawal from an RRSP is subject to income tax, while TFSA withdrawals are not.  For investment income that is subject to tax when it is earned, the effective income tax rate can vary widely for an individual.

What You Need to Know

Interest Income

Interest income refers to the compensation an individual receives from making funds available to another party. Interest income is earned most commonly on fixed income securities, such as bonds and Guaranteed Income Certificates (GIC).  It is taxed at your marginal tax rate without any preferential tax treatment and is taxed annually whether or not it has been withdrawn from the investment.

Example:

An investor buys a 10-year GIC that has agreed to pay him 4% annually.  If the investor bought the GIC for $100, the contract stipulates that they will earn $4 of interest each year for the next 10 years.  The investor must report the $4 of interest income on their income tax return each of those 10 years.

Since interest income is reported as regular income, like employment income, it is the least favourable way to earn investment income if it is subject to income tax.  Typically, GICs offer relatively less risk than other investments to compensate for lower gross and after-tax returns.

Dividend Income

Dividend income is considered property income.  A dividend is generally a distribution of corporate profit that has been divided among the corporation’s shareholders.  The Canadian government gives preferential tax treatment to Canadian Controlled Public Corporations (CCPC) in the form of a dividend income gross up and Dividend Tax Credit (DTC).

Taxpayers who receive eligible dividends are subject to a 38% dividend income gross up, which is then offset by a federal DTC worth 15.02% of the total grossed up amount.

Example:

 A shareholder of a Canadian Controlled Public Corporation is paid a dividend of $100.  This income is an eligible dividend and is subject to the gross up and the DTC.  The dividend would be grossed up 38%, so the income is now considered to be $138.   The DTC would be 15.02% of $138, the grossed-up amount, equaling $20.73.  Therefore, the shareholder would report a dividend income of $138, but would have their federal taxes reduced by $20.73. 

The rationale for the gross up and DTC is related to the fact that dividends are paid in after-tax corporate earnings.  If there were no adjustments to the dividend, it would result in the dollars being double taxed.   This tax treatment makes dividends a more tax efficient way to receive income than interest income. Tax is payable when the dividends are paid out.

Different rules apply for dividends derived from non-Canadian and private corporations and can offer different tax treatment and advantages when professional tax expertise is employed.

Capital Gains

Capital gains are realized on equity investments (such as stocks) that appreciate.  For example, if an investor bought a stock at $6 per share and sold at $10 per share, they would have earned a capital gain of $4.  In Canada, only 50% of a capital gain is subject to income tax.  In this example only $2 of the gain would be taxed.  Another desirable trait of capital gains income is that tax is not due until the investment is sold or deemed to have been sold.  This provides the investor with a measure of control over the timing of taxes.  Whether or not they are the most tax efficient income depends on your province of residence and subsequent tax rates.

The Bottom Line

It is important to ensure that investors understand their tax situation and the implications that different types of investment income can have on future taxes.

Financial, retirement and income planning should include the anticipated tax obligations at both the federal and provincial level.  Ensuring an investor’s expert advisors understand overall objectives, risk tolerance and retirement timing can allow them to maximize after tax returns.

“How One Advisor Doubled His Book in Six Years”

An article featuring our very own, Corey Butler, CIO – Chief Investment Officer, Wealth Advisor, Ecivda Financial Planning Boutique.

by: BMO Mutual Funds HQ

Corey Butler began his career as a bricklayer, where he learned the value of building a solid foundation. Now a successful Wealth Advisor and Chief Investment Officer at Ecivda Financial Planning Boutique, Butler shares the secrets that have allowed his advisory practice to more than double its assets under management in only six years, and why he sees the BMO Strategic Equity Yield Fund as an important building block for client portfolios.

Click HERE to read the full article!

#ECIVDA #ThinkForward #planningrighttoleft #BMO #BMOglobalassetmanagement

Executive Summary

Receiving a raise or a bonus is a great accomplishment that lends a feeling of accomplishment and celebration. Many of us opt to use the bonus to buy something we’ve been wanting, like that flat screen television, for example. Rather than splurge, however, why not hold onto that bonus or raise and invest in wisely?

Saving a Raise

If you are not already on a pre-authorized contribution (PAC) to a savings or registered account, now is a great time to do so. Each pay, or each month, have a predetermined amount removed from your bank account and placed into savings. Once the funds are in a savings account (and removed from quick and easy debit card access), they can be used for several purposes:

Pay down debt:

• • Especially high-interest consumer debt like credit cards
  • Pay off your mortgage sooner: Save money for the future by increasing the mortgage payments above the minimum amount or increasing the payment frequency (bi-weekly instead of monthly)

Maximize the use of a “Registered” account:

• • Place the pay increase directly into a registered account like an RRSP to increase savings

In most cases a blended approach is best. Paying down debt alone doesn’t afford you the opportunity to amass a small, liquid, emergency nest-egg to cover unexpected expenses.

Saving a Bonus

Unlike a raise that should affect all future earning and raises that follow, the one-time bump on a bonus can disappear as mysteriously as it arrived. Rather than spend your bonus on a one-time, self-gratification, why not use it to strengthen your financial future?

Pay down debt:

As explained above, the pre-tax earnings required to pay post-tax debt can be significant. A large, one-time bonus can significantly affect the short and long-term savings of your family.

• • Paying off a large portion of your mortgage: a reduced balance causes each subsequent mortgage payment to have a larger portion dedicated to reducing the principal

Maximize the use of “Registered” accounts:

• • Place the bonus (or part thereof) directly into a registered account like an RRSP to increase savings

Often you may feel that as if your raise or bonus didn’t actually happen. You earn more, but don’t enjoy any of the benefits. A small celebration allows you to acknowledge and move forward. The celebration could take many forms, but it is best if it is unusual and distinctive.

Bottom Line

Getting a raise or bonus is an impressive accomplishment. Often, you may feel like you didn’t even get a raise which is why it is important to commemorate your accomplishment with a small celebration. Take some of that money and treat your family to dinner, go to the spa or celebrate however you see fit. Then, contact your Advisor for assistance to determine how to best utilize the extra funds.

Prioritizing debt is an important skill to learn because it determines how fast you will pay down your debts. Debts have varying payback plans that will require you to place them on a scale to decide which should go first. Obviously, the interest rate is an important factor to consider when prioritizing your debt. It is advisable to have a strategy for paying your debts so that your other financial goals can be met. Debts are known to affect the attainment of one’s financial goals. There are a few strategies you can try that can help you prioritize your debts for easy payment. Some of these strategies include starting with the debt with the highest interest rate; starting with the least balance; starting with the highest balance; and consolidating your debts.

Starting with The Debt with Highest Interest Rate

This is known as debt avalanche. It entails you starting off paying the debt with the highest interest rate to the least. Debts with high-interest rates are always difficult to pay because of the accumulation of the interests. Getting it off your books first will save you money and help you focus on paying off other debts and financial goals. Picture an avalanche and imagine your debt tumbling down quickly. That is how this strategy works.

Starting with The Debt with the Least Balance

This strategy is good for gaining momentum. It is known as the snowball debt repayment strategy, and it is more motivational than strategic. If you are finding it difficult to figure out how to pay your debt, start from the lowest and gradually work your way up. Another advantage is that it gives you that little bit of extra cash to tackle your big debts. This strategy also comes in handy where you feel you cannot adopt the previous strategy. Start with the least balance.

Starting with Your Largest Balance

This is the opposite of snowball strategy. This strategy prioritizes the debt with the largest balance, and it is an unpopular strategy because it may be difficult to achieve. The question is why will I start with my highest debt? It may not give room for other financial goals because all your resources will be channeled towards paying off that debt. However, there are cases where you may opt for this type of strategy. An example is when that particular debt has a promotion of a reduced interest rate, and you need to pay it off before the promotion ends.

Consolidating Your Debts

This is usually what you resort to when it is taking too long to pay your debts, or the interest rates are making it difficult to get it off your books. When you consolidate your debts, it gives you the opportunity of paying all your debts at once. You can take a loan to pay for your consolidated debts which then leaves you with the repayment of that loan only. For example, you can consolidate all your credit card debts and pay them off with a balance transfer credit card. This strategy is particularly effective when you have multiple debts that are hindering you from achieving your financial goals.

Cash value is a type of life insurance policy that lasts for the lifetime of the policyholder. This type of life insurance also has a cash value savings component that the policyholder can use for different purposes such as loans or cash to pay policy premiums. Some other distinctive features of a cash value life insurance are that it is known to be more expensive than term life insurance and does not expire after a number of years. To simplify further, the cash value is the sum of money that accumulates in a cash-generating permanent life insurance policy or annuity which is held in your bank account. Your insurance provider allocates some of the money you pay as premiums to investments portfolios such as stocks and bonds and then credits your policy based on the performance of those investments.

How Does Cash Value Work?

Cash value is a type of permanent life insurance that provides insurance cover for the policyholder’s life. Most cash-value life insurance policies require a fixed-level premium payment. A part of it is allocated to the cost of insurance and the remaining is deposited into a cash-value account and invested in different financial investment portfolios. It earns a tax-deferred modest rate of interest. This ensures that the cash value of your life insurance increases steadily over time. The implication of this is that as the cash value increases, the risk of the insurance provider decreases because the accumulated cash value offsets part of the insurance provider’s liability. You can also use the earnings to increase the death benefits in your policy or other living benefits, depending on your preference. Bear in mind that as you make withdrawals from the cash value in your insurance policy, the death benefit will also reduce.

Example

Assume you have a life insurance policy with a $35,000 death benefit with no outstanding loan or prior cash withdrawals. The accumulated cash value of the policy is $10,000. Upon your demise, the insurance provider will pay the full death benefit of $35,000 but the money accumulated into the cash value becomes the property of the insurer. The implication of this is that because of the cash value of $10,000, the real liability cost of the insurance provider is $25,000. This is calculated by subtracting the death benefit from the accumulated cash value ($35,000 – $10,000).

Types of Cash Value Life Insurance

Cash value insurance is usually used to augment your life insurance policy. However, you need to understand how it works for each type of life insurance policy.

Whole Life Insurance

If you have a whole life insurance policy, having a cash value policy will augment your life insurance policy. When you take a cash value insurance policy, your premium stays the same for the rest of your life. A small percentage of your premium is diverted into a savings account to accumulate interest. The rate of interest returns varies depending on the insurance provider, but it is known to hover around 2%. You have access to the funds in the savings account during your lifetime.   

Variable Life Insurance

This is slightly different from the whole life insurance policy. With this policy, you can determine how your accumulated cash is invested. You have the opportunity to invest the small portion diverted from your premium into investment portfolios such as bonds and stocks. This requires a good knowledge of the investment market. Variable cash value life insurance has a higher premium than the whole and universal cash value life insurance.    

Universal Life Insurance

Under universal life insurance, you have a bit of control over what you pay as your premium. For example, you can pay more than you usually pay for a premium and you can divert the surplus into your savings account. The advantage of this type of policy is that if you cannot meet up with the premium payment in a particular month, you can use the money in your savings account to pay your monthly premium. There are three types of Universal Life Insurance: Guaranteed Universal Life Insurance, Variable Universal Life Insurance, and Indexed Universal Insurance.

Advantages of Cash Value Life Insurance Policy

• You can earn interest on a cash value savings account
• You can overpay on your premium and divert more money into your cash value account
• You can spend from your cash value account while you are alive
• You can earn returns on a cash value investment account

Disadvantages of Cash Value Life Insurance Policy

• Your returns are capped at a certain amount
• If you remove money from your cash-value account, your death benefit decreases
• You have to pay fees associated with your cash-value account

Tax Advantages

There are various tax benefits you and your beneficiaries enjoy with a cash value insurance policy. One of the benefits is that your beneficiaries can receive your death benefits tax-free. This is an advantage your beneficiaries get to enjoy with your cash value life insurance policy. Another tax advantage is that the earnings on your invested accumulated cash value are tax-deferred. Therefore, as your cash value grows, you do not need to worry about the CRA deducting from your earnings. One of the things you can use your accumulated cash value for is collateral for loans. When you borrow money against your policy, you do not have to worry about paying taxes on the loan as long as the policy is still active. However, if you withdraw your accumulated cash value or take the surrender value and terminate the policy, you may be taxed on the portion of the money that came from interest or investment gains on your invested cash value.  You should understand the tax rules before making withdrawals from your cash value policy.

Bottom Line

There are other minor considerations and questions you may have when considering this approach. Talk to us about your options.

Executive Summary

Diversification is a concept that many investors understand on some level.  It makes sense to not put all your eggs in one basket, but diversification is more than just investing in more than one fund or stock.  Diversification is the basis of modern portfolio theory, and it is an essential risk management tactic that every investor should be utilizing. Here’s how it works:

Correlation

The measure of correlation indicates how closely two assets follow together when the markets go up and down. The scale of correlation goes from -1 to 1, with -1 being a perfect inverse correlation and 1 being a perfect correlation.   For example, Oil Company A and Oil Company B will both fall if oil prices fall, and they will both rise if oil prices rise.  Therefore, they have a perfect correlation.  Conversely, when Oil Company A rises, Automobile Company A will fall.  This indicates an inverse correlation.  If one company’s rise and fall does not affect another company, then they have a correlation of 0.

The key to diversification is having varying degrees of correlations so that your portfolio is getting the most out of the market, while offsetting losses. 

Asset Allocation

Picking a group of stocks that have varying degrees of correlation is a good place to start, but to truly diversify one must take on a variety of different assets.  This is where assets allocation comes into play. Determined by risk tolerance and time horizon, holding a variety of different asset classes is the best way to curb volatility in your portfolio.   Asset classes include stocks, bonds, commodities, mutual funds, real estate trusts… to name a few.  Each asset class brings different risks to the table, so it is important to make sure you are thoughtfully choosing investments that complement one another and work well together.

Overdiversification

Too much of a good thing isn’t a good thing at all, and that is especially true when it comes to diversification.   It is possible to hold too many different investments that correlate in too many different ways. This might diversify the risk out of your portfolio, and it may stop you from making any gains.   It is important to work with a wealth professional who can help you pick an appropriate amount of investment holdings while still utilizing an appropriate asset allocation so that you stay on track.

The Bottom Line

Understanding that you need to diversify your portfolio is not always enough as it can be a bit more intricate than it seems.  We can help you understand how your investments work together to optimize your portfolio.

Executive Summary

Business owners regularly face complex retirement planning and insurance needs. It is not uncommon for business owners to have a large amount of their wealth tied up in their corporation.  This can create a complex need for both insurance coverage to protect that wealth and the flexibility to use that wealth.  The Corporate Retirement Strategy was developed to address both of those needs.  This strategy can provide insurance protection and a flexible income stream in the future.

Below are the basics of how this particular strategy can work for a business.

What You Need to Know

The Corporate Retirement Strategy has two key components.

The first of which is a permanent life insurance policy.

The idea is that the corporation will purchase a permanent life insurance policy on the business owner to provide them with the insurance coverage needed to protect the company assets.  On top of the monthly insurance premium, the business would direct any surplus earnings into the permanent life insurance policy. These surplus funds would build up significant amounts of tax-advantaged cash value within the policy. This policy serves a dual purpose.  The insurance provides much needed protection for the company all the while accumulating funds that could be used by the business owner in the future.

The second component to this strategy is utilizing the funds that the insurance policy has accumulated. 

The corporation may be able to pledge the policy as collateral in exchange for a tax-free loan from a lending institution.  The corporation could then use these loaned funds to supplement a shareholder’s retirement and the loan would be repaid by the life insurance policy when the insured dies.  On death, a portion or all of the life insurance proceeds are used to pay off your loan. Even though the benefit was used to pay off the loan, the corporation may still post the death benefit amount to its Capital Dividend Account.

This strategy may be good for any shareholder or key person of a Canadian Controlled Private Corporation who has a successful business with either excess income or a large corporate surplus.  With proper planning this strategy can help reduce taxes, supplement retirement, and provide insurance protection fort the company.

The Bottom Line

While this strategy may work for some business owners, it is not the right fit for every corporation.  It is important that the strategy is executed carefully to be successful and fulfill its intended purpose.  It may be prudent to work with a tax professional, your insurance advisor, financial planner, and the lending institution to ensure that your corporation will benefit from the Corporate Retirement Strategy.

The very nature of debt implies that there is nothing good about it. No debt is good debt. However, taking debt is almost the only way most people can stay afloat. What differentiates a good debt from bad debt is the purpose of the loan. While some loans are a necessary evil, some unnecessary debts drag one into a financial abyss that may be difficult to climb out of.

What Is Good Debt?

Good debts are generally referred to as future investments that will appreciate in due time. The phrase ‘it takes money to make more money’ comes to mind. There are loans you may need to take to generate more income and build your net worth. Such loans are justified because they are needed investments for a future reward. Paying such loans back is not usually a problem because you would have used it to make double the loan. Examples of good debts include student loans, business loans, and mortgages.

However, there is an inherent risk in taking a ‘good debt’. As was mentioned earlier, debts are generally an inconvenience on one’s financial plan, so there is always that inherent risk when taking a loan even when it is supposedly going to build your wealth and increase your net worth in the future. When you take a loan for investment, there are a lot of assumptions involved. Nothing is certain; you may not get the return you hope for but what’s life without risk. This is why it is always advisable to be conservative about your projections. In other words, when taking a loan, always consider when the return will start coming in and what will be the amount of returns you will be expecting. Juxtapose it with the loan you are taking and ask yourself if it is worth it. When it comes to debts, there are no guarantees, even for good debts, the purpose of the loan is all that matters.

What Is Bad Debt?

Debt is said to be bad when you are borrowing to purchase a depreciating asset or an asset you do not need. Borrowing money to acquire a want and not a need is usually ill-advised. Financial advisers will say if the money will not increase in value or generate more money for you, then don’t borrow. Borrowing money to purchase a depreciating asset will only put you in more debt. The risks in a bad debt are visible as day. Examples of bad debt include car loans, credit card loans for shopping, football tickets, etc…

Other Debts

There are other types of debt that do not fall within the category of good or bad debt. These are debts that are relative to everyone’s financial capacity at the time of taking the debt. These types of debts may be good for one person and bad for the other. Someone with enough financial cushion may afford to take further loans to pay off his other debts or invest in more portfolios compared to someone already drowning in debt.

Debt Choices

As discussed, be it a good or bad debt, the reality is that it is still a debt, and you must pay it back. In deciding what type of debt to take, you must consider the type and purpose of the debt. This will help you determine whether a debt is truly worth it. Are you investing in your future or satisfying your wants? That question will help you in deciding whether to take the loan or not.

A capital gain can be defined as an increase in the value of an asset (stocks, shares, etc.) from its original cost price.

There are two forms of capital gain:

Realized capital gain: You have a realized gain when you sell an asset for a higher price than you bought it.

Unrealized capital gain: This occurs when there is an increment in the value of your asset, but you haven’t sold it.

Therefore, you only ‘realize’ a capital gain once you sell that particular asset that has increased in value. However, you must know that a realized capital gain isn’t just yours to possess, and the government takes a cut from it by way of tax.

How is Capital Gain Taxed in Canada?

Capital gain gets taxed at a rate of 50% in Canada. Once you realize a capital gain, you’ll need to add 50% of the capital gain to your revenue. This means the portion of extra tax you pay will differ depending on how much you’re earning and what other sources of earnings you possess.

The only way you can have a capital gain without being taxed on it by the government is if your investments are registered in tax-sheltered plans like Registered Retirement Savings Plan (RRSP), Registered Retirement Plan (RPP) or Registered Education Savings Plan (RESP).

Apart from these plans, your capital gain will be taxed. You must know how to calculate said capital gain tax.

How To Calculate Capital Gain Tax?

Before effectively calculating your capital gain tax, you must know some significant amounts. They are:

Adjusted Cost Base (ACB): The price of an investment, including any costs related to obtaining the capital property.

Dividends of Disposition: This refers to the amount you have profited by selling your capital asset. This is the amount gotten when you deduct any outlay or expense you may have incurred by selling.

Expenses Required to Sell:  These are any outlays you may have to make when selling your capital property.

Capital gain subject to tax = Selling price – the Adjusted Cost Base

Bottom Line

Ultimately, you possess a capital gain when you sell a capital asset for a higher amount than the total of its ACB and the outlays and expenses incurred to trade the property.

Executive Summary

Creating a budget may sound boring but taking the time to do so will have a huge impact on your future.  It is easy to overspend and with the amount of household debt at an all-time high, managing your finances can seem hopeless.  However, the more attention you pay to your spending habits, the easier you will find it to achieve financial success.

What You Need to Know

Below are four reasons why you should create a family budget…today!

1. It Will Help Keep Your Goals in Sight – Setting financial goals for yourself is one thing, having a plan in place to achieve them is another.   Setting a budget for yourself will help you set goals, make a plan to achieve them, and will allow you to track your progress.
2. It Will Put an End to Spending Money You Don’t Have – When you have a realistic budget and commit to it, there are no excuses to spend on credit. You’ll know exactly how much money you have coming in, how much you can spend, and how much you need to save.
3. You’ll Be Prepared for Emergencies – Sometimes life happens, whether it be losing your job or becoming sick or disabled.  Having a budget means that you will have savings you can access if an emergency arises.  You will sleep better at night knowing that you are prepared for the worst.
4. It Will Force You to Acknowledge Any Bad Spending Habits – Sometimes we don’t know where we could improve until we start keeping track of our spending.  Even if you think you are doing well with your money, writing a budget may shed light on some areas that you could cut back.  This is a great opportunity to redirect some money into retirement savings or saving for another goal.

The Bottom Line

Everyone can benefit from writing a budget, whether you think you need it or not.  The key to achieving your financial goals is having a plan.  If you feel overwhelmed and don’t know where to start, reach out to us!  We will help you start a plan and will monitor your progress!

The traditional definition of a recession is two consecutive quarters of economic decline measured in Gross Domestic Product.  A more complex definition is a slowing of economic activity and an increasing unemployment rate.

Financial and lifestyle preparations should take place to lessen the effects of a recession.

What You Need to Do

1. Examine your monthly budget – You cannot save money that you have already spent.  Almost everyone has regular, recurring expenses that are not necessities.  Subscriptions to multiple streaming services are one example.  Find lower cost alternatives like a home, family movie night using a streaming service versus a $100 trip for four to the local cinema.  Delaying many small and large purchases can free your budget and your mind from stress.

2. Contribute to your Emergency Fund – Once you have identified unneeded expenditures in your regular spending, remove them from temptation by placing them into your Emergency Fund.  Having 3 to 6 months of income set aside is the recommendation and is almost impossible to achieve until a thorough examination of your budget occurs. Consider a TSFA.  A Tax-Free Savings Account (TFSA) containing liquid and low-risk investments provides tax exempt earnings and withdrawals.

3. Maintain your scheduled savings contributions – Whether a recession occurs or not, continue adding to your retirement savings in RRSPs and TFSAs, ad education savings in RESPs.  Skipping a few monthly contributions and the compounding of interest on them could free up a few thousand dollars but cost you tens of thousands of dollars at retirement.  The 20% grant (up to $500 annually) on RESP contributions and the $2,500 contribution to generate the maximum grant could grow into a year of tuition.  Treat savings like one of your bills that you pay first.  Your mortgage, insurance, and utilities must be paid.  Paying your savings first helps reinforce your budgeting efforts.

4. Reassess your investments – During a recession, like any other period, some types of investments can withstand the challenges better than others.  A frank conversation with your financial professional is an excellent step to preserve assets and investment income.

5. Eliminate, reduce, and avoid debt – Paying high interest rates is never a great idea, so it is best to pay them down as quickly as possible.  Interest rates are rising on the actions of central banks around the world, and those high interest rates will rise even higher.  Taking on new debt that will increase your monthly expenditures for both capital repayment and interest charges is not advisable.

6. Update your skills and resume – Should your employment be affected personally, it would be better to be prepared than react when feeling the pressure of replacing your existing income.  Revisit and update your resume with accurate dates and roles.  List your newly acquired skills and capabilities, and if applicable, don’t forget your online profile/s.  You can also consider investing in yourself by taking internal and external courses to bolster your skillset.

The Bottom Line

None of the six steps, above, require a recession or even the threat of recession to become valuable.  Each of them is prudent regardless of the overall economic and employment climate, so get ready for a rainy day, and you will be able to enjoy the sunshine, too.

Housing prices have been climbing quickly. This is especially true in major urban centres where most Canadians live. The rate of increase for the average sale price appears to be climbing faster than people are able to save.

Some Canadians see the dream of homeownership vanishing, others wonder if the choice to own is appropriate for them. No matter the situation, objective analysis should accompany the emotional aspects of buying a home.

What You Need to Know

Regardless of the ultimate choice, affordability is an important decision criterium. No one has ever enjoyed being “house poor”, where little money is left after making your rental or mortgage payment. Based on household income and available down payment a maximum purchase price can be determined.

Every Canadian financial institution has an online calculator to determine mortgage payments. Mortgage providers employ additional analysis tools to predict whether a borrower will repay the lender based on their income, total expenses and financial history. If lenders are reluctant or refusing to provide a mortgage, perhaps the timing is not appropriate, yet.

Mortgage rates have been at the extreme low end of their range for several years as central banks around the world have attempted to revive economies through inexpensive borrowing. When interest rates are low more people and businesses can afford to borrow more. When something is on-sale people buy more, but for borrowing, you cannot decide to delay a purchase when prices rise. Payments must still be made.

At some point rates will rise and some homeowners may not be able to afford their new, higher payments. Before buying their first home, borrowers should ask themselves, “if mortgage rates rose by 2%, would I be still able to afford my payments?”. For example, a $400,000 loan with an additional 2% interest adds $8,000 interest charges per year, or $667 more each month.

That increase would sit atop the existing mortgage payment. The same $400,000 mortgage with a 25-year amortization and 2.25% 5-year fixed rate requires a monthly payment of $1,750. Each additional $100,000 adds another $450 per month to the payment.

Lenders typically limit housing costs to 35% of gross income, acquiring a mortgage will ultimately decide if you purchase and the price. If you earn $100,000 then your maximum housing costs are $35,000 per year. Subtracting property taxes, condo fees and utilities will determine the amount available for mortgage payments. If these costs totaled $14,000, then a maximum of $21,000 would remain for mortgage payments. $21,000 divided by 12 equals $1,750 per month, yielding your maximum mortgage of $400,000.

A down payment is also required; the more the better. At least 10%, but 20% is preferred to keep payments lower. In the examples above with a $400,000 mortgage a first-time home buyer should plan on a down payment of at least $50,000 netting a purchase price of $450,000.

An experiment to determine if home ownership is appropriate is to act as a homeowner while renting. That is, make housing costs equal 35% of gross income. Set aside exactly 35% each month, pay your rent and utilities and the rest goes directly into a savings account, an RRSP or TFSA. Set up the deposit like a monthly bill that is paid automatically. If you are able to practice this disciplined spending/saving approach you are able to live at 35%, if not habits may need to be changed or a more modest home purchase should be contemplated.

Continuing the example of $100,000 income, then $35,000 per year or $2,920 should go toward rent, utilities and savings. If rent is $1,800 and utilities are $150 set up an auto-deposit for $970 each month. At the end of one year, you will have nearly $12,000 more set aside. At the very least this test should increase the amount of your down payment.

While you are accumulating your down payment the type of investments you purchase and sheltering it from taxes is also important. First time homebuyers can withdraw funds from their RRSPs, for example. Certain conditions apply, of course.

The Bottom Line

A dangerous emotion during a period of rapid rises in house prices is desperation. “If we don’t buy now, we’ll never be able to afford a home” has led many to overextend themselves financially. After that has occurred owning again can be almost impossible.

Couple the dreams of home ownership with objective analysis to determine the best course of action. Prudently investing your down payment in a tax advantaged way is another important aspect of the home buying and ownership experience. We are happy to help with calculations, scenarios, timing, negotiation advice with lenders and investment recommendations.

Book an appointment with us today! – CLICK HERE

The view about high-net-worth people is they probably have too much and don’t bother about taxes. This couldn’t be farther from the truth. HNW people are just like everyday people. They bleed cash like every other regular Canadian. High net worth people are also entitled to tax benefits on their money just like every other Canadian. As a high-net-worth individual who moves financial assets from one place to the other, it is important to maximize whatever tax benefit is available to you to save funds. In this article, we will discuss key tax matters and best practices that you must be wary of when dealing with friends and family. These three matters include: property gifts, having a secondary residence, and personal loans to friends and families.

1. Tax Implications of Real Estate Property Gifts

Real estate is becoming increasingly expensive in Canada. If you have the privilege of owning some real estate properties and thinking of gifting them to your loved ones, there are things you must consider.

Capital Gains Attribution – This is one thing you should be wary of when gifting a real estate property in Canada. For a better understanding, let us look at this example: If you gift a property to your spouse and they decide to sell to a third party, any capital gain or loss on the value of the property will be charged back to you. In other words, any profit or loss made on a property you gifted to your loved one will be attributed as yours and taxed accordingly. This is known as Tax-free rollover. It is an automatic tax charge on income from a property gifted to a spouse. To avoid this, you must apply to opt-out of the automatic tax-free rollover. When you apply, it means that you will have to report any accrued gains on the property and your spouse will also report any future gains on the property. The exception to this is when the property is gifted to a minor. You are not allowed to opt-out when you gift the property to a minor.

Income Attribution – Income attribution in Canada has to do with income from real estate properties. This occurs especially when you gift a property to your underaged family member. It could be your child, or a nephew or niece. If the child is under 18, any income on the property will accrue to you and will be taxed. This means that you will carry the tax burden of the income on the property gifted until such minor clocks 18 years of age. The income referred to in this type of attribution means rental income. It is different from capital gains attribution.  Income attribution also applies to spousal gifting of property or a common-law spouse. Any income accrued on the property will accrue to you and will be taxed accordingly. In all of this, it does not matter if you spend out of the profit or not; if it is a gift coming from you to your spouse or an underaged loved one and it will be assumed that the income is going to you.

Double Taxation on Transfer of Real Estate Property – Double taxation on real estate property gifts may occur when you transfer your property to a family member for less than the fair market value of such property. For a better understanding, let us use an example where you sell a real estate property to your son at a value of $20,000 as against the fair market value which is $350,000. In this type of situation, it will be deemed that you made a proceed of $350,000 on the property. Your capital gains, in this case, will be $320,000 ($350,000 – $20,000). Half of the $320,000 will be subject to tax. If your son goes ahead to sell the property for the fair market value of $350,000, you will be taxed on this sale again. This then amounts to double taxation.  Another example of when double taxation can occur is when you sell your property to a loved one at a value more than the fair market value. For example, if the property is valued at $300,000 and you sell it to your sister at $350,000, it will be deemed that you made a proceed of $350,000 on the property and taxed accordingly, but it will be deemed that the property cost your sister $300,000. If your sister decides to sell the property in future, you will be taxed again. Fortunately, there is a way out. The reason for the double taxation in the scenarios painted above is that the property was sold for a value. However, if you transfer the property for no consideration at all, it will be deemed that it was sold at a fair market value. The beneficiary will have a fair market cost base which will allow you to avoid double taxation.

What Are Your Alternatives? With all the taxes mentioned above, it is advisable that real estate properties should not be transferred for a lower amount from the fair market value. But if you want to transfer your property to your loved ones without any consideration to find a way around Capital gains attribution and income attribution, you can consider any of the following:

• You can gift your loved one the cash they need to acquire the money at a fair market value. That way, you will not be taxed on capital gains or income from the property.
• The other option you have is to lend your loved one the money required to purchase the property at a fair market value. However, you must ensure that they pay a prescribed interest rate on the loan. – The full loan must be repaid on or before the 30th of January the following year and it must include the interest income in your tax return.

2. Best Practice Personal Loans to Friends & Family

Being a high-net-worth individual may mean that people come to you from time to time to get loans. It is a privilege to be able to help others, but you must ensure you do it with your eyes wide open so as not to regret it later. For one, the reason most people turn to private loans from friends and family is that banks have rejected them, and they believe they will get flexible terms. This makes lending money to friends and family a risky venture.

Here are some best practices to guide you on what you need to protect yourself:

Choose Wisely – People have different reasons for needing a loan without a thought as to how they will repay the loan. Some reasons are more worth it than others. Therefore, it is important to know the reason for the loan before giving it. The reason for the loan will probably tell you what you need to know about the person. They may be your friends and family but it is your money, and the final decision is yours. Here are some genuine reasons you can consider lending money:

• A start-up business or an existing one. Investing in a business could yield returns afterwards.
• Down payment for a new home. You can consider helping in this regard.
• Medical needs. This is another genuine reason for which you can lend money.
• Divorce and legal problems are also genuine reasons someone may want to borrow money.
• If the person just relocated, you could consider lending him/her some money.

It is also important that every detail of the loan should be discussed. Being a friend or family is not enough. There should be a repayment plan and an agreed interest rate. All these terms should be clear and should be in writing if possible or there should be a witness to the discussion.

Have A Plan – It is important to have a plan with the person you are lending money to. Some of the things to be discussed include:

The Type of Credit Arrangement – It is very important to be clear whether it is a loan, or you are co-signing on a loan already borrowed. Both are risky but co-signing may be riskier because you are placing liability on yourself to repay if the person defaults. This may affect your credit score. Meanwhile, a loan coming from you bears a lighter risk because if the person does not pay it back, you must be prepared for that eventuality. Be clear on the difference and make sure you make the best decision.

Be Clear on Interest Rate – This is a tricky subject for friends and family who want to enter into a loan agreement. On the one hand, you as a lender will want to make sure you give a favourable interest rate, especially with the risk involved. The borrower, on the other hand will be expectant that you give an interest rate that will be favourable to him or no interest rate at all, considering the relationship between you two. Whatever the case may be, it is important that you are clear on this condition. You can give a lower interest rate than banks but high enough to ensure you make money from the transaction rather than your money just lying in the bank.

Get It Documented – This is an important step that could make or mar your relationship with the borrower. Money can be a tricky issue which can give room for recriminations. To avoid this, it is important to get everything discussed, especially the terms agreed upon by both parties’ documents. The amount, interest rate, repayment dates, and the penalty for late repayment. There are free online resources that provide templates you can use for the contract to be signed by both parties. This makes them facts and legally binding on both parties regardless of the relationship between you two.

Payment Arrangement – The payment agreement is an important part of the contract. It is important to agree on when and how the loan will be paid. All these should be written in clear terms in the contract drawn up. Loaning money to family and friends can be tricky. It is important to adhere to the tips mentioned to preserve your relationship with the person.

3. Tax Implications for Secondary Residences

It is not uncommon for high-net-worth individuals to have an additional shelter as part of their assets. it could be a vacation home or an investment. The fact remains that it is your asset and will be referred to as a secondary residence. Usually, a residence that is being habited is regarded as a primary residence. The CRA requires that you report a sale of your primary residence to qualify for the Principal Residence Exemption (PRE). The CRA will analyze your data before granting you a PRE. Details that are assessed include the duration you have been living in the said residence, your real estate investments, and your sources of income. All of these will help them determine if the building is truly your primary place of residence. This exemption does not apply to your secondary residence.

To save yourself some cash on taxes, if you have a secondary residence and you have a spouse or a common-law partner, you can designate the secondary residence to your spouse for all the years you own and use it as a primary residence which qualifies it for capital gains tax exemption when it is sold. Fortunately, the Canada Revenue Agency (CRA) does not prescribe how long you must live in a house for it to become your primary residence. It only says that you must habit the residence for a short period which makes it open to interpretation. Residences outside Canada can also be designated as a primary residence if the designate has inhabited the home in the year in which the PRE is being applied for. If you fail to take advantage of this, your secondary residence will be subject to capital gains tax for the years it was not designated to an inhabitant.

When designating, there are exceptions you need to take note of. The first is that only one property per year and per family can be designated as a primary residence. A family member in this context means your spouse or common-law partner and your children that are under 18. Another exception is that any residence that is above 1.2 acres in size will not qualify for PRE except if you are able to prove that the excess land is required for the use and enjoyment of the residence. This means that the excess land will be subject to capital gains tax.

For a maximum tax advantage, you should designate the residence with the highest average capital gains per year. You can also contact a tax expert for proper guidance.

Bottom Line

Although it seems like a lot to digest, that is why you have an advisor. Reach out with any questions in any of the above areas if you feel in over your head.

Book an appointment with us today! – CLICK HERE

Divorce is an emotionally draining time for not only the couple but for their family as well. It can also be a financially devastating time. Putting your energy into your financial wellbeing is essential when going through this big life transition. You will be forced to make life changing decisions in a very short period, and it is important that you know what you are entitled to and where you stand in the marriage, from a financial perspective.

What You Need to Know

1. Find and Compile Your Financial Records – Your first move to protect yourself financially is to make a file of all your financial records. Tax returns, loan documents, retirement accounts, bank accounts, and investment statements. You want to be sure that you are aware of all accounts and liabilities when you go into the divorce process.
2. Assess Your Assets – Make an exhaustive list of all your assets that could come into question when it comes to division of property. Marital assets are any asset or liability that was acquired during the marriage. This includes houses, cottages, land, investments, pensions, personal property (jewelry, art etc.), vehicles, and other types of intangible property (such as intellectual properties). Debts can also be considered marital property depending on the nature of the liability. Typically, assets acquired before marriage remain in the possession of the person who brought them into the marriage. Inheritance and gifts can also be excluded from divorce if the assets have not been used to buy joint property.
3. Open New Bank Accounts – Many married couples have combined finances and use joint bank accounts for convenience’s sake. If you have or if you plan to end your marriage, one of your first steps should be to open new bank accounts in your name that your spouse does not have access to. You should also make it a priority to have any direct deposits updates with your new accounts (your pay cheque, for example) and start paying your bills out of your new individual account.
4. Change Your Will and Update Beneficiaries – Most couples name each other as beneficiaries in their will and on any investment or insurance accounts that beneficiaries are designated. This should be changed as soon as possible. This may not seem like a top priority, but the unexpected happens and no matter how amicable the divorce, it is impossible to know your wishes will be honors upon your death if you do not put it in writing. Investment accounts and life insurance policies can easily have their beneficiaries changed through your advisor. Your will and power of attorney designations needs to be updated by a lawyer.
5. Change your Mailing Address (if applicable) – If you are changing your address due to the divorce, or even if you are splitting time in the family home until the divorce is settled, you should change your mailing address immediately. Whether this is to your new home or if you secure a PO Box, it is important that your mail stay private as you may receive correspondence from your lawyer or information about your finances that your former spouse should not be privy too.
6. Get Credit Cards in Your Name – If you have joint credit card, pay them down and cancel them immediately so that you don’t find yourself responsible for debt that your spouse may accumulate when you leave the marriage.
7. Refrain from Making Any Big Financial Decisions – Divorce can be a long road. Assets may become unavailable to you as you go through court proceedings, or conversely you could end up having to hand over more to your spouse then planned, and it is wise to hold off any making any big purchases or making any irreversible decisions until the divorce is finalized.

The Bottom Line

Divorce is complicated and can be a difficult time, both emotionally and financially. It is always best to work with legal and financial professionals when navigating a divorce to ensure your best interests are being looked out for and that you are being treated fairly as the divorce proceeds.

A retirement savings plan is a way of protecting your post-retirement financial lifestyle. However, in recent times, recessions, stock-market declines, housing market bubbles, joblessness, and, most recently, a global pandemic have created a series of challenges for people trying to start, grow, or maintain a retirement savings plan. With all the economic uncertainties, it’s natural to wonder if you’re doing all you can to protect your retirement nest egg. Taking a back to basics approach can instruct you on how to keep your retirement financial plan on track during uncertain economic times and beyond.

Consider these tried and tested tips that most financial advisors will recommend for a secure and enjoyable retirement.

1. Make Realistic Budget and Lifestyle – Determining your retirement income needs starts with making realistic assumptions about your future. Because of increased life expectancy, retirement years are longer than they used to be. The average Canadian is expected to live to 78.79 years. Longevity can also be impacted by genetics, where you live, your marital status, and your lifestyle. All of these factors into how you plan for your retirement. It’s also good to be realistic about your post-retirement budget and lifestyle. Do not make the mistake of assuming that your post-retirement budget will be reduced. Retirement is becoming increasingly expensive, particularly in the first few years. It’s essential to have a plan to help mitigate expenses when you are no longer earning a paycheck.
2. Have A Savings Plan – Based on these realistic lifestyle assumptions about your post-retirement days, you can begin to determine what you can do now to sustain yourself financially for at least 25 years post-retirement. The 4% rule is one popular method for working this out. In this model, you commit 4% of your savings for every year of retirement. Another approach is to draw down 2-3% of your total retirement portfolio annually, adjusted yearly for inflation.
3. Consider Inflation – Speaking of inflation, failing to factor it into your plan could take a substantial bite out of your hard-earned nest egg. Inflation impacts how much your retirement savings will be worth over time, so understanding this is critical to ensuring that you have enough assets to last throughout your retirement.
4. Grow Your Retirement Savings – Retirement means different things to different people, but the key is to enjoy this time of your life while making sure you don’t outlive your retirement savings. You are more likely to achieve this with a thoughtfully developed plan that allows you to withdraw money from your portfolio while enabling growth over the longer term. You can achieve this by using various investment vehicles with reasonable returns.

Bottom Line

Planning for the future is a complex and sometimes emotional process that is not easy to do without guidance. Financial advisors can help you remain objective and focused on your future goals. They also have the skills and tools you need to plan for a healthy financial future.

Book an appointment with us – CLICK HERE

Employers are seeing a trend of their employees quitting their jobs. The Covid-19 pandemic has caused many to re-evaluate how they are spending their lives. Employees are valuing their time more than ever and are looking for opportunities where work life balance is a top priority. One worry that employees may have as they embark on their next stage of life: What happens to my pension?

The three most common retirement savings plans in Canada are: Defined Benefit Pensions (DBPP), Defined Contribution Pension Plans (DCPP), and Group Registered Retirement Savings Plans (Group RRSP). Regardless of which type of plan you are enrolled in; all is not lost once you leave your job. Each type of plan has special rules and provisions for what you can do with the money when you leave your employer.

What You Need to Know

1. Defined Contribution Pension Plans – Defined Contribution plans are typically made up of a combination of employer and employee contributions. The retirement benefit is dependent on how much is in the account at the time and how it has performed in the markets. When you leave your job, you will have to transfer your pension into either a LIRA, LIF, or RRIF, depending on your province of residence. A LIRA is a locked in retirement account holding the pension money until it comes time to take an income from it, when it will be converted to a LIF. It is also possible to transfer pensions directly to a LIF, if age requirements are met. Provincial authorities are responsible for regulating pension money and most pension money is “locked-in”, which means there are age restrictions on when you can withdraw the money and limits on how much you can take. Rules differ from province to province.
2. Defined Benefit Pension Plans – Defined Benefit Pension Plans guarantee an income to employees in their retirement. Defined Benefit plans may be made up of both employer and employee contributions, or just employer contributions. When you leave your employer and have a Defined Benefit plan, you will have two options: 1. Leave the money in the plan and take an income based at retirement based on contributions up until the point you leave. 2. Take the commuted value of the plan and transfer it to a LIRA. The LIRA will be subject to the same locking provisions as mentioned above. Whether or not to take the commuted value of a Defined Benefit plan is a financial planning issue that should be worked through with a professional. They will help you determine whether the income or lump sum would be more beneficial to your retirement plan.
3. Group RRSPs – Group RRSPs are the most flexible pension option. When you leave your employer, you will be able to transfer your Group RRSP directly into your individual RRSP. Alternatively, you could withdraw the account in cash, but be prepared to take a tax hit.

The Bottom Line

There are exceptions to locking-in rules and each province has a different set of regulations. A financial advisor can help you understand the rules in your province and help you determine the best course of action of your pension money.

Book an Appointment with us – CLICK HERE

An Electric Vehicle (EV) is powered by electricity either from a power grid, solar system, or kinetic energy from breaking, for power. In contrast, a Hybrid Vehicle (HV) consists of both an electric-powered feature and the gas-powered feature. It can run on gas and on electricity.

Savings

The rise in gas prices gradually makes EVs an option for people in Canada. The number one advantage you get from an EV is how much you get to save on gas. Instead of branching at a gas station every few days, you can plug your car at home to refuel. Same thing with an HV. Depending on your city or province, the electric feature in a hybrid car will save you cash on gas. For example, Vancouver is known for its high price of gas. Though both cars are expensive, you get to recoup your money from the savings on gas every now and then.

With an EV, you get to save money on maintenance. An EV is known to only have a handful of inexpensive maintenance costs compared to cars with Internal Combustion Engines (ICE). no need for an oil change, belt replacement or other expensive maintenance and repairs that are associated with ICE cars. EV maintenance and repair will run you $949 per year, which is $330 less than a traditional vehicle.

Costs

The upfront payment on an HV is known to be on the high side compared to a gas-powered vehicle. Sometimes the difference could be as high as $10,000. Depending on the brand you buy, an HV could be cost-intensive. You should consider the price of gas in your area, how much time you will be driving and how long it will take you to recoup your expenses in gas savings.

An EV is also the same as the price of a new ICE vehicle. In Canada, it is advisable to go for a used EV as they are cheaper than buying brand new ones. You can also enjoy tax credit in some provinces if you buy an EV. Some of them include:

• Nova Scotia: $2,000 rebate on used EVs;
• Ontario: $1,000 toward the purchase of a used EV and $1,000 toward the purchase of a used EV if you scrap your old ICE vehicle;
• Prince Edward Island: $5,000 rebate for a used EV;
• New Brunswick: $1,000 rebate (PHEV); $2,500 rebate (EV).

Future Trends

The EV and HV market in Canada continues to grow impressively. The world is gradually shifting to green energy and Canada is not far behind. The HV and EV market had total revenues of $1.1bn in 2020, representing a compound annual growth rate (CAGR) of 17.7% between 2016 and 2020. The market consumption volume increased with a CAGR of 14.9% between 2016 and 2020, to reach a total of 40,206.0 units in 2020. Even though the EV and HV market declined in 2020 due to the pandemic, with a decline of about 33.8%. There are strong indications that things are getting back to normal, and the market will continue to grow.

To find out more on Incentives for Purchasing Zero-Emission Vehicles, CLICK HERE for information from Transport Canada.

Executive Summary

There are numerous ways to take money from corporate earnings while keeping your tax bill to a minimum. Often, business owners opt to receive a portion of corporate earnings through a salary. While others opt to extract profits using a mix between salary and dividends.

Finding the optimal combination to maximize your tax savings depends on many factors including (but not limited to) your cash flow needs, income level, payroll taxes on salary, or the corporation’s income level.

Understanding the tax treatment of payments is important as you want to ensure that the maximum amount of funds is left to be invested back into the corporation.

Earning Options

Paid-Up Capital: If you funded your corporation with a large sum of capital, you may be able to extract funds tax-free by reducing the corporation’s paid-up capital; essentially this is the amount of capital contributed in exchange for shares. Typically, you are allowed to pay shareholders any amount less than the corporation’s paid-up capital without tax consequences.

Repay Shareholder Loans: Another option to receive corporate funds is to repay shareholder loans. If you loaned funds to your own corporation, you are entitled to receive any amount of repayment of the loan tax-free. You may also arrange to have the corporation pay you interest on the loan. Taxation of the interest income is about equivalent to the taxes deducted if the corporation paid you a salary.

Passive income: Investment income earned inside your corporation is classified as ‘passive income’ as it is not generated by direct business operations. The combined tax rates are over 50%, depending on your province of residence, on the taxable portion of earnings. In the case of interest, that is the entire earned amount. For capital gains, half of the gain is subject to the combined tax rate and for dividends the rate is 33.33%. All three of these rates are higher than the highest marginal rate for individuals. Subjecting passive income to higher tax rates within a corporation can lend some benefits like:

• Building your nest-egg inside the business to fund future expansions
• Cover short-comings during difficult periods
• Facilitate borrowing

However, the largest risk with this option lies in losing the capital gains exemption on the sale of shares of a ‘qualified small business corporation.’ As the invested assets build over time, and operating assets decline in value thanks to depreciation, the asset mix could be lopsided. To have the capital gains be exempt, the ‘passive’ invested assets cannot exceed 10% of the fair market value of the corporations’ assets.

Lifetime Capital Gains Exemption (LCGE): For 2021, the LCGE limit per person is $892,218 and is indexed to inflation. This means a married couple who both own shares and can both utilize the exemption could shelter $1.784 million from taxes. Farms and fishing operations that qualify have the individual limit of $1 million per person, allowing a couple to shelter a maximum amount of $2 million. Depending on your goals, a short-term increase in tax and the professional fees associated to establishing the appropriate corporate structure could save you significant amounts of tax in the long run.

Maximizing Capital Dividend Payments: When you have a capital gain, the untaxed portion (one half of the gain) is added to its capital dividend account. The corporation can pay any amount from this account to your client without attracting personal tax. Although this is likely your best option, you must ensure that you make the appropriate tax deductions and remember to file the directors’ resolutions with the CRA.

Bottom Line

Every corporation is going to present varying degrees of needs. When it comes to determining how to pay yourself, be sure to be well informed before making any final decisions. Of course, consulting with a financial expert, like myself, can prove helpful. I encourage you to get in touch with any questions or concerns or to simply learn more.

Book an appointment to discuss how you can get money from your Corporation – Book Here

Having a proper estate plan in place will ensure that your loved ones are protected if you were to pass away. As soon as you have any assets or property it is time to contact your team of professionals to discuss what would happen to those assets if you were not here anymore.  Neglecting to do so can end up costing your estate or loved ones in the form of probate costs and potential legal battles. Unfortunately, many people think that they can skip the estate planning process and that it doesn’t apply to them. Below are three of the most common misconceptions about estate planning.

What You Need to Know

1. Estate Planning is for Older People: While it is true that older people are more likely to be in need of a solid estate plan due to wealth accumulation and age, there is no right age to start the process. The reality is that it is not uncommon for people to die too early and it is a disservice to your family to not acknowledge this fact. A good rule of thumb is to put an estate plan in place as soon as you have someone who depends on you. Marriage and having children are two major life events that might come to mind.
2. Estate Planning is Only for the Wealthy: Estate planning is important no matter what the value of your assets are. In fact, the less that you have the more strain your family may feel when you are no longer around. Estate planning can include distributing your assets but it also involves leaving an income for your family in the form of insurance planning. Having a plan in place will give you the peace of mind that your family will be cared for financially.
3. A Will is All You Need: While a will is a good foundation, a good estate plan should include so much more. Wills, power of attorney, health care directives, insurance, business succession planning, tax planning, trusts… the list goes on! A will outlines where your assets will go, but it doesn’t necessarily specify how they are going to get there. Transferring assets smoothly takes extensive planning, but your heirs will thank you for it after you are gone.

The Bottom Line

The best time to start considering an estate plan is right now! You should be prepared for the unexpected no matter your age or the value of your assets. Talk to your advisor about different strategies you can use with your investments and insurance to ensure that your assets are as organized as possible and can pass smoothly to your family.

Book an Appointment with us today! – CLICK HERE

Investments can represent a major source of income for some individuals and with that income comes a wide variety of tax implications. The good news is that some types of investment incomes are subject to special tax treatment. Understanding how your investments are taxed is an important part of your financial plan. The most common types of investment income most investors will have to deal with are interest, dividends, and capital gains.

What You Need to Know

Interest Income

Interest income refers to the compensation an individual receives from making funds available to another party. Interest income is earned most commonly on fixed income securities, such as bonds and GIC’s. It is taxed at your marginal tax rate without any preferential tax treatment and is taxed annually whether or not it has been withdrawn from the investment.

Example: An investor buys a 10-year GIC that has agreed to pay him 4% annually. If the investor bought the GIC for $100, he can expect to earn $4.00 in interest every year for the next 10 years. The investor must report the $4.00 of interest income on his income taxes and will be taxed at the marginal tax rate. 

Due to the fact that interest income is reported as regular income, it is the least favorable way to earn investment income.

Dividend Income

Dividend income is considered to be property income. A dividend is generally a distribution of corporate profit that has been divided among the corporation’s shareholders. The Canadian government gives preferential tax treatment to Canadian Controlled Public Corporations (CCPC) in the form of a dividend income gross up and Dividend Tax Credit (DTC). The two types of Canadian dividends are usually referred to eligible or non-eligible. It is possible to receive dividends from a foreign corporation, but these dividends are not subject to any special tax treatments and are to be reported in Canadian dollars as regular income.

Tax payers who receive eligible dividends are subject to a 38% dividend income gross up, which is then offset by a federal DTC worth 15.02% of the total grossed up amount. Non-eligible dividends are subject to a gross up of 17% and 10.5% DTC.

Example: A shareholder of a Canadian Controlled Public Corporation is paid out a dividend of $100. This income is considered to be an eligible dividend and is subject to the gross up and the DTC. His dividend would be gross up 38%, so he would now have an income of $138.00.  The DTC would be 15.02% of the grossed-up amount, equaling $20.73. Therefore, the shareholder would report a dividend income of $138.00, but would have his federal taxes owing reduced by $20.73. 

The rationale for the gross up and DTC is related to the fact that dividends are paid in after-tax corporate earnings. If there were no adjustment to the dividend, it would result in the dollars being double taxed.  This tax treatment makes dividends the most tax efficient way to receive income. Tax is payable when the dividends are paid out. It is, however, important to note that the gross up and DTC rates are influenced heavily by legislation and could change at any time.

Capital Gains

Capital gains are realized on equity investments (such as stocks) that appreciate in value. For example, if an investor bought a stock at $5.00 per share and sold them at $10.00 per share, they would have a capital gain of $5.00. What makes capital gains different from other types of investment income is that you only are required to pay tax on 50% of the gain. Another desirable trait of capital gain income is that you do not have to pay tax until the investment is disposed of, giving the investor some control over when they trigger the gain and pay the tax. Whether or not they are the most tax efficient income depends on your province of residence and subsequent tax rates.

The Bottom Line

It is important to ensure that investors understand how their investments are being taxed and the implications that different types of investment income can have on your taxes owing. A great first step is meeting with an advisor who can help you put together the most tax efficient investing strategy, making sure your money is reaching its full potential…not going to the tax man!

While uncomfortable to think about, effectively planning ahead for when you are no longer here can save your loved ones a great deal of time, money, and emotional hardship.  Estate planning can be complicated, but there are some basic “must-do’s” that should be regularly updated and reviewed. Below is a simple checklist for making sure your estate plan is up to date.

What You Need to Know

Wills

• Have you created a will?
• Is it updated and current?
• Have you experienced any major life changes since the will was created? This could be a new marriage, divorce, child, death in the family, etc.

Wills should be created with the guidance of an estate lawyer to ensure that your final wishes are correctly documented and carried out. It is vital that a will be regularly updated as it acts as the foundation of your estate plan.

Beneficiaries

• Do all your registered investments have a named beneficiary? This includes RRSP, RDSP, RESP, TFSA, Pension Plans, and Segregated Funds.
• Do all your life insurance policies have a named beneficiary?
• Have you recently reviewed your beneficiaries? Has there been a major life changes such as a marriage or divorce that could warrant a change to your beneficiary appointment?

Beneficiary designations allow for assets to bypass probate (in most cases) and be passed directly to your beneficiary. This is a great money and time saver.

Dependents

• Do you have a family member that you wish to provide an income to after your death?
• Do you have family members that you wish to fund an education for after your death?
• Do you have any family members that have special psychological or physical needs that you would like to provide financial support for?
• Do you have a parent or other relative that you wish to ensure is taken care of financially if you die prematurely?

There are a variety of different financial and legal tools available to Canadians that can help them provide income or support for their dependents when they are gone. Keeping your dependents updated in your will is important as they may change throughout your lifetime.

Executors

• Have you named an Executor of your will?
• Is the Executor up to date? Have you named an alternate Executor in the event your first choice is unable to fulfill the position?
• Has your Executor been made aware of their appointment and been briefed on your final wishes?

An Executor is someone you appoint in your will that will be responsible for administering your estate. An Executor should be someone you trust and also someone who is capable of dealing with the potentially complex responsibilities involved with administering an estate.

Powers of Attorney

• Have you appointed a Power of Attorney for Property? This person will be able to help you with your finances and personal property in the event you are unable to do so yourself.
• Have you appointed a Power of Attorney for Personal Care (Health)?  This person will be responsible for making medical and personal care decisions for you if you become unable to act on your own.
• Are you POA’s aware of their appointment and willing/capable to perform the tasks that will be required of them?

Power of Attorney is a legal document that allows you to appoint someone to help you with your finances and personal care in the event that you feel unable to do so or become mentally incapable.

Financial Planning

• Have you spoken to your financial advisor about structuring your assets in the most tax efficient way to minimize estate taxes and probate fees?
• Have you set aside enough money to cover final expenses, estate taxes, probate fees, and funeral arrangements?
• If you own a business, have you worked with your professional team of advisors to develop a succession plan?
• Have you recently taken the time to calculate your final expenses and potential estate taxes?
• Have you addressed any permanent insurance needs you may have?
• Have you spoken to your advisor about your wishes to make a charitable donation before/after your death?

Your financial advisor will play a significant role in helping you prepare your estate. The above questions are only some of the issues that you may want to bring up to your financial advisor so that they can help you make your estate as efficient as possible.

Your Personal Financial Inventory

Prepare an Inventory of Assets and Liabilities

• Real Estate
• Investments
• Bank Accounts
• Annuities/Life Insurance
• Personal Property (Art, Jewelry etc.)
• Pensions
• Value of Any Businesses You Own and Their Structure
• Digital Assets

Make Sure You Indicate the Location of the Following

• Will and Power of Attorney
• Birth and Marriage Certificates
• Divorce/Separation Agreements
• Insurance Policies
• Deeds
• Safety Deposit Box
• Preplanned Funeral Arrangements
• Trust Documents
• Names and Contact of Personal Advisors (lawyers, accountants, financial planners)
• Executors, liquidators, and trustees

Far too often family members are left scrambling to find important documents and information. Your financial advisor and lawyer can help you collect the above information and organize it for your beneficiaries and executors.

The Bottom Line

Estate planning has a reputation for being complicated, but for most people all it takes is some thoughtful pre-planning. Working with a lawyer and financial professional will ensure all of your bases are covered and your final wishes are carried out. Estate plans should be reviewed and updated regularly.

Book an appointment with us – Click Here

There will come a time when you may be incapacitated or leave your loved ones behind. When either of these happens, you do not want to leave your loved ones in limbo about what to do or what will happen to your assets and properties. Proper estate planning is a way of avoiding this. An Estate Plan takes care of your assets and properties when you can no longer do so. All financial and medical decisions are usually contained in an Estate Plan.

Who Should Inherit Your Wealth?

This is a decision you have to make sooner or later in your estate plan. That is why it is always available to update your estate plan every now and then, preferably every 3 to 5 years. The truth of the matter is when it comes to sharing your assets and properties amongst your loved ones, it is almost impossible to make everyone happy with what you bequeath them. The best you can do is make sure everyone you want, gets something, whether or not they are satisfied may be beyond what you can control. You can also make sure your immediate family gets more share than extended family members and friends in that order. You should also try as much as possible to ensure that your children get equal shares of your estate.

However, equal doesn’t always mean fair. A lot of family disputes over inheritance arise due to the fact the testator does not bequeath his or her assets and properties to the children in an equal manner. There will be strife and division amongst your children. It may even disrupt the probate process. Your children may decide to challenge your Will. No one wants animosity among their children when they’re gone. You can seek the advice of an estate lawyer to properly advise you on how to go about it and how to prepare for such happening in your estate plan. Most times it is advisable to sit your children down and explain why you have decided to share your estate unequally among them. Explaining your rationale may help prevent potential strife and animosity. However, if you know the child with the greater share may be bullied, then it is best to keep it to yourself.

How To Legally Donate Your Wealth to A Charity Without It Being Contested by Your Relatives

Donating your wealth to charity is a normal thing done by people. However, it is not without its issues, especially when family members feel entitled to your wealth more than the less privileged. The first step to avoiding this is engaging the services of a lawyer to make your estate inaccessible to your loved ones after your demise. It is your wish, so you have the right to make it, whether it is acceptable to your loved ones is another issue entirely. When your loved ones disagree with your bequest, it affects the probate process as they may decide to challenge it. Challenging your Will means they have to prove that you were not of sound mind when bequeathing your estate to charity. Therefore, you should ensure you follow all legal requirements of estate planning in your province and territory. It is advisable to go the way of using a Trustee to manage and disburse the funds to charity. Using a Trustee restricts the charity fund to existing on paper only. It will also be difficult for your loved ones to challenge because the charity funds are managed by a third party who is not a family member. You can also set up a foundation that will draw money from an alternative source in your estate plan. This also takes is beyond the reach of your loved ones.

How To Keep Family Members from Suing Your Estate and Getting Your Wealth by Way of Court Order.

The wishes in an Estate Plan are usually a subject of dispute among family members who got along fine before your death. This is sometimes not totally your fault. You can blame it on human nature. However, if your Estate Plan was not legally made, it can be contested by any family member which may lead to your wishes not being carried. To avoid this, you have to make your Estate Plan lawsuit-proof. Here are some tips on making that happen:

Go For a Trust Rather Than a Will

When you create a Trust, it does not go through the process of probate which usually involves the Courts. This limits the chances of it being contested by unsatisfied family members. The Trustee will be in charge of managing your Estate instead of an individual.

Go For a Corporate Executor

It is tempting using a family member as an executor, especially when you are sure there would not be any form of rancour regarding your assets. If you decide to go for a Will instead of a Trust, using a family member as your executor may give rise to hate against such a person or an abuse of power by such a person. A corporate executor will be a neutral executor and it is less likely to be an issue amongst family members.

Make Sure You Are of Sound Mind and There Is No Undue Influence

This is a legal requirement that makes your Will lawsuit-proof. If you make a bequeathal that does not go down well with a family member and it is established that you were not of sound mind when making the Will, it could render it void. You may wish to do both physical and mental evaluation before signing the Will. The same goes for undue influence. Ensure that you make your Will of your own free will.

Do Not Forget The “No Contest” Clause

The “in terrorem” clause as it is known is a perfectly legal clause that states that any family member who tries to contest the Will forfeits his or her inheritance. However, you should leave something reasonable for the people you know are likely to contest the Will for this clause to work.

Make Provisions for Disinheritance

If you are not bequeathing anything to a family member, it is advisable to state in your Will that you are not bequeathing any asset to such person. You can also leave a letter or memorandum detailing your rationale for the disinheritance. However, be careful of stating the reason for disinheriting the person, especially if the reason can be said to be against public policy. Each province and territory have their governing laws when it comes to disinheritance. However, note that you cannot disinherit your minor children and your spouse, except there is a binding Prenuptial Agreement.

Book and Appointment with us – Click Here

Segregated funds and mutual funds are very similar: they are both pooled, diversified, professionally managed investment funds. Segregated funds, however, offer some unique characteristics that mutual funds do not. These include maturity guarantees, resets, death benefits, creditor protection, and probate advantages.

What You Need to Know

1. Maturity Guarantees – Unlike mutual funds, segregated funds offer maturity guarantees, which means that the value of your investment at maturity will not be less than the specified percentage of capital that you invest. For example: If you were to invest $1000 with a maturity guarantee of 75%, at the time your contract matures, the insurance company would be obligated to ensure that at least $750 of your investment remains.
2. Resets – Segregated fund contracts offer the option to “reset” your investment, so that the gains your investment has accumulated can be accounted for when calculating the maturity guarantee amount.  Provisions for these resets vary by contract.
3. Death Benefit Guarantees – Some segregated fund contracts offer death benefit guarantees. These work similarly to maturity guarantees, except your beneficiaries are guaranteed to get at least a certain percentage of your invested capital.
4. Potential Creditor Protection – Unlike mutual funds, segregated funds are issued by insurance companies. Due to this, in some circumstances, investing in a segregated fund could offer you protection from your creditors.
5. Bypass Probate – Investing in a segregated fund gives you the ability to pass your investment directly to your beneficiaries, without the need for probate. This can save a lot of money and hassle for your beneficiaries.

The Bottom Line

Segregated funds can offer some valuable benefits that investors do not have access to by investing in mutual funds. It is important to note that segregated funds traditionally have higher fees than mutual funds. As always, it is important to work with your team of financial planning professionals to determine what investments are best suited for you.

Book an appointment with us today – Click Here

Probate is the process of getting your will approved by the courts. This process validates your will and allows your executors to distribute your assets.  However, probate can often be an expensive and long process. Each province has probate fees which can end up being quite substantial on a big estate. Probate can also cause serious delays in the distribution of assets from the will because once a will is probated it becomes public record. This means that it can be contested and potentially delayed while the courts settle any disputes. The good news is that with proper planning, it is possible to minimize or even eliminate the number of assets that have to go through probate.

What You Need to Know

There are a number of planning strategies that can be used to bypass or minimize probate. Below are some common strategies to make your estate as efficient as possible.

1. Beneficiary Designation on Registered Assets – RRSP, RPP, TFSA, RRIF, LIF, and LIRA are all considered to be registered assets. This means that the CRA allows for a direct beneficiary designation. If there is a spouse, they are entitled to roll registered accounts into their own names. If there is no spouse, then the investor can name an alternative person to leave the money to that they designate directly on the investment account. Money left to a beneficiary bypasses probate and passes directly to the appointed person.
2. Designating a Beneficiary on Non-Registered Assets – Typically, non-registered assets do not allow a beneficiary designation and automatically go to your estate to be probated. Segregated funds can be used to designate a beneficiary on non-registered assets.  Segregated funds are a life insurance product that are solely sold by life insurance companies. While the MER’s can be a little higher on segregated funds, they offer many of the same investment options that some mutual fund companies offer. Therefore, if non-registered money is invested in a segregated fund, they too will pass probate.
3. Trusts – Any assets left to someone in trust automatically bypass probate.  There are a variety of trusts that are all used for different reasons. Trusts can be more complex than the options listed above, but they can be a very effective planning strategy that allows you to assign a trustee to manage the money.  However, it’s important to note that setting up a trust can be expensive. If avoiding probate is the sole reason for the trust, then it may be prudent to add up the costs of each to see which makes more sense.

The Bottom Line

Probate costs and hold up can be minimized with proper planning and guidance from a professional.  It is important to note that on registered and investments and segregated funds without a named beneficiary, the assets automatically go to the estate. This means they would be subject to probate.  It is a good idea to review your beneficiary designations regularly to make sure they are up to date.

Book an appointment with us – Click Here

A financial plan is a strategy you set in order to be able to attain your goals. With a financial plan, you can effectively manage your cash inflow and outflow and other recurring financial responsibilities with the aim of putting you in a better financial position to attain your set financial goals. A good financial plan should include provisions for your debts, income, insurance, savings, investments, and other things that make up your financial life.

Mistakes You Should Avoid When Selecting a Financial Planner

Hiring A Financial Planner Based on Referral Only

In this case, what is good for the goose may not be good for the gander, and in that case, you should base your hiring a financial planner solely on the fact that your friend has good things to say about him. For one, financial situations are peculiar situations, and a financial planner may not be well equipped to handle all kinds of financial situations. Make sure you do your vetting using your criteria and not what your friend tells you.

Hiring A Financial Planner on Sentiment

When you hire a financial planner because of an existing relationship with them, then you might be making a big mistake. You should hire a financial planner based on your current and future financial needs. Also, you must ensure that such a person is absolutely qualified to handle your financial needs.

Using Past Performances

When you only consider the past achievement of a financial planner as a criterion of hiring such a person, then you may be making a mistake. The past performance of a financial planner does not guarantee future success or a better plan going forward. Once you notice your financial planner is not adapting your finances to your current financial situations for a better long-term financial position, then it may be time to make a change.

Not Conducting a Thorough Research

When hiring a financial planner, there are a lot of things you must consider. Such a person must tick as many boxes as possible of what you want in a financial planner. You should vet the credentials of the financial planner, if possible, interview his clients to know how he handles different financial situations that may be similar to your financial situation. Also, try and interview multiple financial advisors to know the different personalities and investment styles to be able to pick the best.

Getting Carried Away by Promises

Yes, we want the best financial planner but that does not mean a financial planner that promises heaven and earth is the best. Most of the time, a sweet talker is not the best at what they do. The same goes for financial planners. You should ensure that your financial planner is not only concerned about choosing the most profitable investment and exploring the market. These are usually for their ego. Go for a financial planner that has your long-term financial position at heart. They usually make the best decisions at every turn.

Tips On Having an Effective Financial Plan

Set Your Goals

A financial plan is mostly about having something for a rainy day and how to manage your current financial situation to be able to achieve that. Therefore, it is good to outline what you are saving for. You should be exact on why you have a plan and why you are saving for it.

Have A Budget

This is for you to better manage your cash inflow. You should outline your bills, debts, and other necessary financial obligations. Yes, you can spoil yourself once in a while, but that should not get in the way of what you are setting aside for your goals.

Sort Your Taxes

Taxes are inevitable but there are better ways to go about it that will ensure you save as much as you can on your taxes and enjoy tax deductions. This will give you a better cushion for your financial plan.

Be Ready for Emergencies

Life has a way of throwing us a curveball. Of course, things won’t always go according to plan, which is why it is important to include an emergency fund in your financial plan to enable you to deal with unforeseen circumstances and expenses. This is where insurance also comes in handy. Have a good insurance plan to help you deal with emergencies.

Don’t Swim in Debt

Achieving your financial goals doesn’t mean you should go committing yourself to every financial aid that will drown you in debt. Debt is one of the banes to an effective financial plan. Ensure that you manage your debt effectively so you can achieve your goals.

Be Ready for Retirement Taxes

Most financial plans get you ready for when you are no longer active. So, your retirement goals and plans should take the forefront of your financial plan.

Multiple Investments

The only way to multiply your savings is to invest in different portfolios that will bring you both short-term and long-term profit.

Have An Estate Plan

Lastly, have an estate plan that will help you make important financial decisions when you can no longer make them yourself. Having an estate plan is not only for the rich.

Book and appointment with us today – Click Here

There is no one and done way to invest, but there are a few tried and true principles that have served investors well over the years.

What You Need to Know

1. Have patience and a long-term outlook – Great investment results do not happen overnight.  Think of your moneys earning potentials in the context of years, not months.
2. Never buy on a tip… do your research – We all know someone who has “discovered” the next big money maker. Be wary of taking tips from friends and family members. Do your own research and make decisions that you are confident in.
3. Don’t sell on bad news – This may be particularly relevant right now.  Markets tend to overreact on the downside, so be sure that you know the actual implications of any bad news on your investments before making a rash decision.
4. Don’t allow your emotions to take over – Emotion has no place in the investment world. Facts, facts, and more facts are what should be making your investment decisions for you.  Having a plan and sticking to it can greatly help reduce emotion driven decisions.
5. Stay invested and take advantage of compounding – Compound interest is one of the most powerful tools that investors have.  Leave you money invested as long as you possibly can to take advantage of compounding.
6. Make an investing philosophy and stick to it – Know your comfort level and tendencies before you ever start investing. This way you will be sure to have a portfolio that will work for you instead of stressing you out.

To discuss your investments – contact us! Click Here

It is always a good day to review your financial plan! Knowing what you have and haven’t accomplished is vital to reaching both your long and short-term goals. Below is a list of financial planning priorities that should be reviewed regularly.

What You Need to Know

Insurance

• Did you buy a new house?
• Did you have a baby or add to your family?
• Did you get married?
• Did you take on new debt?
• Did you get a new job or have a change in income?
• Did you experience a marriage breakdown or divorce?

Liabilities (new or changed)

• Mortgage
• Business Loan
• Student Loan
• Line of Credit
• Credit Card Debt
• Car Loan
• Any other liabilities?

Assets (new or changed)

• Art
• Jewelry
• Cash
• Real Estate
• Land
• Stocks
• Bond
• Life Insurance Policies

Short Term Goals (New or Changed)

• Save for a House
• Save for Vacation
• Pay off High Interest Debt
• Start Emergency Fund
• Major House Repair or Renovation

Long Term Goals

• Retirement Dates
• Education Savings
• Mortgage Elimination

Investments

• Adjusting Risk Tolerance
• Reviewing Asset Allocation
• Savings Strategies
• TFSA
• RRSP
• RESP
• RDSP
• Un-Registered Accounts

Accounting for Big Changes

• Did You Move?
• Did You Sell Major Assets?
• Did You Change Jobs?
• Did You Take on More Debt?
• Did Your Family Grow?
• Did You Lose a Loved One?
• Is There a Critical Illness in the Family?
• Did You Receive a Gift or Inheritance?
• Was Someone in Your Family Diagnosed with a Disability?

The Bottom Line

Your advisor is here to help you and guide you through each step of the financial planning process. The above list should be used as a starting point to address basic financial planning needs.

Book an Appointment with us today – CLICK HERE

Credit card debt is a recurring debt you are allowed to owe as long as you don’t exceed your credit limit. A credit card account is tempting as you can get whatever you want on credit as long as it is within your limit. It is always advised that you shouldn’t make purchases you cannot afford to cover at month-end. Another tricky feature of a credit card account is their interest rate charges on your debt until you fully pay. Payment is usually due at month-end and failure to pay as and when due would result in the accumulation of your debt as annual interest will be charged on the amount owed. There is also a minimum payment of 1% to 2% of your balance plus other charges that must be made to ensure you keep crediting your account. If you pay less than this minimum payment, interests will be charged, and it will keep on accumulating. Owning a credit card account can be a nightmare if not properly managed.

Tips On How To Overcome Credit Card Nightmare

The basic truth about overcoming a credit card nightmare is by taking charge of your spending. If you get this right, then you will enjoy the benefit of a credit card account. Here are some tips on how you can overcome your credit card nightmare:

•  Know Your Credit Card – Get as much information as you can on your current credit cards or potential ones. Research the issuer’s payment schedule and other terms and conditions. Be sure to confirm the interest rate and other fees that will be charged if you delay your monthly payment. You can set up automatic payments and calendar alerts to avoid falling behind on your payment.
• Be Disciplined – You should set spending rules on your credit card that you must follow. You can set a limit on your credit card expenses in a month. This will give you control of your spending and ensure that you live within your means. It is advisable to charge on your credit card what you can normally pay for with cash or debit card.
• Keep Track – You should routinely keep track of the status of your account at least every week. Charges accumulate without notifying you, so it is advisable to check your account at least once a week to know the state your account is in. Adopting this principle will help you track your credit card debts, the types of credit you have, and your repayment history. These are what lenders will use to rate your credit score.
• Avoid Cash Advances – Having a credit card account that can take care of things when you can’t afford it is quite tempting. You tend to want to take cash advances because you know you have a credit card account that can take care of things. Cash advances from your credit card account result in higher interest rates and transaction fees. There is no moratorium on your cash advance. Interest is charged immediately you take the cash advance. Avoiding a cash advance will put you in full control of your credit card account.

Tips On How To Prevent Accumulation Of Credit Card Debt

Credit card debt is easy to accumulate but difficult to do repay. The only way to avoid credit card debt is to prevent it from accumulating in the first place. Here are some tips on preventing credit card debt accumulation:

• Negotiate Your Interest Rate – Negotiating your interest rate on your credit card debt will go a long way in reducing credit card debt accumulation. The interest rates on your credit card debt are what make it difficult to settle your debt. Negotiate your interest rates with your credit card issuer so you can get the best deal possible.
• Forget You Own A Credit Card Account – Once you are in a credit card debt, a trick you can try to prevent accumulating debt is to put your credit card away for other purchases, at least until you meet up with your monthly repayment. That is why it is advisable to use your credit card for short-term financial needs such as utilities, groceries, and some other monthly bills. This will lighten the burden on your credit card account by keeping your balance within a reasonable limit. If you can avoid using your credit card for a while, it will go a long way in reducing your debt burden.
• Pay Your Debt As and When Due – Simply put, what makes your credit card debt pile up are the charges and interest rates on delayed payments. The best way to get over this is to pay your credit card debt as and due. Missing a due payment can leave you playing catch up. Your next payment will be for two months.
• Watch Your Spending – A credit card account can leave you spending lavishly but you need to caution yourself and stick to what you can afford. Going for everything you see for sale is part of what gives you credit card debt. It is advisable to always avoid unnecessary spending.

Gender inequality affects almost all aspects of women’s lives, but perhaps none as much as their financial life. Canadian women earn on average only 88 cents to the dollar that men earn, and that number is even less for minorities and trans women. While progress is being made, there is still much work to be done. Luckily, there are simple steps we can all take to support women’s financial success.

What You Need to Know

1. Start Talking About Money: It is time to start talking to friends, family, and partners about money. We may find that we have a lot to learn from those around us. Money has been a taboo topic in our society for a long time and this taboo reinforces the wealth gap and money inequality. Talking about money can give you an idea of what is possible and where you stand financially. We tend to think we are falling behind others financially, or that no one else has ever had financial struggles. By starting meaningful conversations with those around you, you may find that they have similar experiences to you. This knowledge is empowering and can help you better navigate your own finances.
2. Spend Money on Women: Simply put, one of the best ways to be a financial feminist is to put money in women’s hands.  There are more women-owned businesses than ever and thanks to the internet, it is easy to be a mindful shopper. Take the time to search out businesses owned by women and prioritize supporting them when you can.
3. Raise Financially Savvy Girls: Financial inequality starts early. According to data analyzed by BusyKid, an allowance app for kids out of the US, parents pay boys twice as much for doing chores as the pay girls for the same chores. It also found that only 21% of parents talk to their kids about money, and only 10% talk to their kids about investing and debt. Talking to your kids about money, especially girls, will set them up for success later in life. Kids tend to think Mom and Dad have unlimited resources. Explain to them what your expenses are, including your investments and savings strategies. Get girls into the mindset of building wealth early.
4. Investing with Intention: Every dollar you invest has an impact. Therefore, it is important to choose investments that not only will be profitable, but that align with your values. Look for successful companies with gender-equal boards, women leadership, and good track records of equality in the workplace. Put your money to work in more ways than one.

Book an appointment with us today! Click Here

Many people may worry as they get older about what will happen if they are no longer able to manage their finances and personal property. It can be a good idea to be proactive in planning ahead for a time when you may need help managing your affairs. One option available to Canadians to address this financial planning concern is appointing a Power of Attorney.

What You Need to Know

What Is a Power of Attorney?

Power of Attorney (POA) is a legal document that gives one or more persons the authority to manage your finances on your behalf. Once a person is appointed POA, they have the same decision-making abilities over your finances and property as you do. This includes bank accounts, investments, bills, real estate etc.  It’s important to understand that this does not mean they now own the property, only that they can make decisions regarding it. POA is limited, however, and they do not have the authority to make or change your will, change beneficiaries, or appoint a new POA. You have the ability to outline how the power of attorney can act. For example; you can limit them to having decision making abilities over only one piece of property.

It is possible to appoint more than one person as power of attorney. The acting POA’s can be required to make decisions together, or have the ability to act separately. This is something that is outlined in the power of attorney document. Unless you become mentally incapable you still maintain the same control over your finances and property.

Types of Power of Attorney?

There are two types of power of attorney when dealing with finances and property:

1. General Power of Attorney – General POA gives someone the authority to make decisions over some or all of your property on your behalf. General POA only has this authority when you are mentally capable of managing your own affairs. POA ends immediately if you become incapable. Power of Attorney can come into effect when you assign them or on a specified date.
2. Enduring/Continuing Power of Attorney – Enduring POA allows for the appointed attorney to have decision making power over your property when you are mentally incapable.

Choosing an Attorney

The person you assign as power of attorney should be someone you trust completely. This person could be a spouse, sibling, child, or other friend/relative. The minimum legal age for a POA varies from province to province. It is recommended to assign a substitute POA in the event your first choice is unable or unwilling to assume the role. It is important to note that in some provinces, POA’s are entitled to be paid unless otherwise specified in the document. Power of Attorneys must be able to manage your money in your best interest and keep detailed records on the decisions they make on your behalf.  Below are a few questions to ask yourself about the person you are considering appointing:

• Does this individual have experience managing money and property? Do they do a good job of managing their own affairs?
• Do you know this person well enough to feel that you can trust them?
• Do they have any personal issues that may interfere with their ability to act in your best interest?
• Does the individual understand what will be expected of them as your attorney?
• Does this person have the time to manage your money or property as well as their own?
• Is this person nearby and readily available to assume this role? Having someone that lives far away from you may cause issues.
• Has this person willingly accepted their appointment as attorney?

Benefits and Risks

Benefits:

• Makes it clear to family and friends who will be responsible for your money.
• POA’s must manage your money for your benefit and can be required to account how he/she manages it.
• Your Power of Attorney document can be as general or specific as you want giving you great flexibility over what assets your attorney would have control of.
• The ability to have multiple attorneys can limit the possibility of someone taking advantage of you.

Risks:

• Can lead to mismanagement of your money if your POA turns out to be untrustworthy.
• Sometimes people limit the abilities of the POA to the point that it makes it difficult for the POA to fully take care of your finances.
• Appointing two or more POA’s can come with certain challenges. If the POA’s are required to act jointly then it is possible that they will not agree on certain decisions.
• If your Power of Attorney is not up to date, it is possible that the person you appointed may be currently unsuitable for the role.

The Bottom Line

Appointing a Power of Attorney can be a good option for many people and gives them the peace of mind that someone will be able to help them with their money if there is ever a need for it. When appointing a Power of Attorney, it is important to work with a lawyer who can fully explain the legal document to both you and your attorney. You should never feel pressured by a relative or friend to sign a Power of Attorney.

It is also important to note that a Power of Attorney for Property is not the same document as a Power of Attorney for Personal Care. A POA for property will have no authority to make decisions regarding your personal care.  These are two separate legal appointments and they are not interchangeable.

Book an appointment with us today – CLICK HERE

When it comes to financial advisors, less is more! There are many benefits to having only one advisor that you trust to work with to execute your financial plan and work toward your financial goals. Below are a few ways having one advisor can benefit you.

What You Need to Know

1.   Consolidation

Having multiple advisors means you have multiple accounts, possibly with multiple different companies. This can become confusing for you and eventually your beneficiaries. Consolidating will not only make your investments easier to keep track of, but it will ensure that your investments are working together instead of potentially working against one another.

For example: If you hold a clean energy fund with Advisor A and also hold a clean energy fund with Advisor B, then you may be over invested in an asset class. If the investments were all being managed by one advisor, they would be able to create an asset allocation for all your money that would manage risk appropriately.

2.   Taxes

Registered contributions, income planning, and estate planning are just a few of the decisions that you will make with an advisor that can significantly impact your income taxes. Having two or more advisors can pose a significant risk when it comes to tax planning.  One advisor can’t know what another is doing.

For example: If your RRSP contribution for a given year is $20,000, your advisor may advise you to contribute to your RRSP. However, if you have another advisor who is unaware that you have already used up that contribution room, they may advise you to contribute to your RRSP as well. This can result in stiff penalties for overcontribution. Having one trusted advisor can eliminate this problem. 

3.   Fees

Many advisors operate with a fee-based compensation structure that is dictated by account size. Having all your investments in one place may offer you the opportunity to save on fees.

For example: If you have three $100,000 accounts with three different advisors and are paying 1% on each account then you are paying $3,000 total in fees. However, if you consolidated your portfolio with one advisor who may be able to offer you a lower fee due to account size (let’s say .75%), you could be saving big time in annual fees!

The Bottom Line

Having one advisor that you trust is a smart financial move. Your portfolio will be simplified, better allocated, and benefit from someone having knowledge of your entire financial picture. If you do choose too have more than one advisor it prudent to ensure that the advisors are in contact to make sure that their decisions aligned and make sense for your financial plan.

Book an appointment with us today – Click Here

Housing prices have been climbing quickly. This is especially true in major urban centers where most Canadians live. The rate of increase for the average sale price appears to be climbing faster than people are able to save.

Some Canadians see the dream of homeownership vanishing, others wonder if the choice to own is appropriate for them. No matter the situation, objective analysis should accompany the emotional aspects of buying a home.

What You Need to Know

Regardless of the ultimate choice, affordability is an important decision criterium. No one has ever enjoyed being “house poor”, where little money is left after making your rental or mortgage payment. Based on household income and available down payment a maximum purchase price can be determined.

Every Canadian financial institution has an online calculator to determine mortgage payments. Mortgage providers employ additional analysis tools to predict whether a borrower will repay the lender based on their income, total expenses and financial history. If lenders are reluctant or refusing to provide a mortgage, perhaps the timing is not appropriate, yet.

Mortgage rates have been at the extreme low end of their range for several years as central banks around the world have attempted to revive economies through inexpensive borrowing. When interest rates are low more people and businesses can afford to borrow more. When something is on-sale people buy more, but for borrowing you cannot decide to delay a purchase when prices rise. Payments must still be made.

At some point rates will rise and some homeowners may not be able to afford their new, higher payments. Before buying their first home, borrowers should ask themselves, “if mortgage rates rose by 2%, would I be still able to afford my payments?”. For example, a $400,000 loan with an additional 2% interest adds $8,000 interest charges per year, or $667 more each month.

That increase would sit atop the existing mortgage payment. The same $400,000 mortgage with a 25-year amortization and 2.25% 5-year fixed rate requires a monthly payment of $1,750. Each additional $100,000 adds another $450 per month to the payment.

Lenders typically limit housing costs to 35% of gross income, acquiring a mortgage will ultimately decide if you purchase and the price. If you earn $100,000 then your maximum housing costs are $35,000 per year. Subtracting property taxes, condo fees and utilities will determine the amount available for mortgage payments. If these costs totaled $14,000, then a maximum of $21,000 would remain for mortgage payments. $21,000 divided by 12 equals $1,750 per month, yielding your maximum mortgage of $400,000.

A down payment is also required; the more the better. At least 10%, but 20% is preferred to keep payments lower. In the examples above with a $400,000 mortgage a first-time home buyer should plan on a down payment of at least $50,000 netting a purchase price of $450,000.

An experiment to determine if home ownership is appropriate is to act as a homeowner while renting. That is, make housing costs equal 35% of gross income. Set aside exactly 35% each month, pay your rent and utilities and the rest goes directly into a savings account, an RRSP or TFSA. Set up the deposit like a monthly bill that is paid automatically.  If you are able to practice this disciplined spending/saving approach you are able to live at 35%, if not habits may need to be changed or a more modest home purchase should be contemplated.

Continuing the example of $100,000 income, then $35,000 per year or $2,920 should go toward rent, utilities and savings. If rent is $1,800 and utilities are $150 set up an auto-deposit for $970 each month. At the end of one year you will have nearly $12,000 more set aside. At the very least this test should increase the amount of your down payment.

While you are accumulating your down payment the type of investments you purchase and sheltering it from taxes is also important. First time homebuyers can withdraw funds from their RRSPs, for example. Certain conditions apply, of course.

The Bottom Line

A dangerous emotion during a period of rapid rises in house prices is desperation. “If we don’t buy now, we’ll never be able to afford a home” has led many to overextend themselves financially. After that has occurred owning again can be almost impossible.

Couple the dreams of home ownership with objective analysis to determine the best course of action. Prudently investing your down payment in a tax advantaged way is another important aspect of the home buying and ownership experience. I am happy to help with calculations, scenarios, timing, negotiation advice with lenders and investment recommendations.

Talk to us today! Book an appointment HERE!

In our everyday life, we spend so much on bills and other financial expenses we feel like a superhero when we wonder how we have managed to keep things together. One of the ways you can stay afloat and not drown in expenses is by having a credit card account. A credit account is a type of account that allows you to borrow money from your account to cover your monthly expenses.

You are however required to pay back money borrowed with interests and other additional charges. The line of credit you can borrow depends on the level of your debt. You have the option of paying your debt monthly or after each statement cycle. The nature of a credit card account makes it easy to accumulate debt which could be difficult to get out of. It offers a continued balance of debt option which makes it easy to accumulate debt. To avoid this kind of debt situation with a credit card account, here are some tips on the mistakes you should never make with a credit card. 

Mistakes You Should Never Make with A Credit Card

1. Maxing Out Your Credit Card – When you max out your credit limit, apart from the huge debt profile, you also have other issues to be worried about. You may find it difficult to obtain another credit card account because of your credit score. You will also attract an Annual Percentage Rate (APR) which will be charged on every late payment. It is advisable to set a limit to your account to caution you and prevent you from maxing out your account.
2. Paying Late – When you make late repayments on your credit card account, it damages your credit score and may put you in the bad books of your credit card issuer. A month’s late payment could reduce your credit card score by as much as 100 points. Imagine you are late for 3 months or more. You also stand the risk of accumulating APR on your late payments which increases your debt profile. The remedy to this is to ensure that you pay your credit card debt as and when due.
3. Minimum Payment Habits – There are minimum debt payments you are required to meet every month on your credit card account. however, it is not advisable to only pay the minimum payment every month. You are still susceptible to APR charges which will increase your debt profile. To avoid this, try as much as possible to pay more than your required minimum payment.
4. Not Reviewing Your Account Statement – One common and avoidable mistake you can make on your credit card account is to overlook checking your account statement on a regular basis. Reviewing your credit card account regularly allows you to know the status of your account and prevent reporting or charging errors and potential frauds from taking advantage of your account. if you cannot keep up with a weekly review, you should at least do a monthly account review to keep up with your bills and know the status of your account.
5. Having Too Many Credit Card Accounts – In the short term, this might be a good idea because it gives you enough options to source for lines of credit to cover your expenses. However, in the long term, what this means is that you will not be able to keep up with the accumulated debt on different credit card accounts. These accounts will also charge APR which means more debts. Also, when you apply for a new credit card, the card issuer makes an inquiry on your credit card and too many inquiries may spook your existing lenders. You can take advantage of Pre-qualification forms which give you the opportunity to check if you qualify for a new credit card without damaging your credit score.

If there is ever a time to start understanding how interest rates work, now might be it! The Bank of Canada has been slashing interest rates consistently since the beginning of the Covid-19 pandemic. Below is a simple explainer of what it means to cut rates and how it could affect you and your money.

What You Need to Know

What Is an Interest Rate?

Simply put, an interest rate is the cost you pay to borrow money. For example, a bank may agree to lend you $10,000 but only if you agree to pay them 9% interest on that $10,000. This is how lenders get paid.

What Is the Federal Fund Rate? And Why Does it Change?

The federal fund rate, also known as the overnight rate, target rate, or nominal rate is one of the most important tools the federal government has.  A central banks ability to change the target rate is used to sway the economy in two major ways:

1. The first is inflation. The government can raise interest rates when inflation is becoming too high as a way to stabilize it. The idea is that the raised rates lessen the flow of credit into the financial system. These raised rates tend to discourage people from borrowing and spending, which in turn can stop the rise of inflation.
2. The second is to stimulate the economy. This is when growth is too low and unemployment is too high. By lowering the rates, the central banks hope to encourage borrowing and start a flow of money into the economy.

How Will Changes Affect You and Your Money?

Rate changes will affect anyone who has any debt. That means mortgages, lines of credit, credit cards…essentially anything you pay interest on! This is important for mortgages; especially when rates go down. If you have a fixed rate mortgage, rates going down may be a good reason to refinance and take advantage of lower interest rate.

What Do Interest Rates Have to Do with Investing?

Lowered rates are meant to encourage people to start investing in risky assets such as stocks and bonds.  This of course is part of the plan to stimulate the economy. By lowering interest rates, securities become more attractive than keeping your money in cash. The fact that the government takes steps such as this in an economic downturn is one of the reasons that securities typically will outperform cash in the long term.

The Bottom Line

The central banks have been using interest rate cuts to try to hedge against the economic impact of the covid-19 pandemic.  Lowered interest rates are designed to provide opportunity to businesses and investors. Be sure to talk to your advisor to find out how you could benefit.

Book a meeting with us today! Click Here

Financial terminology is crystal clear for those folks who work in and are exposed to the financial industry on a regular basis; everyone else finds the definitions and implications difficult to understand. “Universal” and “Whole Life” life insurance is not exempt from this reality.

What you need to Know

Whole Life

Whole Life Insurance is also called ‘permanent’ as it provides a lifetime of coverage. As long as the premiums are paid, the insurance stays in-place permanently. At the beginning of the Whole Life policy the death benefit and premiums are usually guaranteed, and remain fixed.

Whole life policies pay the death benefit when the insured person passes away. They can also accumulate additional cash value inside of the policy. The invested premiums fund the death benefit, and whenever excess premiums occur they are then invested by the insurance company on your behalf and create a Cash Value.

Typically, Whole Life insurance is less expensive to purchase than Universal Life, and is the ideal option for those people who desire level premiums and a predetermined death benefit.

Universal Life

Universal Life Insurance is a slightly more complicated financial solution as it is considered both a Whole Life policy and a tax-preferred savings account, combined together. At the beginning the death benefit is set, and then any premium payments above what the life insurance policy requires can be used to increase the death benefit or be held in a tax-preferred savings account.

This last point is important for those people who may have maximized allowed RRSP contributions and are looking for additional ways to shelter income and wealth from taxation.

The Bottom Line

To understand the differences between Whole Life and Universal Life Insurances be sure to consult with your Advisor.

Click HERE to book an appointment with us today!

With a new year comes new tax numbers!  Below is a quick reference of important tax numbers for three years, including 2022.  CRA has utilized a 1% indexing (inflation) for those numbers subject to that condition.

What You Need to Know

Taxable income brackets: 

RRSP Contribution Limit: 

• 2020: $27,230
• 2021: $27,830
• 2022: $29,210

TFSA Limit

• 2020: $6,000
• 2021: $6,000
• 2022: $6,000

Maximum Pensionable Earnings

• 2020: $58,700
• 2021: $61,600
• 2022: $64,900

OAS Income Recovery Threshold (claw-back begins)

• 2020: $79,054
• 2021: $79,845
• 2022: $81,761

OAS Maximum Recovery Threshold (claw-back recovers all OAS payments)

• July 2021 to June 2022: $128,149
• July 2022 to June 2023: $129,757
• July 2023 to June 2024: $133,141

Lifetime Capital Gains Exemption

• 2020: $883,384
• 2021: $892,218
• 2022: $913,630

Maximum EI Insurable Earnings

• 2020: $54,200
• 2021: $56,300
• 2022: $60,300

Medical Expense Threshold

• 2020: 3% of net income or $2,397, whichever is less
• 2021: 3% of net income or $2,421, whichever is less
• 2022: 3% of net income or $2,479, whichever is less

Basic Personal Amount for individuals whose net income is less than the beginning of the 29% tax bracket

• 2020: $13,229
• 2021: $13,808
• 2022: $14,398

Age Amount and Net income threshold amount

• 2020: $7,637  $38,508
• 2021: $7,713  $38,893
• 2022: $7,898  $39,826

Canada Caregiver amount for children under age 18

• 2020: $2,273
• 2021: $2,295
• 2022: $2,350

Child Disability Benefit and Family Net income phase out

• 2020: $2,886  $68,798
• 2021: $2,915  $69,395
• 2022: $2,985  $71,060

Canada Child Benefit

• 2020: $6,765 per child under six, $5,708 per child age 6-17
• 2021: $6,833 per child under six, $5,765 per child age 6-17
• 2022: #6,997 per child under six, $5,903 per child age 6-17

The Bottom Line

These are the current numbers released as of January 2022, but could change without notice, and be superseded by other stimulus measures.

Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/adjustment-personal-income-tax-benefit-amounts.html

As each February concludes and RRSP contribution season ends, investors across Canada exhale feel a sense of relief and accomplishment. RRSPs are an extreme example of deferred gratification; doing something good now for a benefit that occurs much later.

As the North American society has moved away from employment-based pension plans everyone is responsible to save for their retirement, and Registered Retirement Savings Plan is a fundamental tool to save. This is especially true when publicly managed pensions like Canada Pension Plan (CPP) and Old Age Security (OAS) do not provide enough income for most.

Saving for retirement takes planning and discipline, it is not easy to manage the important (retirement savings) with the urgent (immediate expenditures).

An RRSP allows Canadians to defer income tax on both the initial deposit and any growth those assets generate. Making the maximum contribution could save you almost $15,000 on this year’s tax bill depending on your income level and associated tax rate.

What you need to know

• Contributions to your RRSP are deducted from your taxable income. If you earn $100,000 and make a $24,000 deposit, you are taxed on $76,000 for that year.
• Contributions and earnings are subject to income tax when withdrawn, or at death (unless the RRSP is transferred to a surviving spouse).
• Contribution amounts are based on your income level. 18% of your income can be deposited into your RRSP with the annual limit of $27,830 for the 2021 tax year and $29,210 for 2022.
• Contribution room from previous years that has not been used is carried forward.
• Contributions can be made at any time during the year, and until the end of February for the prior year’s tax return. This allows the prior year to conclude before the contribution amount is fully calculated.
• Contributions can be managed based on your unique situation, current and potential earnings and the tax brackets that you fall into. For an Ontario resident paying the highest marginal tax rate of 53.53%, a $24,000 deposit will reduce your income taxes by $12,874.
• Contributions can be managed between years to reduce overall taxes. Unused contribution room can be utilized for years when a higher tax bracket is being applied to your income. Depending on your situation it might be better to wait or make a deposit now.
• Contributions often generate a tax refund. When your payroll deductions are accurate most people will not pay or get a refund when filing their taxes. An RRSP is not typically factored into these calculations, and the tax savings generated by an RRSP deposit often appears as a refund!

And finally:

Contributions that are made monthly typically grow larger than the same yearly amount deposited annually after each year has concluded.

•  $2,000 deposited at the start of each month for 25 years grows @ 6% to $1,385,988
• $24,000 deposited at the end of each February for 25 years grows @ 6% to $1,316,748
• Without any additional deposits that’s a difference of   $69,240!!

This is often a conservative estimate. The difference is usually much larger because an investor who commits to monthly contributions and agrees to a PAC (Pre-Authorized Contribution) is much more disciplined. An annual, large payment is more susceptible to the negative effects of variations in year-end bonuses and a year of day-to-day spending. The temptation is to believe that, if skipped, payments can be caught-up later, which the effects of compound interest make it difficult to achieve.

The Bottom Line

Setting up an RRSP with a monthly PAC can help you retire sooner, because we cannot save what we have already spent.

Book an appointment with us to discuss setting up your RRSP or Monthly PAC – click HERE

If you have been a good saver and contributed religiously to your RRSP, you should be rewarded with a sizeable six or seven figure RRSP that would make your retirement that much more enjoyable. The only issue now is – how do you get the money out of the RRSP without paying more tax than you should? Typically, it is advised that investors leave their RRSPs alone for as long as possible to take advantage of the tax-free growth. While this can be true for many people, it is important to crunch the numbers before you retire to make sure this makes the most sense for your unique retirement situation. Many retirees, especially those with a high net worth, may find there could be a more efficient way to withdraw retirement income.

What You Need to Know

The intended use of a RRSP is to defer taxes from the time you are in a high tax bracket until you get into a lower tax bracket, thereby saving some tax on your contributions and allowing the money to grow tax free for many years. At some point, however, you must take that money out. The government mandates that Canadians must convert their RRSP to a RRIF, or an annuity, at age 71. The government also mandates that a minimum amount be taken. The issue with waiting until you are required to convert to a RRIF and take income is that you have little flexibility as to what you can withdraw. If your RRSP is large, the mandatory withdrawal amount may push you into higher tax brackets

Let us look at an example of how this could play out. In this situation below, the retiree has waited until age 71 to start drawing down their RRSP:

Joe has a RRIF worth $600,000 and his minimum withdrawal at age 71 will be $31,680 (5.28% x $600,000 = $31,680) for the year. He receives the maximum CPP benefit of $14,445 annually and an OAS benefit of $7380. These three income sources alone will total $53,505. The lowest tax bracket for the year 2021 is $49,020. This means Joe has been pushed into a higher tax bracket! This is before the income from his rental properties, defined benefit pension plan, and income from his non-registered investments are calculated.

As you can see from the example above, waiting until the last minute to start taking an income from your registered investments can have unintended consequences. Aside from simply paying higher taxes, there are income tax implications that need to be considered as you move to higher tax brackets as well. At age 65, you gain two tax advantages: the Age Amount non-refundable credit ($7635 for 2021) and the Pension Income credit ($2000 for 2021). The Age Amounts is income-tested and it reduces by 15% of the amount your net income exceeds $38,893 for 2021. This claw back also applies to your OAS, which begins if your income exceeds $79,054. Both credits could be affected by RRIF minimums that become mandatory at age 71, therefore:

1. Pushing you into a higher tax bracket
2. Cause a partial or total loss of your Age Amount tax credit
3. Cause a partial or total claw back of your OAS income

And since the minimum withdrawal rate gets larger as you get older, this issue will only worsen as you age.

Here are some strategies that could help you pay lower taxes on your RRSP withdrawals:

1. Consider deferring your CPP and OAS. Both Canadian pensions allow you to defer until age 70 to start receiving them, and you get rewarded for the deferral by receiving higher amounts. You can then use RRSP withdrawals to fill the income gap that the CPP and OAS would have provided, so you can draw down your RRSP at a lower tax bracket.
2. When you stop working, you normally fall into a lower tax bracket, so top up your income to your existing tax bracket with RRSP withdrawals.
3. Start a RRIF at age 65 to take advantage of $2,000 pension income credit. No matter how much income you have. This pension credit will allow you to withdraw $2,000 tax free from your RRIF, if you do not have any other pension income. So, fund the RRIF with your RRSP money to take $2,000 out tax-free each year.
4. If your spouse’s RRSP value does not equal yours, you can start to equalize the amounts by withdrawing from yours to put into a spousal RRSP, if you have contribution room. The tax on your withdrawal is eliminated by your equivalent contribution into the spousal RRSP.

The Bottom Line

Always take to a financial advisor before starting RRIF payments. There is no one-size-fits-all when it comes to planning for retirement income. Everyone must consider their own financial situation when deciding how and when to start taking an income from your RRSP. Some things to talk to your advisor about: a) the amount of your minimum RRIF withdrawals at 71 b) how secondary income (rental income, side business etc.) will affect your tax bracket c) the best time for you to start OAS and CPP. It is important to ensure all your income sources are working as tax efficiently as possible so that you can get the most out of your hard-earned retirement savings!

Book an Appointment with us to discuss your RRSP – click HERE

Many people tend to neglect the insurance part of their portfolio, but it is one of the most important tools you can have as a part of a financial plan.  Just like your investments or other assets it should be reviewed regularly to ensure it is still protecting you in the ways that you need it to. The steps below will help you get started on your own life insurance audit.

What You Need to Know

Step 1: What is the Purpose of My Current Coverage?

Ask yourself what purpose the life insurance serves you and your family. Your insurance could be used for any of the following purposes:

• Debt Elimination
• To Fund an Estate Strategy
• Income for a Survivor or Dependent
• To Fund a Buy Sell Agreement Between Business Partners
• Investment
• Charitable Donation

It is essential that the type of insurance you own is compatible with your plan for its proceeds. For example, if your intent is to leave the insurance proceeds to a charity upon your death, a term policy would not make sense as it’s possible the term would be expired years before your death. This should be the first part of your review. A trusted financial advisor can help you determine if your current coverage is suitable, and if it is not, what options are available that could better carry out your last wishes.

Step 2: Do My Beneficiaries Need to be Updated?

Beneficiaries are typically named when a life insurance is purchased, and they determine who will be eligible to receive the proceeds of the policy upon your death. Therefore, it is important to regularly review who your named beneficiary is.  Marriage, divorce, and death of a loved one are all reasons to do a review of your beneficiary and potentially assign a new one if necessary. Beneficiaries can be individuals, a corporation, business partners, a registered charity, or your estate.

Step 3: Have I Experience Any Major Life Changes?

Insurance needs change as life changes. Major life events warrant a total insurance review. Examples of life changes can affect your insurance needs:

• Marriage
• Divorce
• Purchasing a Home
• Birth of a Child
• Owning a Business
• Death of a Partner
• Gaining custody of a dependent
• Taking on significant debt

You may find your insurance need is greater than when you initially purchased your life

insurance policy.

Step 4: Have I Reached Any Financial Milestones?

Have you paid off your mortgage? Paid off your business loan? You may not require the same amount or type of insurance policy.  Reaching a big milestone like this could mean you could be better served by different type of policy. For example, if your $5 million business loan was covered by a term policy of the same amount, you may no longer require such a high face value. It may be more beneficial to convert the policy for a smaller amount (i.e… $1 million) to a more permanent policy.

Step 5: Have My Premiums Changed?

This is particularly relevant when it comes to term policies. At the end of a term, a term life insurance policy automatically reviews. This can drastically increase the premium. Since policies renew automatically, it is possible your premium has increased since purchasing the policy.

The Bottom Line

As a rule, you should do a life insurance review every 2-3 years.  You may be surprised at how much your life has changed!  Your life insurance advisor can help you review your policies and make recommendations based on your ever-changing situation.

Book an appointment to discuss your insurance needs – Click Here

If you are nearing retirement, you may be starting to think about creating retirement income for yourself from your RRSPs. Registered Retirement Savings Plans (RRSPs) are considered accumulation vehicles.  This means they are used to save for your retirement in a tax efficient way. When the time comes to start using your hard-earned savings to fund your retirement, you may want to consider moving them to a payout vehicle called a Registered Retirement Income Fund (RRIF).

Much like an RRSP, a RRIF is a tax deferred account that allows your investments to grow without immediate tax implications. The purpose of a RRIF is to distribute your savings to you in your retirement years while still allowing your money to grow tax deferred.

What You Need to Know

When to Convert Your RRSP to a RRIF

You can convert your RRSP to a RRIF at any time, but you must do so by the end of the year that you turn 71. This conversion must be done regardless of whether you need income. Once you convert your RRSP to a RRIF you must start taking scheduled income.

If you are under 71 and do not require a steady stream of income, it is often beneficial to keep the funds in an RRSP. This way you can still take money out, if necessary, but the account can continue to grow without being drawn down on a regular basis.

How to Convert Your RRSP to a RRIF

It is important to convert your RRSP directly a RRIF to avoid unnecessary taxation. The process is simple but should be done with the guidance of a financial advisor to ensure the conversion is done correctly and in a timely manner.

Step 1: Fill Out a RRIF Application – Converting a RRSP to RRIF will require that you open a new account. Your advisor will prepare the paperwork for you.

Step 2: Name Beneficiaries – Registered accounts allow investors to name a beneficiary. Beneficiary designations allow money to be passed quickly and directly to a spouse or qualified dependent in the event of your death. Spouses and qualified dependents are eligible to receive the proceeds tax free. You can leave the money to anyone you wish; but they will be taxed on the amount received.

Step 3: Determine a Withdrawal Schedule – There are several considerations when withdrawing from your RRIF:

• Payments from a RRIF must begin the year after your 71st birthday.
• All payments are considered taxable income in the year they are received.
• RRIFs are subject to minimum withdrawal requirements and a certain percentage must be withdrawn each year. The percentage that must be withdrawn increases as you age. There are no maximum withdrawal amounts.
• You can choose to receive payments monthly, quarterly, semi-annually, or annually.
• You can elect use your spouse’s age to calculate the minimum withdrawal. This can allow you to keep the funds in the account longer and retain their tax deferred status.
• Any withdrawals over the minimum amount are subject to withholding tax.

The Bottom Line

It is important to pay close attention to the timing of converting your RRSP to a RRIF. If the RRIF is not established by the end of the year in which you turn 71, the account will be deregistered and all the funds in the account will become taxable income to you in that year. Plan well in advance to ensure you keep the registered status of your investments!

Book an appointment with us HERE!