Peace Arch News - Ask The Professionals
Published Monthly in the Peace Arch News


December 13 2017

Q: Will my expenses drop in retirement?
A: There are some key ways that expenses typically decline in retirement, which can help to reduce the amount of income you need to maintain your desired lifestyle. 
Payroll deductions, such as contributions to Employment Insurance (EI), Canada Pension Plan (CPP) and union dues end when employment ends. CPP and Old Age Security (OAS) then become net benefits, although both are taxable, and OAS is subject to a clawback above incomes of approximately $75,000.
Pre-retirement budgets often include mortgage payments that come to an end, either through making the final monthly payment, or through a downsizing that pays off the mortgage.
The financial cost of children generally subsides as they become adults (though not in all cases).
The money you save from these reduced expenses, combined with the various tax breaks that kick in over age 65, can afford you a more comfortable retirement.

NovemBER 8 2017

Q: What tax breaks can I look forward to in retirement?
A:  Your tax burden in retirement is relieved in several ways. 
An age amount lets you earn an additional $7,225 before federal tax. 
The pension amount enables you to earn $2000 federally and $1000 provincially tax free. You can claim this credit if you have qualified pension income (other than CPP and OAS). Between 65 and 71 you can also move $2000 per year to an RRIF while keeping your RRSP intact, and claim the pension amount. Splitting pension income enables a spouse to qualify for the credit.
Income splitting is very beneficial if one spouse has a larger income than the other.
TFSAs help to reduce tax and avoid OAS clawback. 
Capital gains, Canadian dividends and some types of annuities are taxed very favourably. 
As your tax is reduced in these ways, less total income is required to support your desired lifestyle in retirement.


October 11 2017

Q: Can I gift my RRIF to my children while I’m still alive so I can see them use it?
A: Yes, this is possible, but you need to be aware of the tax consequences. Unless your RRIF is “locked in” as the result of a pension plan transfer, you can withdraw more than the annual minimum payment, up to the full account balance. 
However, any amount taken from your RRIF is taxable, and withdrawing it all at once could result in a big tax bill – the top marginal rate will increase to 49.8% in 2018.  
Another option is to make larger withdrawals and pay as little as 20% tax each year, depending on your other income sources. You can then make gifts to your children with the extra funds this accelerated drawdown provides. 
Ensure your desire to help does not to jeopardize your long-term financial security and be sure to consult with a financial professional who can guide you in making the decision that’s right for you.  

  September 13 2017

Q. What are the next topics in the 2017 Seminar Series?
A. Here are the next four:
Tax Strategies to Enhance Retirement Income: Learn to reduce tax on RRIFs, avoid OAS claw-back, and choose lower-tax investments. September 28  
Estate Planning for Seniors: 10 Common estate planning mistakes, and how to fix them October 5 
Pass Wealth to the Next Generation: Tax-efficient life insurance strategies for your later years. October 12 
Planned Giving: How to make the most of your charitable gifts. November 2  
All Seminars at 10:00 AM on Thursdays 


August 9 2017

Q: I just received a larger sum of money than I've ever dealt with before. What should I do next?
A. Money can be a blessing or a curse, depending on the choices you make.  My advice in these situations is always to avoid making big decisions right away.  
Let fluctuating emotions (both positive and negative) stabilize, and don't say or do anything that could change the way the people in your life relate to you.  Gifts, if wise, will still be a good idea three months from now.  We have all heard about lottery winners ending up broke.  Unfortunately, those who sell a business, downsize a home or receive an inheritance make similar mistakes.  “Sudden Money” by Susan Bradley is an excellent resource for those who want their newfound wealth to positively impact their life.  You will have an overwhelming urge to start making decisions, but take time to research the options that are available to you.  You are welcome to include me as one of the professionals you consult in this process.

            July 12 2017

Q: Can a U.S. retirement plan be transferred to an RRSP?  
A: Yes. Many Canadian citizens who have worked and lived in the U.S. have repatriated to Canada. Canada’s Income Tax Act generally allows traditional IRAs and 401(k) plans to be transferred to Canada. 
If all conditions are met, there will generally be no Canadian tax liability on a transfer from an IRA or 401(k) plan to an RRSP. However,  some 401(k) plans cannot be transferred directly to an RRSP and will first need to be rolled into an IRA. Given the various tax implications, you should consult a tax professional if you are in this situation. I can also work with your tax advisor to understand the impact to your overall financial picture. 
Contact me for a complimentary copy of a special report from our Wealth Management Taxation department: “Should Canadian residents transfer their U.S. retirement plans to their RRSPs?”

            JUNE 14 2017

Q: Do RRSPs always reduce taxes? 
A: No, sometimes RRSPs can actually increase the tax you pay. 
You receive a tax benefit based on your marginal tax rate when you make an RRSP contribution. When you withdraw money in retirement, you pay tax on your contribution plus their growth. This can work well if you are an employee who will be in a higher income tax bracket during your working years than during your retirement years. 
But there are many people for whom this is not the case. Those who invest the proceeds of a sale of a business, the sale of property or an inheritance may find their income is higher in retirement. As a result, the tax they pay on their RRIF withdrawals is higher than what they saved when making the original contributions. 
Three more ways RRSPs/RRIFs can cost you money: 1) Required withdrawals can cause your Old Age Security (OAS) pension to be clawed-back 2) You lose the dividend tax credit on Canadian source dividends 3) Business owners miss out on retirement strategies designed specifically for them. 

            May 10 2017

Q: What are New Issues and IPOs?
A: New Issues are offerings of securities from companies who are looking to make money. 
Initial Public Offerings, or IPOs, are the most commonly known New Issues. An IPO is a company’s first sale of stock to the public. Securities offered in an IPO are often those of young companies who want to raise money to support the growth of their business. 
Secondary Offerings are another type of New Issue which involve the additional sale of securities of companies that have preciously “gone public,” and frequently involves larger, more mature companies selling securities at a discount to their recent trading price. No commission is paid by those who invest in IPOs and Secondary Offerings. 
New Issues of closed end funds usually contain underwriting fees which represent a load (cost) to buyers. Many closed end funds have initial expenses that add up to 6%, which means just 94% of the buyer’s money is invested. 

           April 12 2017

Q: What happens to government benefits after a divorce? 
A: While Old Age Security is an individual government benefit, you and your ex-spouse may be able to share Canada Pension Plan (CPP) benefits when you retire.
If one or both of you are currently contributing to CPP each spouse has the right to apply for division of the CPP credits earned during the relationship (this applies to marriages, common-law and same-sex relationships). Essentially credit splitting evens out the credits earned by the spouse while they were together. 
If the relationship was a marriage under federal law, there is no time limit to apply for the splitting of credits. There are time limitations in regards to common-law and same-sex couples (four years after the date of the separation).
If your relationship breakdown results in divorce you do not have to apply for credit splitting. You simply need to provide information to the government such as proof of divorce and the length of time that you lived together. In cases of common-law or same-sex marriages a formal application will be required. 

           March 8 2017

Q: What are the next topics in the 2017 Seminar Series?
A: Here is what we are teaching next: 
Pass Wealth to the Next Generation: Tax-efficient life insurance strategies for your later years. 
March 16, 2017
Planned Giving: How to make the most of your charitable gifts. 
April 27, 2017 
Real Estate Investing: Cash flow opportunities outside the lower mainland.
May 18, 2017
Mutual Funds vs. Exchange Traded Funds: Why trillions of dollars are flowing into ETFs and how they can benefit your portfolio. 
June 15, 2017
All Seminars at 10:00 AM on Thursdays
Book your seat by calling Miriam at 604-535-4741

       February 8 2017

Q: What is an “accredited investor?"
A:  Securities regulators require that a comprehensive document (prospectus) be created before investments are sold to the general public. 
An “accredited investor” is an investor who qualifies to purchase investments that are not distributed by prospectus.  Such investors are presumed to have sufficient knowledge and sophistication to evaluate the merits of investments with a reduced level of disclosure.
According to the BC Securities Commission, an accredited investor includes:
corporations, limited partnerships, trusts or estates having net assets of at least $5 million
individuals who have at least $1 million in financial assets (cash and securities) before taxes. (In calculating an individual's financial assets, any outstanding loans incurred to acquire those assets must be deducted.)
individuals whose net income before taxes exceeds $200,000 (or $300,000 combined income with spouse) in each of the two most recent years and who reasonably expects to exceed that net income in the current year
individuals who have at least $5 million in net assets

        January 11 2017

Q: What is my limit for Tax Free Savings Account (TFSA) contributions?
A: $5,500 for 2017, plus any unused room from previous years. 
2009 $5,000 2014 $5,500
2010 $5,000 2015 $10,000
2011 $5,000 2016 $5,500
2012 $5,000 2017 $5,500
2013 $5,500 Total $52,000
Canadian residents who have been adults since 2009 have a total contribution room of $52,000. Depending on the growth of your investments, your current balance could be much higher than $52,000. Also, any withdrawals from your TFSA can re-contributed starting in the year after the withdrawal. 

      December 14 2016

Q: When can I begin receiving the Canada Pension Plan (CPP)?
A: Any month you choose from your 60th birthday to your 70th birthday.
The standard age for beginning to receive CPP is the month after your 65th birthday.  The amount you receive will depend on how much you contributed to the CPP and on the age you want your pension to start. 
If you take it before age 65, your pension will be reduced, by up to 36% at age 60. If you take it later, your pension may be larger, by up to 42% at age 70.
The maximum CPP payment amount at 65 is $1,092.50.  At 60 this shrinks to $699.20, and at 70 it can be as much as $1551.35.
Your decision should be made carefully.  When advising clients on the optimal time to start CPP, I consider their tax situation, marital status, other pensions, current health, family history of longevity and the size of their financial assets. 

      November 9 2016

Q: When can I begin receiving the Old Age Security (OAS) pension?
A: The month after your 65th birthday.
The previous government had proposed a gradual shift towards beginning OAS at age 67.  This has since been repealed, making 65 the starting age for the foreseeable future.
You can defer receiving your OAS pension for up to 5 years and receive an increase of 0.6% for every month you delay receiving it, up to a maximum of 36% at age 70.  Unlike CPP, there is no ability to receive it before age 65.
For the period from October to December 2016, the maximum OAS pension amount is $578.53. OAS benefits are adjusted quarterly (in January, April, July and October) if there are increases in the cost of living as measured by the Consumer Price Index.

       October 12 2016

Q: What is OAS claw back?
A: Those who receive the Old Age Security (OAS) pension must repay part or all of their entitlement if their income exceeds a certain threshold.  For 2016 this threshold is $73,756.
You must repay $0.15 for every dollar you earn above the threshold, and those with incomes above $119,512 will have to repay 100% of their OAS.  
Avoiding OAS claw back can involve strategic planning that spans several years.  Depending on your income level, it may be fruitful to consider any of the following:
- The timing and amount of RRIF withdrawals
- The timing of triggering unrealized capital gains
- The pace at which you take income from your corporation
- Income splitting with your spouse and other family members
- Whether to defer taking OAS
An effective financial plan will seek to maximize the government benefits that you receive (and get to keep).

     September 14 2016

Q: Who uses “Private Banking” and why?
A: Private Banking clients generally have a few things in common. 
1) They have built an asset base of at least 2-3 million dollars, property, stocks, or cash. 
2) They have less time to visit their local bank branch due to a demanding personal or business schedule 
3) They are looking for smart, creative and tax efficient ways to borrow money. 
Scotia Wealth Management’s private Banking division could be the perfect fit for your family’s growing wealth needs. Private Banking, from the Bank of Nova Scotia, is an optional service that works hand-in-hand with your Wealth Advisor to provide fast, personalized day-to-day banking services as well as sophisticated banking solutions anytime, anywhere. 
Private Banking adds another experienced specialist to your team, and allows you to focus your time and energy on your top priorities. 
I can match you with an experienced private banker who fits your exact requirements. 

         August 10 2016

Q: What qualifications are needed to be a Financial Planner?
A: In British Columbia, anyone can call themselves a financial planner.  There are no competency or ethics requirements or oversight mechanisms for financial planners, other than through voluntary certifications such as the Certified Financial Planner (CFP®) designation which in Canada is bestowed by the Financial Planning Standards Council (FPSC).  
To become a CFP® professional, candidates must complete a rigorous education program, pass two national exams and have three years of qualifying work experience.  And to remain qualified they need to complete professional education courses every year adhere to the Standards of Professional Responsibility for CFP® professionals.  
Want to know more?  Contact me for a complete copy of this 24 page guide, and learn about the code of ethics, rules of conduct and practice standards that you probably hoped every financial professional was following.

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