Blog

Category Archives: RRSP

Frank Mueller

Three Lesser Known Benefits of the RRSP, and One Cautionary Tale

The deadline to make an RRSP contribution for the 2017 tax year is March 1, 2018. Most of you are familiar with the basic mechanics of the RRSP and its use as a long-term retirement vehicle. You are also likely aware of the RRSP Homebuyer’s Plan (HBP) which allows you to withdraw up to $25,000 from your RRSP for the purposes of buying your first home.

The RRSP also offers other, more immediate advantages. If you are a parent, student or recently laid off employee, here are three ways you can benefit from an RRSP contribution:

Parents: An RRSP contribution will increase your Canada Child Benefit (CCB). Every parent with children under the age of 18 receives CCB payments from the federal government. For each child aged 0-5, there is a maximum benefit of $6,400. For each child aged 6-17, there is a maximum benefit of $5,400.

The benefit amount is calculated based on the family income for the previous tax year and it is subject to clawback starting at the $30,000 mark. Here’s the clawback table (click to enlarge):

For example, a family with 2 children and total household income of $120,000 is subject to a 5.7 per cent CCB clawback on each additional dollar of income. Therefore, when someone in that household makes an RRSP contribution, they are not only saving taxes at their marginal tax bracket (28-40 per cent), they are also increasing their CCB payment for the next year by 5.7 per cent!

Students: Similar to the Homebuyer’s Plan, with the Life Lifelong Learning Plan (LLP) you can withdraw up to $10,000 in a calendar year twice in a five-year period for the purposes of attending a qualifying educational institution.

Employees: Have you recently been laid off or lost your job and been given a severance package? This severance will be considered standard income, and therefore, it will be taxable in full. However, room-permitting, you can contribute some or all of your severance into your RRSP to avoid paying taxes on it.

In addition, for every year prior to 1995 that you worked with the employer you’ve just been laid off from, you get an additional $2,000 in RRSP limit to help mitigate the tax implication of your (potentially large) severance payout.

Bonus Coverage: A Cautionary Tale

Do you have a pension through your work? Does your workplace pension function as your primary retirement income vehicle? That’s great… as long as the company remains afloat. But if the company files for bankruptcy, some or all of your pension may be at risk.

Imagine having what you feel to be a solid retirement plan, with multiple income streams lined up: Canada Pension Plan, Old Age Security (for now), and your workplace pension, perhaps some rental income or some small investment income. Now, imagine up to half that income disappearing virtually overnight. It’s not impossible.

For a very recent example, take the downfall of Sears Canada. Long-time workers and retired pensioners alike were delivered the news that Sears Canada entered bankruptcy protection on June 22nd, 2017. Now these long-serving, loyal employees and retirees will see their pensions slashed by about 19% at a minimum. That figure could also increase in the future.

What is the lesson here? From the perspective of the saver, the lesson is simple: do not rely on any one income stream at retirement, no matter how seemingly foolproof. As much as you are able to, diversify your savings and save for your retirement using a tax-sheltered vehicle such as the RRSP.

You will get a tax savings on your subsequent return, your RRSP will grow in a tax-sheltered environment, and most importantly, you have control of your RRSP. So take action, as even a small amount now makes a big difference later.

If you have any questions about these tips, please don’t hesitate to reach out to us.

Next week, we will send out an RRSP deadline reminder to all eligible clients.

Sources: Dynamic Funds, Canada.ca

Frank Mueller

Weekly Update – January 19, 2018

“Wealth consists not in having great possessions, but in having few wants” – Epictetus

TSX Marginally Up for The Week

The Toronto Stock Exchange’s S&P/TSX composite index rose on Friday by 68.99 points (0.42 per cent) to finish up at 16,353.46, a gain of 45.28 points (0.28 per cent) for the week. Though modest, the weekly gain put the index back in the right direction after last week’s loss.

Nine of the 10 main sectors posted wins on Friday. Financials and industrials led the way. The Energy sector was weighed down by an oil pullback. A barrel of Crude Oil fell by 38 cents (USD) on Friday to settle at $63.57 USD per barrel, a down-tick of 86 cents for the week (1.33 per cent).

The oil decrease also affected the Loonie, which weakened compared to the Greenback on Friday. As of 3:59pm EST, the Loonie had dropped 0.64 per cent versus the American Dollar, and sat at 80.01 cents USD.

Investors have now set their sights forward to next week’s NAFTA talks. Some analysts feel NAFTA is a risk, and could pull the Loonie down, should NAFTA be abandoned. Said Mark McCormick, North American head of Foreign Exchange Strategy at TD Securities: “The market is really going to have to price in a negative risk premium on the Canadian dollar, driven primarily on the breakup risks of NAFTA”.

Gold retreated from $1,339 USD per ounce to begin the week back to finish at $1,331.10 USD per ounce, shaving off $7.90 USD per ounce (0.59 per cent).

U.S. Markets Advance, Again

Another week, another plateau hit for the Dow Jones Industrial Average (DJIA). This week, it rose above 26,000 for the first time. On Friday, it gained 53.91 points (0.21 per cent) to close at 26,071.72. On the week, the DJIA was up 268.53 points (1.04 per cent).

The S&P 500 hit its own record closing high, gaining 12.27 points (0.44 per cent) on Friday to close out 2,810.30 (up 0.86 per cent for the week).

The NASDAQ also set a record closing high, climbing to 7,336.38 on the back of a 40.33 point, 0.55 per cent, Friday gain. NASDAQ gained 1.04 per cent for the week.

Disagreements between U.S. Senate Democrats and Republicans could lead to a government shutdown. The deadline is midnight Friday night (tonight). Senate Minority Leader Chuck Schumer and U.S. President Donald Trump met to negotiate an end to the impasse on Friday. The potential shutdown had a minor effect on U.S. markets, but these days, it seems nothing can impede their advance.

As Expected, Bank of Canada Raises Key Rate

As widely expected, the Bank of Canada raised its benchmark interest rate on Wednesday morning. As with the previous two rate hikes, this was an increase of 25 basis-points from 1.00 per cent to 1.25 per cent. This makes three rate hikes in a little over six months after the BoC held rates steady at 0.50 per cent for nearly nine years. Strong employment figures were among the main reasons that the BoC felt comfortable enough to enact the rate hike.

Two further rate increases are expected by the end of 2018.

As mentioned last week, the rate rise will affect new home purchasers (who didn’t have rate holds in place) and those who carry credit balances on their Home Equity Lines of Credit, regular lines of credit, or home owners with variable mortgage rates.

 

Sources: Globe Advisor, Yahoo! Finance

Anthony Sabti

2017 Financial Planning Checklist

Until the end of the year, we’ll be deviating from the usual “weekly brief” format. We believe it is a good time to take a final stock – pardon the pun – of your overall financial planning situation. Below is a checklist of some of the items we try to cover with you at your meeting. If you want to confirm an item on this list has been addressed, please do not hesitate to contact us. Our office will remain open during the holidays.

Investing

  • Portfolio mix. Different investments are taxed at different tax rates. If you invest in both registered and non-registered accounts, ensure you optimize your portfolio mix to ensure maximum tax-efficiency
  • The amount added to the TFSA room on January 1st, 2018 will be $5,500. This will bring the lifetime amount to $57,500. Consider putting funds into your TFSA to the extent you can make contributions (or via a transfer from your non-registered account). Ensure you don’t exceed your contribution room due to the significant penalty on over-contributions. If you have authorized us for CRA access, we can confirm your TFSA limit.
  • If you were planning on withdrawing from your TFSA, do so by the end of the year. The amount you withdraw will be added to your TFSA room at the start of 2018. If you withdraw in January 2018, you won’t get the room back until January 2019.
  • If you have investments in a non-registered account in a capital loss position, consider triggering the capital loss to offset capital gains realized during the year.
  • For non-registered accounts, delay purchases until January 2018 to minimize your allocation of taxable income for 2017 (after year-end distributions). For similar reasons, consider selling your mutual fund in a non-registered account before year-end as well (prior to year end-distributions).

Taxes

  • Any donations you want to claim on your 2017 tax return must be made by December 31, 2017.  Donations must be made to a registered charity. Contributions above $200 result in a 29% federal tax credit. Keep the donation receipts! The CRA was more aggressive in requesting documentation to prove the donations were actually made.
  • If you are a first-time donor, you can claim an additional 25% credit on up to $1,000 of donations made after March 20, 2013.  2017 is the final year in which this credit can be claimed.
  • Public transit tax credit. This credit will be eliminated following the 2017 tax year. You can claim on your 2017 income tax return, only the cost pertaining of monthly passes for transit services for the period January 1 to June 30, 2017.
  • If you are over 65 with no private pension, consider withdrawing $2,000 from a RRIF account to trigger the $2,000 pension credit.
  • Home accessibility tax credits. If you incur eligible expenses of up to $10,000 to increase the mobility or safety of a senior, you will be able to claim the federal home accessibility home credit and BC senior’s home renovation tax credit.

RRSP

  • The deadline to make an RRSP contribution for the 2017 tax year is March 1, 2018. If you have authorized us for CRA access, we can confirm your RRSP limit, factoring in any contributions you’ve made with us. An RRSP contribution has a tax savings potential of anywhere between 20%-47.7% for BC residents.
  • If you turned 71 this year, this is the final year you can contribute to an RRSP. Consider making an RRSP contribution in December of the year you turned 71 if your income in 2017 is higher than what you expect in later years.
    • If you turned 71 this year, you must wind up your RRSP by the end of the year. For most people, this means a conversion to a RRIF account with minimum annual withdrawals starting the following year.
  • Consider withdrawing funds from your RRSP if you have low income for the year.

Self-Employment / Business / Corporations

  • Consider 2017 income splitting opportunities (spouse, children, parents, etc.) as the rule changes that are likely to come for corporations in 2018 may eliminate this strategy moving forward.
  • The new rules will grandfather any existing passive investment income currently held in a corporation.  They will also allow passive income of up to $50,000 not subject to higher taxation. This means that under the new regime, you could add $1,000,000 (in addition to any grandfathered assets) generating income of 5% a year and be exempt.
  • If you are self-employed, consider purchasing capital assets before year-end. If the asset is available for use before the end of the year, you can claim one-half of the usual tax amortization for the year.
  • Consider paying a salary or bonus from your corporation to yourself in December. Usually, the payroll tax for this is due by January 15th (may be sooner depending on your remitter type).

Children

  • If you have an RESP and your child has turned 17 in 2017, this is the final year of his/her grant eligibility.  If you have grant room remaining, you can contribute up to $5,000 in the final year, generating a $1,000 grant.
  • Pay child-care expenses for 2017 by December 31st, 2017 and get a receipt. Remember that boarding school and camp fees qualify for the child care deduction.
  • If your child qualifies for the disability tax credit, and if RDSP assets or income will not disqualify him/her from receiving provincial income support, consider setting up an RDSP to qualify for the Canada Disability Savings Bond (CDSB – lifetime maximum of $20,000 per child). Contributions to an RDSP qualify for the Canada Disability Savings Grant (CDSG – lifetime maximum of $70,000 per child)
  • Children’s fitness and art credit. Sadly, these tax credits have been completely phased out, and you won’t receive a credit for these costs on your 2017 return.

Other

  • Note that MSP premiums will be cut in half for all taxpayers in 2018. The provincial government intends to eliminate all MSP premiums within four years.
Odette Morin

Fear Not, You Too Can Live The Dream

Most of us dream one day of having a leisure life and kissing goodbye to the grueling 5 days a week work schedule.  How nice will it feel to be able to sleep in, go for long walks, travel and live the good life.  This dream however is very costly.  You need a lot of money to fund retirement for 30-40 years. A 2016 study by RBC, shows that 56% of non-retired Canadians were worried that they would not be able to enjoy the lifestyle to which they were currently accustomed.

What’s the solution?  Face reality, get the facts on your situation and fear not.

A new Leger poll for Mackenzie Investments finds that 42% of Canadians currently have a financial advisor, while 57% do not. Older Canadians are significantly more likely to have an advisor, Leger says, which may account for their more positive sentiment towards RRSP season than those who are younger. Leger also found most Canadians (68%) say their mood for the approaching RRSP deadline is “indifferent.”
About a quarter of Canadians (26%) say they feel “confident” or “excited” heading into RRSP season. For Canadian respondents who use a financial advisor, that figure jumps to 40%. Leger surveyed 1,522 Canadians online between January 2 to 5, 2017.

So, get help to gain clarity on the future and save as much as you can to ensure a comfortable, stress free retirement!

Odette Morin
Odette Morin

Contact us early to make your RRSP contribution!

RRSP is upon us and soon you will get an email from Anthony or Frank asking you whether you plan to make an RRSP contribution this year.  You should make arrangements early even if you don’t want to make the contribution right away simply because we will have more time to figure out what is best for you.

Here is what we will ask you to optimize your planning and maximize your tax saving now and at retirement.

  1. How much of a contribution do you want to make?  Of course, you should at least make enough of a contribution to meet your annual saving goal as calculated at your last annual review meeting or ask us and we will figure this out with you.
  2. Do you have the RRSP deduction room? If we do your taxes, we will know what your 2016 RRSP deduction limit is.  If not, you can sign a CRA authorization form to allow us to view your tax information online.
  3. If you have a spouse, we will need to know your spouse’s income as well as yours. We need this information to assess and determine if it is best to direct the contribution to a regular RRSP or a Spousal RRSP.
  4. We will also look at both your retirement savings total and try to equalize the accounts to be able to split income at retirement and save taxes.
  5. We will also ask whether your 2017 income is likely to be much greater than 2016’s income.  If this is the case, you can still make the contribution now but may be best to carry it forward to 2017 tax return.
  6. We will also make sure that you make your RRSP Homebuyers plan repayment if you have a repayment to make.
  7. Finally, if you plan to use some of your RRSP to buy a home, we will put these funds in a “short term” RRSP saving fund to avoid any fees and market losses.

Contact us early to get the most of your RRSP planning! Contact email hidden; JavaScript is required or email hidden; JavaScript is required