“RRSP season” in Canada is the first 60 days of the calendar year when advisors focus on the tax-planning benefits of contributing to RRSPs. The deadline is nearly upon us and I would like to suggest that we pivot the conversation to “Retirement Readiness”…
Months ago, I suggested that individuals obtain a T2200 (Declaration of Conditions of Employment form) from their employers in order to claim some of the same deductions that self-employed persons do. The Canada Revenue Agency answered my prayers by providing a default deduction of $2 per day (up to a maximum of $400) that requires no back-up documentation and a streamlined form for those who might be eligible for a more robust deduction.
When the government of Canada offered retirees the opportunity to reduce their minimum RRIF withdrawal because of investment markets’ reaction to the pandemic, you might recall that I suggested keeping the withdrawal at its usual level. My reasoning was that taking out the same dollar amount requires deregistering more units of a depreciated mutual fund or ETFs which could allow you to reinvest the proceeds in a TFSA or non-registered account. In this strategy, you are essentially pre-paying the tax at a lower rate because of the prevailing market softness.
This article expands on that strategy for small business owners who probably have seen revenues decline or drop off as a result of the pandemic. If your business revenue has suffered in 2020, you may wish to draw out income from other sources (additional dividends from a private corporation or RRSP withdrawals, for example) at a time when your salary is artificially low.
Many home-owners – especially young ones – still think that they can make money by buying homes, renovating and trading up periodically. There continue to be many arguments for and against this strategy. In support of this strategy is the concern about the future of the principal residence exemption – the rule that exempts the appreciation of one personally-occupied residence per household from capital gains taxes. Home renovations could increase the adjusted cost base of the property in some cases; meaning that renovations could reduce capital gains taxes if the principal residence exemption is changed or rescinded.
Contrary to this renovation strategy is the oft-forgotten yet inevitable costs of selling a home which can be estimated at roughly 10% of the value of the home. These costs of sale typically include: realtor fees (5 – 6% of the home’s value), legal and other fees as well as the actual costs of moving. Historically, home values have increased with inflation despite the perception that home prices outpace inflation. At the current inflation rate of 2% per year, it would take just under 5 years to recoup the costs of selling the home; threatening the utility of this buy, renovate and trade-up strategy.
No one knows what tomorrow will bring but managing your finances to provide stability and limit your tax exposure are two ways to take control of your life.
The countdown to the start of the new school year is upon us. If your children are like mine, they are approaching Labour Day with a mix of excitement and trepidation. Aren’t we all.
For university students, we must also contend with how to pay for their studies. Most are antiquated with the Registered Education Savings Plan which is described well in Tim Cestnick’s article but few are acquainted with the withdrawal strategies that can help you and your child save tax.
In a nutshell, if you child is likely to use up the entire account or if a sibling can use any funds that are left over, there is little planning to be done. You may just want to keep the taxable portion of the withdrawals (the so-called Education Assistance Payment or EAP) at or below the basic personal amount which is $13,229 for 2020. Any withdrawals in excess of this amount should come from the subscriber’s contributions to the account – which can be received by your child tax-free.
However, if you have been a diligent saver, or if your children’s education costs are lower than expected, and your child might not use up the entire RESP, it would be best to ensure that the EAP is exhausted by the time your child/ren complete their studies. This will ensure that any money that remains in the account can be refunded to you on a tax-free basis.
For more information on RESP withdrawal strategies, please feel free to contact me at monique@upotential.com.
Planning for your aging years is a big part of what we do. Aside from increasing my clients’ budget to accommodate the costs of assisted living or personal supports, there are other considerations that we discuss in our meetings. Among these is the issue of whether the current home is suitable for “aging in place” (a term used to express one’s desire to age in their home rather than moving to a retirement residence) and how the client will stay vital and engaged when he or she steps away from the workforce. I often use a phrase that the authors used: “make sure that you are retiring to something and not from something”.
Perhaps the greatest takeaway from this article is the idea many of these decisions should be made years in advance – or “with a cool head” as I usually refer to it. This helps to avoid a crisis when someone suddenly falls ill. I also encourage family meetings on some of these topics so that the family members can understand what you expect of them and what is important to you before they are put in the position to make decisions for you.
You purchase home insurance to protect you from catastrophic losses, such as an all-consuming house fire, or a massive back-up of sewage water in your basement. But did you know your everyday home insurance policy can often protect you for perils that are not always so obvious?
This article highlights some simple ideas you can implement to reduce the clawback of your OAS benefits. These strategies all form part of our plan to save you taxes, preserve your Federal income streams and optimize your goals.
In reading this article, I was reminded of clients who not only want to know, “will I be OK?” but are interested in learning about what others in similar situations are doing with their wealth. This article identifies 10 common ways in which wealth is used and shared. In my experience, clients do like to spend on vacations, hobbies and services – especially as they age. I don’t see many people who want to isolate themselves as the article describes but I am increasingly seeing the focus turn towards inter-generational transfers and philanthropy.
