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A recent study, Understanding and Managing the Risks of Retirement, by the Society of Actuaries has shown that only 52% of pre-retirees and only 44% of retirees are consulting a Financial Advisor. That means that roughly half of the population is seeking financial advice outside of a financial professional, whether that be friends, family, colleagues, or Google. We live in a time where we turn to technology for everything. We can quickly search anything we want to know, and as a result, we are inundated with information. When it comes to dealing with our finances, this approach can be confusing and overwhelming. By making your financial advisor your first point of contact, you know that you are being provided with knowledge that is relevant to your financial situation.

What you Need to Know

Working regularly with your financial advisor can bring incredible value to your financial plan. A study by Morningstar found that investors who consistently work with an advisor generate returns that are 1.82% higher than those who do not. Their research also found that investors that actively seek out advice from their advisor accumulate 29% more wealth for retirement than those investors who do not.

A Financial advisor can provide you with the kind of expertise and guidance you deserve. You work hard for your money, and while seeking advice from the internet or advice from friends can be convenient, you can’t always trust that it is accurate or relevant. Every investor has specific needs, and there is no one size fits all when it comes to investing. Inaccurate or irrelevant information can lead you to make costly decisions. By talking to your advisor, they can act as a sounding board for the information you read or hear about. An advisor can offer guidance on whether a new concept or product could benefit your portfolio, or if it’s just a trend that offers you no value.

One of the greatest risks to your financial plan is making uninformed decisions during a downturn in the markets. In bearish markets, we are flooded with market information and down-right bad news. Before turning to potentially unreliable sources, consult with your advisor first. Research by the Investment Fund Institute of Canada has shown that individuals who have worked with a financial advisor and have a customized plan are twice as likely to rebalance appropriately during a downturn. Making your advisor you first contact will allow you to filter out the panic and allow you to see the facts, therefore keeping your goals on track!

The Bottom Line

By getting in the habit of talking to your financial advisor before looking for advice elsewhere, you can reduce the risk of falling prey to inaccurate and irrelevant information. If you trust in the expertise that your advisor can provide, you can reap the benefits of higher returns and higher level of wealth in retirement. In other words, you can reach your financial potential!

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Tax season is upon us and unfortunately that means paying any taxes that may be outstanding. Taxes should be carefully planned each year to ensure they do not become overwhelming, but what happens if you are faced with an unexpectedly large bill?

The most important thing to do if you have a large tax bill coming your way is to file your taxes on time.  Avoidance does not work with the CRA and it is best to face tax debt head one.  Delaying will only end up with additional penalties. There are a number of strategies available to help you deal with your tax debt.

What You Need to Know

1. Get a Personal Loan: This is the first step the CRA will expect you to take to pay off your debt.  Personal loans, borrowing against the value of your home, or borrowing from an individual are all options here. This will be the path of least resistance for most people. A personal loan will wipe out your debt to the CRA and allow you to create a reasonable payment plan for your situation that gives you flexibility to defer if necessary.

2. Access the Value in Your Home: Your home is often the biggest asset you own. Therefore, there are usually options to borrow against the value of the home. This can be done is a few ways:

• Home Equity Line of Credit: The first options are looking into lending products such as a Home Equity Line of Credit (HELOC). HELOC’s work by allowing a homeowner to take out of large line of credit on their home.  Many people use these products as a mortgage alternative, but they also work to access the value of your home without selling the property.
• Refinancing your Home: Refinancing is essentially taking a new mortgage out on your house. If you currently have a mortgage, this may mean replacing that mortgage with a new one that has a higher principal amount. If you are currently living mortgage free, this means picking a mortgage on the house as you normally would if you were buying a new house.
• Use Your House as Collateral for a Loan: Many loans, especially those of large amounts, require collateral before they are issued. This means the lending institution wants something of value put up against the loan in case the loan is not repaid.
• Sell Your Property: A last resort but selling a property may be the only way to gain access to its value if you are unable to secure financing.

3. Request for Taxpayer Relief: Individuals with outstanding debts to the CRA may be able to request “Taxpayer Relief”. Taxpayer Relief can reduce your amount owing by offering relief from penalties and interest charges.  Typically, taxpayer relief is only granted under extraordinary circumstances such as job loss, serious illness, and a clear inability to pay. Taxpayers must submit a formal request to the CRA using form RC4288 and submitting complete and accurate documentation of their circumstances.

4. Request a Payment Plan: Taxpayers may request a payment plan from the CRA but only after they have exhausted all other reasonable options to pay their balance i.e. Personal loan, refinancing house etc. Payment plans are typically not available for large amounts that can’t be repaid in a year. When negotiating a payment plan with the CRA it is always best to involve a tax professional who can make the negotiation for you.  CRA negotiators are experienced and their main concern is getting the balance owing as quickly as possible. It isn’t uncommon for taxpayers to enter a payment plan that is unrealistic for their financial situation.  CRA’s priority will always be the debt owed to them.

5. Declare Bankruptcy: Declaring bankruptcy has devastating short- and long-term financial effects and should only be utilized as an absolute last resort. Assets could be ceased and you will be unable to obtain credit for many years.  All options should be exhausted before resorting to bankruptcy. Hiring a debt counselor to help you decide if bankruptcy is indeed your only option would be prudent.

The Bottom Line

Tax debt can be overwhelming but realize there are options available to you.  It is always recommended that a professional tax consultant be hired if debt becomes unmanageable. They can help you consolidate debt, make payment plans, and negotiate with the CRA on your behalf.

It’s a common misconception that having a pre-existing condition means that you automatically do not qualify for life insurance. The good news is this is not always the case and armed with a good life insurance agent, many individuals with pre-existing conditions get approved for insurance. The path to being insured just may look a little different for someone with a medical condition.

What You Need to Know

1.Work with a Broker

There are many life insurance carriers in Canada and each company has a different set of underwriting guidelines and level of flexibility. It is crucial to reach out to a number of companies when trying to get a pre-existing condition covered. Working with a broker is the most efficient way to research companies as most life insurance brokers have the ability to work with any company they choose. This also means they will have knowledge of which companies work best for hard-to-insure clients.

2. Understand Traditional Underwriting vs Non-Medical Underwriting

Many companies now offer non-medical underwriting. This usually means that applicants will be asked a number of medical questions and if the questions satisfy the insurance company then the insurance will be approved. If they don’t, the application will be rejected. This can work in the favor of someone with a pre-existing condition if the questions either:

a) do not ask about that particular condition

b) the question asked about that condition is forgiving (example: you are diabetic but the application only asked if you are an insulin dependent diabetic).

However, sometimes traditional underwriting can be the best option for someone with a pre-existing condition. Traditional underwriting can allow you the opportunity to make a case for a well-managed pre-existing condition through in person exams and doctors statements. If the applicant doesn’t qualify for non-medical insurance because of a condition there is usually no wiggle room with the insurer.

3. Manageable Condition vs Severe Condition

Not all pre-existing conditions are treated the same by insurers. Life insurance companies put each applicant through an underwriting process that uses in person medical exams, claim histories, and underwriting guides to determine whether or not they will insure someone. There is a big difference to an insurance company between someone with a manageable condition and someone with a severe condition.

For example, having high blood pressure is considered to be a pre-existing condition. However, it is a condition that can often be managed by medication and lifestyle choices. Therefore, an insurer may look at someone with high blood pressure and determine that their condition is well under control and be willing to make an offer to insure.

Conversely, someone who has been diagnosed with a terminal cancer would be considered to have a severe and unmanageable condition that would cause the insurer to reject the application.

4. Guaranteed Acceptance Products

Many companies offer guaranteed acceptance life insurance products and sometimes this is the only option for applicants with a pre-existing condition.  These products are typically offered with high premiums and small face amounts.  As well as higher premiums, they usually contain a deferred provision. This means that the insured is expected to pay premiums for two years before the insurer will pay out the death benefit. In the event the insured dies within the first two years, the premiums are most often paid back to the beneficiary. This can be a good option for those who are otherwise uninsurable but would like to have something to cover final expenses.

The Bottom Line

Knowledge is power when it comes to getting approved for life insurance and so is having a good advisor to guide you along the way. Be sure to bring a complete list of medical conditions and any medications you are on when meeting with a life advisor so that they can help you sort through companies and products to find the best fit for you.

Book an appointment with us to discuss your Life Insurance needs! Click Here

The Covid-19 pandemic has upset the habits and routines of many people. Staying safe and healthy has become a constant concern. The effects of the pandemic are taking a toll on people’s health, both mental and physical.  It is more important than ever to eat right, stay active, and do things that make you happy. When it comes to creating a healthier lifestyle for yourself, getting started is the hardest part. Here are a few tips to help you navigate all the information available on diet, hobbies, and fitness!

Diets-You Are What You Eat!

Health starts with what you are eating, and it is important to follow evidence-based nutritional sources. Fad diets are running rampant on the internet and it can be easy to get lost in the promises some of these diets make. Paleo diet, Keto diet, Atkins diet, Raw diet, South Beach diet, to name a few, all make promises of results that may be unrealistic. People are always looking for a quick fix so it can be easy to be swooned by the hype of the diet of the moment. Do not fall into fad diet traps that promise immediate weight loss with minimal effort. As a rule, you should avoid any of the following:

•  Diets that promise rapid results
• Diets that claim you can eat whatever you want
• Diets that cut out specific food groups entirely
• Diets that require you to skip meals or replace meals with a product

Eating a healthy diet does not need to be complicated or regimented. Making small and sustainable changes to your eating habits will ensure that you stay on track and meet your goals. Canada’s Food Guide recommends that you simply choose to eat mostly fresh foods that include plenty of fruits and vegetables, whole grains, and protein.

The internet is overwhelmed with nutritional information. Make sure that whatever claims a source is making are backed up by science and that the publication is showing the sources they used to compile the information.

Here are a few evidence-based nutrition sources to check out: Canada Food Guide, Health Canada, Dieticians of Canada, and Nutritional Link Service.

Hobbies

Spending a lot of time at home can be hard on the head if you do not have a hobby or two to occupy your mind.  Covid-19 restrictions have most of us stuck at home and people have gotten creative about keeping themselves busy. People have taken to things such as breadmaking, sewing, gardening, learning an instrument, virtual book clubs, and other do-it-from-home activities.

The internet is rich with tutorials and forums that allow you to become a part of vast communities of likeminded people. Looking for something more local? Most municipalities have a recreation department that are busy keeping people entertained at home; you just must know where to look.  Check out town websites, library websites, and community centers to see what they are offering. In some regions, there may even be opportunities to gather with others to talk about, work on, or develop new hobbies.

Exercise

Starting a fitness routine may be one of the best things you can do for your health. Physical activity, even in small amounts, can reduce your risk of disease, help you lose weight, have profound effects on your mental health, and even improve your quality of sleep! So how do you get started?

Much like dieting, the internet is teeming with fitness pages, accounts, and how-to’s. It can be hard to know where to begin and it is easy to feel overwhelmed.  The first step is identifying what you think you would enjoy. Below are some of the most popular ways people are working on their fitness:

• Cross-fit: Cross-fit is a type of High Intensity Interval Training that focuses on performing functional movements at high intensity level.  That may sound intimidating but many of the workouts are group workouts that include people of all abilities. This may a be a great start for many people as it provides an encouraging group of people that will help you stay on track and stay committed.
• Yoga: Yoga has been popular for a very long time and is a great low impact activity. Yoga focuses on body and mind, with lots of emphasis on breathing and stretching. Yoga is something that you can do at home easily as there is very little, if any, equipment needed!
• Spin: Spin classes are huge right now and do not seem to be going anywhere any time soon.  Usually, spin is taught at a facility in a group setting with an instructor to encourage and lead the class.   If you are unable to attend a spin class due to Covid-19 restrictions, there are stationary bikes on the market now that have spin classes built right into them.
• Running: Running communities are present almost everywhere.  This makes a great starter activity. It is easy to find running groups near you that offer learn-to-run programs to help get you started. Running can be a very social sport which is great for both your physical and mental health.

Bottom Line

Sometimes organized sport and fitness can be a little intense and that is okay, because there are so many ways to get active without having to commit to one thing. Walking, hiking, skating, intermural sports, pickup leagues, tennis… these are all fantastic ways to start moving in a way that is fun and less intimidating. Regardless of what you choose to do, always remember to work within your limits and listen to your body. If you have health concerns, it is a good idea to talk to your doctor before engaging in a new fitness regime.

Capital Gains tax occurs when you sell capital property for more than you paid for it. In Canada, you are only taxed on 50% of your capital gain. For example, if you bought an investment for $25,000 and sold it for $75,000 you would have a capital gain of $50,000.  You would then be taxed on 50% of the gain. In this instance, you would pay tax on $25,000.  In Canada, there are some legitimate ways to avoid paying this tax: Tax shelters, Lifetime Capital Gains Exemption, Capital Losses, Deferring, and Charitable Giving. *

What You Need to Know

1.   Tax Shelters

RRSPs and TFSAs are investment vehicles that are available to Canadians that allow investments to be bought and sold with no immediate tax implications:

• RRSPs – Registered Retirement Savings Plans are popular tax sheltering accounts.  Investments in these accounts grow tax free and you are not subject to capital gains on profits.  When you withdraw your funds, you will be taxed at your marginal tax rate.
• TFSAs – Tax Free Savings Accounts are like RRSPs in that they allow investments to grow tax free and you are not subject to capital gains tax on the profits you make. The key difference between TFSAs and RRSPs is that TFSAs hold after tax dollars. This means you can withdraw from the account without incurring tax penalties.

2.   Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption is available to some small business owners in Canada. It is allowing them to avoid capital gains when they sell shares of their business, a farming property, or fishing property. The CRA determines the exemption amount annually.  The Lifetime Capital Gains Exemption amount is cumulative over your lifetime and can be used until the entire amount has been applied.

3.   Offset Capital Losses

Generally, if you have had an allowable capital loss for the year, you can use it offset any capital gain tax you have owing. This can reduce or eliminate the taxes you will owe. There are a few considerations for employing this strategy:

• Losses have to a real loss in the eyes of the CRA. Superficial losses will not be allowed to offset gains.
• You can carry your losses forward or backward to apply them to different tax years. Losses can be carried back 3 years and carried forward indefinitely. This means you can accumulate losses that can be used to offset gains in future years.

4.   Defer Your Earnings

A possible strategy is to defer your earnings on the sale of an asset because you only will owe tax on the earnings that you have received.  For example, if you sell a property for $200,000 you could ask the buyer to stagger their payments over 4 years. Then you would receive $50,000 a year. This would allow you to spread out your capital gain tax.

This strategy is known as the Capital Gain Reserve.  There are a few things you need to keep in mind before using this strategy:

• The Capital Gains Reserve can be claimed up to 5 years.
• There is a 20% inclusion rate for each year. This means you must include at least 20% of the proceeds in your income each year for up to 5 years.
• There are some instances that the 5-year period can be extended to 10 years.

5.   Charity

Consider donating shares of property to charities instead of cash. This method allows you to make a charitable donation, receive a tax credit based on the donation, and avoid tax on any profit. Win-win!

* Avoiding or deferring Capital Gain Taxes should always be done with the guidance of a professional financial advisor and accountant to ensure all CRA guidelines are being carefully followed.

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Building a home is not for the faint-hearted. A lot of sacrifices and planning are required, especially on the financial side. You do not want to bring your children into the world without proper financial plans. It is even advisable to start planning for kids long before they come. Before having children, you should try as much as possible to settle all debts, budget for child care and support, and apply for tax breaks and other benefits that may be available for children. A lot of questions pop up when trying to plan for your kids and with enough research, you can get adequate answers. We would try as much as possible to answer some of these questions for you.

How Much Insurance Should You Carry On Your Life Once You Have A Family?

When it comes to the type of insurance you should do once you have a family, experts advise that your coverage should be 7 to 10 times your annual income for adequate cover for your family. Surveys show that 74% of Canadians have a life insurance policy but 70% majority are worried that their life insurance is not adequate to take care of their family in the event of their death. Determining what will be considered as enough for life insurance is almost an impossible task because families differ but there is a general formula you can use. This formula is known as DIME – Debts, Income, Mortgage, and Education. DIME is the total sum of:

• All your current and future debts;
• The multiplication of the number of years your family will need your income with your current annual income;
• What you owe on your mortgage and any expense on renovation or expansion; and
• How much will cost to send your kids to school up until the level you wish.

What you want in your life insurance cover depends on what you want to leave behind for them. Life insurance is not for you but your family.

 Do You Need A Living Will?

A living Will, also known as Personal/Advance Directive is a document that contains your preference and wishes for your personal and medical needs for when you are unable to make such decisions. The document takes care of your end-of-life affairs whilst still alive. You need a living Will to take care of things for when you can’t make key decisions. It also spares your family from making difficult decisions in your absence. A living Will protects you and your family, just like insurance. Anything could happen at any time, it could be a ski accident, stroke, or bike crash that may incapacitate you, with a living Will in place, you are still in control of your life. A living Will must include who to make medical and financial decisions on your behalf, the level of their authority, your medical wishes, and the welfare of your family if you are incapacitated. Ensure you find out the laws that govern a living Will in your province.

How Early Do You Need To Begin Estate Planning To Ensure That Your Child Is Given Your Inheritance?

Estate planning is an important decision you need to make so as to adequately provide for your family. It is a detailed plan on how you want your assets to be distributed when you depart. It has its tax benefits, and it helps you structure and manages your finances both when you are alive and after you are gone. You can engage the services of a lawyer or use estate planning kits, apps, and websites with estate planning templates. If you choose the latter, it is advisable to give a lawyer to review for you. Estate planning involves documents like a Will, power of attorney, and a living Will. which is why you may need to consult, lawyers, tax experts, and financial planners when you want to come up with an estate plan.

There is no rule of thumb that states the exact time you should start your estate plan. Experts will say once you cross the threshold of being a minor, you can start your estate planning while some people choose to come up with an estate plan when they clock 40 or are diagnosed with a terminal disease. This means that you could start as early as when you clock 18 or when you are close to the great beyond of which you must still have the legal capacity to come up with an estate plan. it does not really matter when you begin your estate planning as long as you meet the legal requirements of making and your plans and wishes are clearly articulated. You should also make sure you update your estate plan every 3 to five years.

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For many individuals there comes a time when life insurance is no longer needed. Whether it be a spouse has passed away, your children are grown, or you simply have the wealth to cover any unexpected expenses. A common route is to cancel life insurance and take the cash surrender value. This may be the solution for some individuals, but many policy owners may be interested in keeping the coverage in force and gifting the life insurance to a charity. Upon their death they could leave a lasting legacy in their community and receive a potentially substantial tax break.

What You Need to Know

How to Donate a Policy

Method 1: Charity as a Beneficiary

The most common way to donate a policy to charity is to simply name the charity as the beneficiary of the life insurance policy. The insured would simply assign the charity as the beneficiary, and upon their death the charity would receive a tax-free lump sum payout. The insureds estate would then receive a tax credit based on the amount of the gift.

Method 2: Charity as Policy Owner & Beneficiary

Another option is to have the charity of your choice agree to take over ownership of the policy and become the beneficiary. Similar to the previous method, the charity would still receive the tax- free payout upon the insured death, avoiding probate. The difference between this method and the previous method is that the insured would receive a tax credit immediately. If the insured continues to pay the premium, they will receive additional tax credits as well.

This method comes with more considerations then simply naming the charity as the beneficiary. The first and most important consideration is whether or not the charity is willing to take on ownership. If the insured does not plan to pay the policy premiums anymore it is possible charity may not be able to take over the premium payments. It may be an extended process to find a donor who would be able and willing to take on such a commitment. One solution to this problem may be to donate a policy that is functioning has gone paid up. Paid up policies allow their cash value to pay the premiums, eliminating the need for payor.  Another consideration is the possibility that the charity will no longer be operating at the time of the insured’s death. Both of these matters would require extensive planning to avoid.

Lastly, since the tax credit would be granted while the donor is alive, it is important to ensure that the entire tax credit can be used. Living taxpayers are only eligible for a tax credit that is worth 75% of their income for the year and can only be carried forward up to 5 years. It is not unlikely that the FMV of the life insurance policy would be more than the insureds yearly income, causing a portion of the tax benefits to be lost.

Case Study

Mary is a 71-year-old widow. All of her children are grown and independent. Mary lives very comfortably on her retirement savings and her husband’s life insurance proceeds. Many years ago, Mary purchased a whole life participating life insurance policy for herself in the event she was to die before her husband. She has recently realized that she no longer needs the coverage, as she has sufficient savings to settle her estate and leave an inheritance to her children. Mary does not want to cancel the policy as it has grown substantially over the years.

Mary’s insurance advisor recommends that she donate the life insurance to a charity. Her advisor explains that if she makes a charity her beneficiary then the charity will receive the life insurance benefit upon her death and her estate will receive a tax credit for an amount equal to the FMV of the donated policy.

This option sounds very appealing to Mary, as she is an active volunteer in her community and she understands the good her donation could do.  Her advisor refers her to an actuary and underwriter, who evaluate her policy to have a FMV of $250,000.

By choosing this option, Mary was able to give a substantial gift to the charity of her choice and was able to reduce her taxes upon her death in her estate, leaving more money for her family.

The Bottom Line

Make sure you talk to your advisor about all of your options before cancelling your life insurance policies. Donating a policy is a little known or talked about option, but it may the perfect solution for some people. Your advisor can help you find the resources necessary to make transactions such as this as successful and beneficial as possible.

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As each February concludes and RRSP contribution season ends, investors across Canada exhale and exclaim, “Never again.”  Investors go through a swirl of emotions awaiting annual bonuses and jumping through hoops to make their annual RRSP contribution. And the next year, they will do it all over again. To change this hamster-wheel of hastily called meetings, sound recommendations hobbled by hurried decisions the planning should begin long before RRSP season. There is no time like the present to change the upcoming flurry of activity associated with RRSPs.

Most importantly of all, a last-minute approach to retirement saving and investing means that you do not benefit as much as you could. Instead of enjoying the rewarding experience of saving for the future, it becomes a panicked, last-minute appointment. This is far from the measured, planned and calm approach that trusted Advisors espouse. A new routine can be created with a Pre-Authorized Credit (PAC) that makes regular contributions to your RRSP.

 What you need to know

What would be the difference to an investor between depositing $24,000 per year at the end of February versus $2,000 at the beginning of every month?  The difference becomes clear when calculated over a 20-year period. In both scenarios an investor has contributed the same amount, $600,000 (25 x $24,000 or 300 x $2,000).

But the amount at the end of the period is not the same! 

• At 6% after 25 years the annual $24,000 approach will yield $1,316,748
• At 6% after 25 years the monthly $2,000 approach will yield $1,385,988

A difference of nearly $70,000!

In almost every case, this is a conservative estimate. The difference is usually much larger because an investor who commits to monthly contributions and agrees to a PAC (Pre-Authorized Contributions) 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 a monthly PAC can help you retire sooner. The only difference is how frequently you make your RRSP contributions. Nothing more, nothing less.

Contact us to discuss starting or increasing your RRSP PAC!! Click Here!

Retirement Planning is not the same for both women and men. Women face unique hurdles and risks that do not affect their male counterparts.  These risks include outliving their money, earning less but having more financial obligation, and aversion to take risks with their money.

What You Need to Know

1. Longevity: On average, women live five years long than men do. This can have a big impact on the amount of money women need to have saved for retirement.  Women also tend to underestimate how long they will live for. Many women live into their 90’s, but only plan to live into their 70s. It is clear that longevity is one of, if not the, biggest risk women face when it comes to their finances. Women, on average, retire with only two-thirds the money that men do. So not only are they living longer than men, they are trying to do so on less.
2. More Caregiving, Less Income: It is no secret that the burden on family rearing falls onto women.  Women are more likely than men to take time off to care for children or elderly family members, women are more likely than men to be single parents, women see wages drop after having a child (71 cents to the dollar for men), and women spend 50% more time than men caregiving. What we can derive from this information is that women are expected to work less, work FOR less, and spend more on their families.  This dramatically effects a women’s ability to save.
3. Risk Aversion: Women tend to be more risk adverse than men. This desire for security within their investments can hurt their returns and put them even further behind when it comes to meeting retirement goals.  The tendency for women to be more risk adverse makes sense.  They are earning less, so therefore saving less, and have more family responsibility then men. Women may feel like they do not have the money to take risks and this needs to be accounted for when creating a retirement plan.

The Bottom Line

So, what can women do to boost their retirement savings?  They must save more aggressively than men, and earlier than men. This can be easier said than done.  Working with an advisor early can help women get ahead. Setting up automatic monthly RRSP contributions, maxing out company pension plans, and having a plan in writing are all things women can do to accelerate their savings.

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Not only has the cost of university risen sharply, but so has the importance of graduating with a marketable skill and knowledge set. In 2016, the cost of tuition, books, supplies, residence and travel for a student in an undergraduate program at a Canadian public university is approximately $20,000 per year.

For many new grandparents, Registered Education Savings Plans (RESPs) were not as commonly known as when their children passed through post-secondary education.

If you want to conscientiously pass wealth between generations and help minimize your grandkids’ debt load in the future, opening and contributing to an RESP on behalf of your grandchildren is an excellent option.

What you need to know

The opportunity to set aside a useful inheritance directly to your grandchildren for the expressed purpose of education is extremely appealing for many.

Although more in-depth analysis may be required to understand the eligibility for the Canadian Education Savings Grant (CESG), the quick RESP facts are:

•  The CESG will match 20% of RESP contributions up to a maximum of $500/year per beneficiary and to a maximum of $7200 lifetime per beneficiary.
• There are no minimum or maximum annual RESP contributions, but each beneficiary has a $50,000 lifetime contribution limit.
• Contributions grow tax-free until they are withdrawn, like an RRSP.
• Contributions are not taxed at withdrawal, only the grants and earnings withdrawn, called Education Assistance Payments (EAP) are taxed.
• EAPs are taxed in the hands of the student, typically a lower income tax rate or no tax at all if their income is low enough

EAPs can be used for education-related expenses, including housing and transportation, when enrolled at any eligible domestic or foreign post-secondary institution or training program. You can contribute to an RESP up to its 31st year and it can stay open for 35 years.

Bottom Line

Canadian Education Savings Grants (CESG) provide an annual $500 and lifetime $7200 incentive to save for your grandchildren’s post-secondary education by contributing to an RESP. All the contribution and grant money will grow tax free to help fund any education-related expenses for your grandchild’s future education.

If you’re concerned about your children funding a post-secondary education for your grandchildren, give us a call. We can provide you with details and a plan that will allow your grandkids to go after their dreams!

 Click here to book an appointment with us today!

The concept of investment is no longer alien and almost everyone now has one form of investment or the other tucked away somewhere. Even new babies now have investments. Just as there is no age limit to investing so is there no limit to the extent of time you can hold your investment. You can hold your investments for decades and reap multiple profits on them. It is not all about having a long-term investment portfolio; there is a science to it also. It is important to be strategic in your choice of investment portfolios. Everyone has a risk appetite, and it is important to choose an investment portfolio that conforms with your risk principles. Another key factor to having a healthy long-term investment portfolio is adapting your investment approach to the changing dynamics of the financial market.

Secrets To Creating a Long-term Investment Portfolio 

When it comes to having an investment portfolio, it is important that you make the right decisions. This is what will ensure a healthy investment portfolio. If you are looking to grow your wealth over a 20-to-25-year span, you should try the following tips:

1. Select The Appropriate Asset Allocation: At this stage, you use your current financial situation to determine how you want to spread out your investment portfolio. To successfully do this, you must consider your age, the amount of capital you want to invest, and your risk appetite. Your risk appetite is important because when it comes to investment, you will make losses at one point or the other. So, depending on your risk appetite, you should choose an investment portfolio that is in line with your risk appetite. You should also consider your current expenses as you do not want to invest all your money and be left with nothing to settle your bills.
2. Structuring Your Portfolio: After determining how you want to allocate your investment portfolios, the next thing to do is to determine how much goes into each portfolio. This is where you determine how much goes into bonds, stocks, and cryptocurrencies. You can also go further by further dividing your portfolio allocations. For example, if you have an equity portfolio, you may decide to spread it across different industries to minimize your risks. You can also spread your bond portfolio into short-term bonds and long-term bonds.
3. Monitoring and Reviewing: After successfully structuring your investment portfolios, you need to keep an eye on them to make necessary adjustments where necessary. The fact that they are long-term investments does not mean you can abandon them and check them when you are ready to cash out. You analyze your positions from time to time and rebalance them where necessary. This is made necessary because of the constant price movements in the financial market which will make your initial trading positions change. Your current financial needs may also require you to change your position. If you have extra cash to invest, you may want to pump in more money and if you need cash, you may want to deduct from profits already accrued.
4. Strategic Rebalancing: After reviewing your portfolio and there is a need to rebalance your positions to make your portfolios healthy, you need to go about it in a strategic way.  In other words, while you identify a performing portfolio, you should also determine the portfolio you can use the proceeds of the performing security to buy. These are strategic decisions that must be taken carefully to ensure an all-round healthy investment portfolio over a long period.

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Employers are always looking for an edge when it comes to attracting new talent and offering comprehensive employee benefits is one of the best ways to do so. Health Spending Accounts, also referred to as Private Health Services Plans, offer both business owners and their employees a flexible health benefits solution that can work as a replacement or compliment to traditional health plans.

What You Need to Know

1.  How It Works – A Health Spending Account (HSA) is an account with a predetermined dollar amount that employees can use to cover health expenses that are not covered by their traditional health plan.  The amount in the account is predetermined at the beginning of the year by the plan sponsor (employer).  The employees may apply to be reimbursed for eligible medical expenses for both themselves and their dependents.
2. What It Covers – Eligible expenses are determined by the CRA. The general rule is you can claim anything that can be claimed as a medical expense by the Income Tax Act. An HSA is available to cover unpaid balances that are not covered by your health plan, governments plans, or your spouse’s plan. For example, the HSA covers services such as vision care, dental care, and drug expenses that are not otherwise covered (such as fertility drugs).
3. Tax Implications – Businesses may deduct HSA payments made on behalf of employees and their dependents.  Benefits are received tax free by the employees. There are different rules for HSAs for incorporated and unincorporated businesses:

Incorporated

•  The Income Tax Act does not place a limit on the amount of deductions allowed for HSA premiums in a corporation.
• Can be set up with only shareholders as employees
• Payments for medical expenses may only be received by the shareholder as an employee
• Shareholder must be actively engaged in business activities.
• Benefits must be reasonable and be consistent with what would be offered to an arm’s length employee.

Self Employed or Partnership

•  Expenses may be deductible if:
• Individual is actively engaged in business
• In current or preceding tax year, more than 50% of income is from the business or individual’s income is less than $10,000 from other sources.
• Health Spending Account may not be accepted by CRA if the self-employed individual does not have at least one arm’s length employee.

The Bottom Line

Health Spending Accounts are a useful and beneficial tool that can be used by business owners to supplement their employee’s health coverage. Health Spending Accounts can help business owners budget their yearly expense more effectively as the cost of the plan is determined by the business owner, rather than traditional health benefits which have increasing yearly premiums based on claims.  It is important for business owners to pay close attention to the CRA rules surrounding HSAs to ensure that they are eligible for the deductions that are offered to plan sponsors.

Employers have several options available to them when it comes to setting up a retirement savings plan for their employees. Defined Contribution Pension Plans and Group RRSPs are the most accessible plans to most businesses. Here is what you need to know about each plan and how they can work for your employees.

What Is A Defined Contribution Pension Plan?

Defined Contribution Pension Plans are an employer sponsored retirement savings option available to Canadian business owners and their employees. Defined Contribution Pensions Plans are made up of a combination of employee contributions, employers’ contributions, and an optional voluntary contribution component. Defined Contribution Pension Plans are regulated by provincial pension laws, which varies from province to province.

What Is a Group RRSP? 

A Group Registered Retirement Savings Plan (Group RRSP) is an employer sponsored retirement savings plan. Group RRSP’s have many similarities to individual RRSPs with the only difference being that they are administered on a group basis. The plans are made up of employee and employer contributions, but unlike traditional pensions, the employer is not required to contribute any amount to the plan.

Similarities and Difference 

1. Tax Deferred Savings: Both Defined Contribution Pension Plans and Group RRSPs offer tax deferred savings for employees that contribute to them.  Contributions are taken at the source before tax and contributed to the plans on the employee’s behalf. Both investment options allow employees investments to grow tax free until they retire, at which point the funds with be taxed as they are withdrawn.
2. Contribution Limits: Both plans are subject to annual contribution limits. This amount is equal to a percentage of each employee’s income from the previous year. Both employee and employer contributions count towards this annual limit.  Both plans will also cause a pension adjustment to employees. This means their individual RRSP will be reduced based on the amount contributed to their employer sponsored plan. This keeps an equal playing field for those who do not have work pensions.
3. Age Limits: Defined Contribution Pension Plans and Group RRSPs both require that employees stop contributing to the plan and start drawing on the funds at age 71. At this point, employees must convert the plans to an income fund that will pay them out a retirement income.  For Defined Contribution Pension Plans, this fund is called a Life Income Fund (LIF).  LIFs have minimum and maximum withdrawal requirements that plan holders must adhere to.   Group RRSPs holders have two options at age 71. Plan members can a) cash out the plan and pay all tax owing or b) convert the plan to a RRIF and start taking an income.  RRIFs have minimum withdrawal requirements that plan holders must adhere to.

Pros and Cons

Defined Contribution Pension Plans 

Pros

• Attractive to Employees due to the employer matching component. This can greatly accelerate employee’s retirement savings
• Funds are locked-in and therefore not accessible until the employee retires. They do not have the option to spend their retirement savings frivolously.
• Funds grow tax free if they stay in the account
• Employer Contributions are tax deductible
• Typically, the investments offered in a pension plan have a much lower fee than traditional investments.
• Simple, reduced selection of investment options available within the plan.

Cons 

• Defined Benefit Pension Plans can come with higher administration costs and require continuous maintenance.
• Due to the fact funds are locked in, employees have little to no flexibility in how they use the money they accumulate.
• Employer contributions are expected. This can be a significant expense, depending on how many employees a business has.
• Benefits at plan end are at the mercy of market fluctuations.

Group RRSP 

Pros

• Employer contributions are not mandatory. This allows for businesses to offer their employees a retirement savings option regardless of the financial abilities of the company, with the flexibility for the company to contribute at any point if it becomes feasible.
• Funds grow tax free if they stay in the account.
• Group RRSPS have low start up and maintenance costs.
• Generally, Group RRSP have a must larger investment shelf than pension plans.
• No legislative regulation means flexibility for employees to dip into their savings if necessary ie. Home buyers’ program or Lifelong Learners Program.

Cons 

• Employees have the option to withdraw from the plan at any time, which can severely impact their retirement savings.
• Larger investment shelves mean more opportunity for employees to take unnecessary or unsuitable risk with their investments.
• Employer Contributions are a taxable benefit to employees
• Benefits to employee are not guaranteed and are subject to market fluctuations

Bottom Line

Both plans offer their advantages and disadvantages, with each having something unique to offer. Whichever you choose for your business, you can rest assured you are helping your employees work towards a financially secure retirement!

Lumber is an essential building material that dictates the price of housing in a way. The price of lumber has been on the increase for a few years now and it was later accompanied by shortage supply at the beginning of global lockdown engendered by the global pandemic in 2020. The effect of the price increase has been felt in the real estate sector as the prices of construction and homes have been on the increase. On the supply end, the gradual return to normal economic activities has seen an increase in the production of lumber flood the market. However, it is still yet to meet the already increased demand since the global lockdown.

How Does Lumber Pricing Work?

Lumber pricing works the way any other market commodity works. The forces of demand and supply dictate the price of lumber. The demand for lumber has witnessed an astronomic increase in the last six months which has inevitably driven up the prices almost at 170%. The lockdown forced people to work from home which afforded them time to take care of their home. Most people started to take on DIY projects of remodeling and home expansion which inevitably drove up the demand for lumber. During the lockdown, it was reported that home renovations increased by 40% in Canada during the lockdown up until late 2020. While there seems to be no problem with the demand side, the supply end has witnessed a bit of up and down, especially with the covid-19 pandemic. Health precaution imposed by the government meant that most of the sawmills had to close down or cut on production which caused a bit of unbalance between demand and supply. This also has had its fair share on the price increase of lumber.

What Does The High Lumber Pricing Hold For Your Real Estate Investment?

There have been a lot of questions and uncertainty on the implications of the increased lumber prices in the real estate sector. For house owners who either want to increase the taste of their home by remodeling or home expansion, the short supply and increase in the high price of lumber may put pay or delay your project. The Natural Resource Canada conducted a survey in which it was revealed that a square foot of lumber that cost $11 in March 2020 now goes for $35 in March 2021. When you consider the cost of transportation and the cost of labour if it is not a DIY project, then you may want to hold off on the remodeling. In research by the Canadian Home Builders’ Association, a renovation could cost you an additional $30,000 due to the high prices of lumber. For potential home buyers, it is not good news also. If a homeowner spends a considerable amount due to high lumber prices to renovate and remodel the property in order to increase the real estate value, it is only natural to want to recoup the money from the value placed on the property. This means that the value placed on properties will further increase. The high prices of lumber have made investing in real estate a tricky business.

How To Cushion The Investment On Your Home?

The situation of the real estate market may require that you engage the services of a professional financial advisor that will guide you on how to go about your real estate investment. For homeowners who want to take on a project of home expansion or renovation, you can get a home equity line of credit to help you achieve the desired result. You do not have to worry about the interest rate as a home equity line of credit offers a lower rate compared to other types of loan. It is calculated by subtracting your current mortgage liability from the market value of your home. You can also secure a second mortgage and use your home as collateral to access funds for your home renovation and expansion.  This is also available to potential home buyers as you can use the home equity line of credit of your existing property to finance the purchase of another property.

Conclusion

Experts are keenly watching the lumber market to make an accurate prediction on the future price of lumber. The full resumption of sawmills is a promising sign that supply will be able to level the high demand and mitigate the effect of the high prices of lumber. While prices may not drop drastically anytime soon, stakeholders are drawing encouragement from the fact that we are in a period where lumber dealers reduce their buying to take stock of their lumber purchase in the first quarter of the year.  Feel free to reach out if you would like to discuss outlook and portfolio construction to ensure that your wealth is being maximized.  #ThinkForward