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The importance of a financial plan. Working with us to create your financial plan helps you identify your long and short term life goals.Talk to us to see how we can help you.

Working with us to create your financial plan helps you identify your long and short term life goals. When you have a plan, it’s easier to make decisions that align with your goals. We outline 8 key areas of financial planning:

  • Income: learn to manage your income effectively through planning
  • Cash Flow: monitoring your cash flow, will help you keep more of your cash
  • Understanding: understanding provides you an effective way to make financial decisions that align with your goals
  • Family Security: having proper coverage will provide peace of mind for your family
  • Investment: proper planning guides you in choosing the investments that fit your goals
  • Assets: learn the true value of your assets. (Assets – Liabilities)
  • Savings: life happens, it’s important to have access to an emergency fund
  • Review: reviewing on a regular basis is important to make sure your plan continues to meet your goal
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There are no perfect answers in the area of your personal finances, but if you are looking for an option that has the potential to offer you a real sense of peace of mind to secure the financial future of you and your family, critical illness insurance is certainly an interesting avenue to explore.

If I did a straw poll, I’m sure I’d find that the majority of those asked have some form of life insurance. The reasoning behind taking out this cover is usually centered around the desire to provide protection and security to their family and loved ones in the event of their death, which is clearly an admirable objective. But, if I asked the same group of people who of them had critical illness insurance – essentially, a policy that pays out if you become too ill to work – in all likelihood the number would be much smaller.

Why is this? It makes sense on paper that people would want to sustain their level of income in the event that they become disabled or too ill to work, yet some of the most common objections include the price, a preference to save themselves for such an event (often known as being self-insured) or simply a sense of denial that this could ever happen to them.

Critical illness insurance varies from policy to policy but typical conditions that it covers in Canada includes heart attack, stroke and cancer. Unlike other types of insurance that provide income replacement, if you are seriously ill, critical illness insurance provides a lump sum benefit that can be used in any way you choose.

The benefits of critical illness insurance

Whilst taking out any kind of insurance policy comes down to personal choice and one’s own individual circumstances, many independent financial experts recognize the benefits that critical illness insurance can offer. Here are some of them:

  • Whilst saving and self-insuring can seem like an attractive alternative, it simply isn’t an option for many. Even if you are fortunate enough to have the means to save for such an eventuality, you would need to be able to guarantee a solid and consistent return on your investment for it to outweigh the financial benefit of critical illness insurance – some estimates put this at a rate of around 10% return for 20 years.
  • Whilst some employers do offer company disability plans, they typically do not pay out the full amount of your pay cheque on an ongoing basis, which can have the potential to have a serious impact on your personal finances, just when you need such a worry the least. What’s more, one of the major advantages of a critical illness policy is that, if you are able to return to work and therefore begin earning again, you still have the benefit of the lump sum that has been paid out under the policy – offering you an incomparable measure of financial freedom to potentially pay off your mortgage or put your kids through university. Essentially, offering you much more financial freedom.

In short, there are no perfect answers in the area of your personal finances, but if you are looking for an option that has the potential to offer you a real sense of peace of mind to secure the financial future of you and your family, critical illness insurance is certainly an interesting avenue to explore.

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Post-secondary education can be expensive, however having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easer to make financial decisions that align with your goals and provide peace of mind.

Post-secondary education can be expensive, however having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easer to make financial decisions that align with your goals and provide peace of mind. In the infographic, we outline 7 sources of funds for paying for post-secondary education:

 

  • Registered Education Savings Plan
  • Tax Free Savings Account
  • Life Insurance
  • Scholarships, grants, bursaries
  • Personal Loans, Lines of Credit
  • Government Student Loan
  • Personal Savings
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Morneau’s federal budget announced earlier this year informed us how the government will treat passive income in a Canadian Controlled Private Corporation. (CCPC) The government’s main concern was that under the current rules a “tax deferral advantage” exists since tax on active business income is usually lower than the top personal marginal tax rate. Therefore if the corporate funds were invested for a long period of time, shareholders might end up with more after-tax amount than if it was invested personally.

Morneau’s federal budget announced earlier this year informed us how the government will treat passive income in a Canadian Controlled Private Corporation. (CCPC) The government’s main concern was that under the current rules a “tax deferral advantage” exists since tax on active business income is usually lower than the top personal marginal tax rate. Therefore if the corporate funds were invested for a long period of time, shareholders might end up with more after-tax amount than if it was invested personally.

 

Limiting Access to the Small Business Tax Rate

A key objective of the budget is to decrease the small business limit for CCPCs with a set threshold of income generated from passive investments. This will apply to CCPCs with between $50,000 and $150,000 of investment income. It reduces the small business deduction by $5 for each $1 of investment income which falls over the threshold of $50,000 (also known as the adjusted aggregate investment income). This new regulation will go hand in hand with the current business limit reduction for taxable capital.

 

The time to act is now, since these changes will be effective January 1, 2019, a discussion and plan should be prioritized now, since 2018 will be the “prior year” of 2019. To avoid the reduction of income eligible for the small business tax rate, business owners need to minimize or keep the amount below $50,000 of the “adjusted aggregate investment income” (AAII) in 2018.

 

We’ve listed some solutions on how to do this:

 

1)   Corporate Owned Insurance: Exempt life insurance does not produce passive investment income unless there is a disposition. Put a portion of the corporation’s passive investments into a life insurance policy and reduce passive investment income and limit the erosion of the small business limit. Insurance concepts:

●     Insured retirement program: Provide additional retirement funding through transferring excess corporate funds into whole life or universal life insurance. The funds inside the policy grow “tax free” to create significant cash value. At some point when there is a need for cash, the policy is pledged as collateral for a bank loan. The bank loan doesn’t need to be repaid until the life insured dies and the death benefit is used to repay the loan. Any remaining death benefit is paid out.

●     Estate bond: Transfer corporate wealth to the future generation by utilizing whole life or universal life insurance. Essentially replace taxable investment with life insurance, increase funds for a future generation upon death, reduce tax and create a strategy to move funds out of the corporation tax free (through the Capital Dividend Account.)

●     Corporate held Critical Illness with Return of Premium: Purchase corporate owned critical illness, since it doesn’t produce any investment income.

 

2)   Pay enough salary/dividends to maximize RRSP and TFSA Contributions: A salary of $145,722 will allow the max 2018 RRSP contribution is $26,230 (18% of $145,722). Make sure you also pay enough salary/dividend to maximize your annual $5,500 TFSA contribution.

3)   Individual Pension Plan (IPP): The corporation contributes to the IPP and income earned in the IPP doesn’t belong to the corporation. This should only be considered when the AAII is over $50,000.

4)   Deferred Capital Gains: Capital gains are 50% taxable and are only 50% included in the AAII.

 

Talk to us, we can help you figure out the best solution for your unique situation.

 

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Writing an estate plan is important if you own personal assets but is all the more crucial if you also own your own business. This is due to the additional business complexities that need to be addressed, including tax issues, business succession and how to handle bigger and more complex estates. Seeking professional help from an accountant, lawyer or financial advisor is an effective way of dealing with such complexities.

Writing an estate plan is important if you own personal assets but is all the more crucial if you also own your own business. This is due to the additional business complexities that need to be addressed, including tax issues, business succession and how to handle bigger and more complex estates. Seeking professional help from an accountant, lawyer or financial advisor is an effective way of dealing with such complexities. As a starting point, ask yourself these seven key questions and, if you answer “no” to any of them, it may highlight an area that you need to take remedial action towards.

 

  • Have you made a contingency plan for what will happen to your business if you are incapacitated or die unexpectedly?
  • Have you and any co-owners of your business made a buy-sell agreement?
  • If so, is the buy-sell agreement funded by life insurance?
  • If you have decided that a family member will inherit your business when you die, have you provided other family members with assets of an equal value?
  • Have you appointed a successor to your business?
  • Are you making the most of the lifetime capital gains exemption ($835,714 in 2017) on your shares of the business, if you are a qualified small business?
  • Are you taking care to minimize any possible tax liability that may be payable by your estate in the event of your death?

Estate freezes

The process of freezing the value of your business at a particular date is an increasingly common way of protecting your estate from a large capital gains tax bill if your business increases in value. To achieve this, usually the shares in the business that have the highest growth potential are redistributed to others, often your children, meaning that they will be liable for the tax on any increase in their value in the future. In exchange, you will receive new shares allowing you to maintain control of the business with a key difference – the value of the shares is frozen so that your tax liability is lower and that of your estate when you die will also be reduced.

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Last summer, Finance Minister Morneau announced a number of tax reforms for Small Business Owners, including the changes to income sprinkling, minimizing the incentives to keep passive investments and reducing the transfer of corporate surpluses to capital gains.

Last summer, Finance Minister Morneau announced a number of tax reforms for Small Business Owners, including the changes to income sprinkling, minimizing the incentives to keep passive investments and reducing the transfer of corporate surpluses to capital gains.

 

This year’s Federal Budget focused on tax tightening measures for business owner:

●     Small Business Tax Rate Reduction from 10% to 9%.

●     Passive Investment Income held within the corp (Reduction begins at $50,000)

●     Tax on Split Income

 

Since these changes will be effective January 1, 2019, a discussion and plan should be prioritized now, since 2018 will be the “prior year” of 2019. Life insurance is a great solution to help business owners address these problems.

 

Reduced Small Business Tax Rate

●     Key Change: Effective January 1, 2019, the small business tax rate will be reduced from 10% to 9%

●     Problem: Lower corporate tax rates result in more capital trapped inside the corporation.

●     Possible Solution: Life Insurance Proceeds credit the capital dividend account on death allowing for tax-efficient distribution of funds from the corporation to the estate.

 

Limited Access to Small Business Tax Rate

●     Key Change: Passive investment income greater than $50,000/year reduces the small business tax rate limit for small business tax rate. The business limit is reduced to zero at $150,000 of investment income.

●     Problem: For companies with passive income over $50,000, the small business limit will be reduced and thus, increase the total amount of tax you have to pay.

●     Possible Solution: Exempt life insurance does not produce passive investment income unless there is a disposition. Put a portion of corporations passive investments into a life insurance policy and reduce passive investment income and limit the erosion of the small business limit. Concepts such as Corporate Estate bond, Corporate Insured Retirement Program, Corporate held Critical Illness with Return of Premium

 

Tax on Split Income

●     Key Change: Tax on split income (TOSI) rules extended to cover adult children in certain cases. Different rules depending on age of adult children

●     Problem: For adult children receiving income and don’t pass the TOSI rules, income is taxed at the highest personal marginal tax rate on the first dollar. More trapped funds inside the corporation due to fewer tax-effective strategies.

●     Possible Solution: Put a portion of corporation’s trapped surplus into a corporate owned life insurance policy which results in tax-efficient distribution of funds from the corporation to the estate.

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Inheriting an unexpected, or even an anticipated, lump sum can fill you with mixed emotions – if your emotional attachment to the individual who has passed away was strong then you are likely to be grieving and the thought of how to handle your new-found wealth can be overwhelming and confusing but also exciting. One of the best pieces of advice in this situation is to give yourself some time before making any binding financial decisions. The temptation to quickly put the money to so-called ‘good use’ or to rush out and spend it can be strong but you must allow the news to sink in and also take some time to consider your options before you embark on the process of dealing with the inheritance. In the short term, put the money away in a high interest savings account and take time to research and think carefully about your financial goals and objectives and how this inheritance can help you to secure and maximize your financial future in the best way.

How to Make the Best of Inheritance Planning

Inheriting an unexpected, or even an anticipated, lump sum can fill you with mixed emotions – if your emotional attachment to the individual who has passed away was strong then you are likely to be grieving and the thought of how to handle your new-found wealth can be overwhelming and confusing but also exciting. One of the best pieces of advice in this situation is to give yourself some time before making any binding financial decisions. The temptation to quickly put the money to so-called ‘good use’ or to rush out and spend it can be strong but you must allow the news to sink in and also take some time to consider your options before you embark on the process of dealing with the inheritance. In the short term, put the money away in a high interest savings account and take time to research and think carefully about your financial goals and objectives and how this inheritance can help you to secure and maximise your financial future in the best way.

Although there is no one-size-fits-all approach to dealing with larger sums of money, here are some useful ideas of where to start.

Reduce your debt burden

If you have significant or high-interest debts, one of the safest options of all is paying this debt down. Not only will you achieve a guaranteed after-tax rate of return of your current interest rate, it can also add to your feeling of financial security and potentially offer you a more consistent financial picture. Debt often carries with it a significant interest rate – particularly on credit cards and overdrafts for example – so in many cases, eliminating this burden should be considered as one of your main priorities.

However, you may like to take careful note of the option below regarding investing the money instead as much depends on the prevailing interest rates and, of course, your appetite for risk, as you may well find an investment option with a potentially higher return more attractive.

Make investments

A particularly effective way of investing an inheritance is to add it to your retirement savings – especially if your nest egg is not looking quite as healthy as it should due to missed savings years for example. Those with lower or less reliable incomes should look upon this option as a great choice in particular.

Be charitable

After considering your own future financial needs, giving some of your wealth away to either charities or to family and friends is a good option to share out some of your inheritance to those who could benefit from it. What’s more, donating to charity can also offer you some tax breaks which may reduce your overall tax burden.

Many individuals see this philanthropic route as offering them the opportunity to do something meaningful and rewarding with their wealth and contributing towards their own sense of moral duty and emotional wellbeing.

Make a spending plan

Of course, you are likely to be keen to spend some of your wealth on yourself and your family, particularly if your financial situation means that you have previously had to be more careful and prudent with money than you would have liked. A great way to do this is to create a spending plan so that you can enjoy the benefits of spending, without it significantly eating into money set aside for your financial planning goals. You could, perhaps, aim to set aside 10% of the inheritance just for yourself and loved ones to enjoy. The proportion will naturally depend on your circumstances but, in principle, it’s a great idea as it allows you to balance sensible saving and investments with some short-term enjoyment of your wealth.

Talk to us, we can help.

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The biggest changes include: The increase in the amount of income eligible for the small business deduction, The increase in Basic Personal Amount, Carbon tax

Manitoba Finance Minister Cameron Friesen delivered the province’s 2018 budget update on March 12, 2018. The budget anticipates a surplus of $521 million for 2018 to 2019.

Corporate and personal tax rates remain unchanged.

The biggest changes are:

●     The increase in the amount of income eligible for the small business deduction.

●     The increase in Basic Personal Amount

●     Carbon tax

Corporation changes

  • Small Business Deduction Limit Increased – Although there were no announcements about changes to the province’s corporate tax rate, it does increase the small business income limit eligible from $450,000 to $500,0000 effective January 1, 2019.
  • Child Care Centre Development Tax Credit – A new refundable corporation income tax credit to encourage the creation of licensed child care centres in workplaces. The credit will be a total benefit of $10,000 per new infant/preschool space created, claimable over 5 years. (This is for corporations that are not primarily engaged in child care services.)
  • Small Business Venture Capital Tax Credit – The 45% investment tax credit is intended to promote the acquisition of equity capital in emerging enterprises that require larger amount of capital. Effective, March 12, 2018 the minimum investment is lowered to $10,000 (from $20,000) and the elimination off the $15 million revenue cap on the size of an eligible corporation.

Personal tax changes

  • Basic Personal Amount – The Basic Personal Amount will be increased by $1,010 each year for 2019 and 2020 (approximately 10% per year) resulting in additional savings of $109 for 2019 and $218 for 2020 or “$2,020 by 2020”.
  • Primary Caregiver Tax Credit – Effective immediately, the budget implements a flat $1,400 Primary Caregiver Tax Credit available to all eligible caregivers.
  • Education Property Tax Credit – Effective January 1, 2019, the calculation of the education property tax credit will be based on actual school taxes and the $250 deductible will be eliminated.
  • Tobacco Tax – Effective March 12, 2018, there will be an increase to the tobacco tax rate for fine-cut tobacco to 45¢ per gram (from 28.5¢ per gram)
  • Carbon Tax – Effective September 1, 2018, there will be an imposed tax of $25 per tonne of greenhouse gas emissions. This new provincial carbon regime will apply to gas, liquid, solid fuels intended for combustion.

Carbon Tax Rates by Select Fuel Type (2018-2022)

To learn how these changes will affect you, please don’t hesitate to contact us. 

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It's that time of year again, when many of us sit down to complete our income tax return and hope that we have done enough preparation to ensure a smooth and speedy process. Unfortunately, there are a number of complexities that can cause us problems - here are a few of the most common issues experienced by individuals when submitting their tax returns

It’s that time of year again, when many of us sit down to complete our income tax return and hope that we have done enough preparation to ensure a smooth and speedy process. Unfortunately, there are a number of complexities that can cause us problems – here are a few of the most common issues experienced by individuals when submitting their tax returns:

Medical Expenses

Expenses relating to medical expenses such as prescriptions, dentures and many more can be claimed for a non-refundable tax credit. You should also be aware that you can claim for yourself, your spouse or common law partner and any dependent children under the age of 18. You can also claim for certain other individuals whom you can clearly evidence are dependent on you (and the list of such individuals has recently been widened and can include grandparents, uncles, aunts, nieces and nephews).

 

Charitable Donations

You can claim tax credits for qualifying charitable donations that you made in 2017, though they are subject to an annual limit at 75% of your net income. You may also be eligible for a provisional donation tax credit. To receive such credits, you must supply a charitable donation receipt as evidence of your donation.

What’s more, there is a new formula for calculating the federal tax credit, depending on the value of donations. This is as follows:

1.    15% of the first $200 of donations

2.    33% of donations equal to the lesser of the amount of taxable income over $202,800 or the amount of donations over $200

3.    29% of total donations not included in the two stages above.

Public Transit Pass

Although this credit ended in the 2017 federal budget, it can still be claimed for the time period of January 1 – June 30, 2017. There are a range of eligible passes, including passes allowing unlimited travel within Canada, short term passes allowing unlimited travel for five days of which at least 20 days’ worth are purchased during a 28 day period and electronic payment cards.

 

Interest Expense and carrying charges

Interest on money borrowed to earn business or investment income is generally deductible, however interest expenses incurred on money borrowed to generate a capital gain is not tax deductible.

 

Carry forward information

Take note of the notice of assessment from your previous year’s tax return as it will contain important information that will apply to the submission of your current year’s return, such as your RRSP contribution limit and any carry-forward amounts.

Remember that you may be required to submit receipts alongside your electronic return at a later date, as requested by the CRA.

 

Child care expenses

Child care expenses include payments made to caregivers, nursery schools, day care centres and camps and other similar institutions. The deduction is usually best claimed by the lower earning spouse.

The deduction is the lesser of the following three:

·      the total qualifying child care expenses which have been incurred

·      $8,000 for each child under the age of 7, as well as $5,000 for each child between 6 and 16 and $11,000 for each child for whom the taxpayer has claimed the disability tax credit.

·      two thirds of the income earned by the individual making the claim.

If you owe money when your income tax return is complete, the only way to delay payment is to delay the filing until the April 30th deadline. Alternatively, if CRA owes you money, then file as early as possible.

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