March 2015
Moving in to the tax season.




As we leave behind another successful RSP season, the changing weather reminds us that Spring is fast approaching. This month's collection of articles will help you to begin asking questions about other areas of finances that we should be thinking of: financial blind spots, CRM2 and our taxes.


If you have any questions about your portfolio, please give us a call.


Be well.



Peter, Claudio and Joanna

How much have you really saved for retirement?

by Dave Dineen - March 2015,


Congratulations! You've saved diligently for years and you've accumulated a nice retirement nest egg.


Before you turn off the employment highway, make sure there's nothing lurking in your financial blind spot. And by that, I mean taxes. When many people begin to transition into retirement, they're amazed at how differently their various savings, investments and retirement plans are taxed. These differences can add up to hundreds of thousands of dollars, so you can't afford to be blindsided by unforeseen taxes.


To give you an idea of the potential impact of taxes, here's what could happen to $50,000 in different kinds of accounts:


Tax-free savings account (TFSA) 

There's no income tax payable on withdrawals. Because you contributed to your TFSA with after-tax dollars and the government doesn't tax growth within your account, the entire $50,000 is yours.


Registered retirement savings plan (RRSP)

RRSP contributions are deducted from your taxable income, reducing the tax you pay, but withdrawals are subject to income tax. How much tax you pay will depend on your income in the year you withdraw the money, and where you live in Canada. That could be as high as 50% (currently the highest rate in Canada). You may be paying less tax in retirement since your income is likely to drop once you stop working, but you could easily be looking at a tax bill somewhere between 25% and 30%. 


Registered retirement income funds (RRIFs), life income funds (LIFs) and locked-in retirement accounts (LIRAs)

Rather than pay all the income tax due on the contents of your RRSP or LIRA when you close it down, rolling that money into a RRIF or LIF lets you take your savings out gradually (subject to annual minimum - for RRIFs - and maximum - for LIFs - withdrawal requirements), and thus pay the tax gradually. As in an RRSP, the investment growth within a RRIF, LIF or LIRA isn't taxable until you withdraw it from the fund, but then it's fully taxable at your marginal rate as part of the total amount withdrawn.


Non-registered investments

Examples: savings accounts and mutual funds in non-registered accounts and income properties. Because you've already paid income tax on the money you used to buy these investments, you don't have to pay tax on it again. But the investment growth within the account is taxed:

  • Interest income from sources such as savings accounts, bonds or guaranteed investment certificates is fully taxable at your marginal rate.
  • Eligible dividend income may earn you a tax credit, which would lower the tax you pay on such income.
  • 50% of capital gains income from selling non-registered investments for more than you paid for them is taxable at your marginal rate in the year of sale. You can carry capital losses back up to three years and forward indefinitely to offset capital gains and thus reduce the capital gains tax payable.In most mutual funds, you create a capital gain when you switch between funds, by selling one fund before buying another. With "corporate class" mutual funds, however, you are switching between funds within a single mutual fund company - and that isn't taxable. You will pay tax on the capital gain when you take money out.

See what I mean? I'm not exaggerating when I say that not being familiar with how your investments are taxed can be a dangerous blind spot. For example, if you don't keep in mind that the size of your investment portfolio and your investment returns are reported in pre-tax dollars, you may find that your nest egg after taxes is smaller than you think. Additionally, not having a handle on investment taxes could cause you to miss out on valuable tax breaks.


It's also important to know how your investments are taxed when you're working out how much you can withdraw each year from your retirement nest egg without running out of money prematurely. If you follow the common guideline that says you can safely take out 4% of your savings each year, remember that it assumes pre-tax dollars. You'll actually have less in your hand after tax. 


So it's a good idea to check your retirement blind spot today by booking a meeting with an accountant and financial advisor to assess your own specific situation.


To view the original article, click here.

CRM2: A New Age of Enlightenment for Investors?

by Rob Engen - March 2015,


Imagine a time when everyday citizens were oppressed and deceived by a select few institutions of authority. They were told how to think, how to act, and what was best for them. But after years of suffering, new ideas began to emerge based on science, reason, and scepticism that challenged authority and helped reform society. These ideas and beliefs spread quickly, cultivated by an increase in literacy and a departure from solely institution-based writings of the past.


Unlike the citizens of 17th-century Western Europe, Canadian investors have yet to experience their Age of Enlightenment. The financial services industry pushes its doctrine - expensive mutual funds - down investors' throats by using salespeople masquerading as financial advisors to sell products that are "suitable" but may not be in the best interest of their clients.


Canadians pay the highest mutual fund fees in the world - costs that are hidden and rolled up into a percentage that many investors simply don't understand. The average investor spends just an hour or two a year with their advisor and is unaware that an advisor is not required to act in their best interest. Investors don't hear about lower cost funds, index funds, or ETFs, nor have they ever received an account statement that shows how their portfolio was doing - an annual rate of return that's compared against an appropriate benchmark. They don't even know how their advisor is paid.



But the tide may finally be turning. Effective July 15, 2016, new disclosure requirements will shed light on fees and performance through a regulatory initiative known as Client Relationship Model, phase 2 - or CRM2.


The impact of CRM2 means that, for the first time, retail investors will begin to understand exactly how their investments are doing and exactly how much they are paying.


Investors will receive two new annual documents. The first is a report that shows investment returns for the previous year, the past three-, five and ten-year periods, and since the account was opened. The second report will disclose fees and other charges - itemizing the cost of everything from embedded trailer commissions, to redemption fees, switch fees, and RRSP administration fees, and provide a total dollar figure for the year.


How might an investor react to these new statements? Consider this hypothetical account of an ordinary investor named Marci when she opens up her account statement next December:

"That 2.18 percent MER didn't sound like a lot at the time, but Marci was shocked to discover that the fees on her $80,000 RRSP account added up to $1,744 this year. Of that, $800 went to Marci's advisor, Bill, which was odd because she thought Bill's advice came free."


Bill had always explained how well her fund has performed over the years, returning an impressive 7.33 percent annually over the last three years. But it turns out that Marci's "Green Bank Canadian equity fund" actually trailed its benchmark by 2.68 percent over that three-year period."

Final thoughts

The Age of Enlightenment took place between 1650 and 1800 and began a period in which cultural and intellectual forces challenged the deep-rooted authority of church and state.


While the investment industry clings to its old traditional model, a new era is about to transform the landscape for Canadian investors. Transparency and disclosure will lead to investors asking more questions and researching better options. The industry will be forced to adapt, through technology and innovation, to serve the needs of the newly informed public.


CRM2 is just the beginning. Next up, regulators will take a closer at banning embedded trailing commissions and separating advice from product sales. Then, perhaps a long overdue change from the inferior suitability - Know Your Client - standard to a fiduciary duty of care for investors.

View original article here.

Tax Tips

by The Wealth Consultant - March 2015 


Preparing your tax return can be a daunting task. We have compiled some tax tips and updates you may wish to keep in mind. 


This edition of the Wealth Consultant features:

- Tax saving strategies between spouses

- Planning opportunities for 2015

- And more


How much do you know?
According to a 2011 survey conducted by Leger Marketing for H&R Block Canada, most Canadians didn't know:
- How much a $1,000 RSP contribution would save them in federal tax
- That the lower-income earning spouse should claim the childcare expenses
- Did not realize that they are not entitled to claim any tuition or education credits unless their child transfers them

Test your knowledge by taking our Tax Quiz featured throughout this report.
1. Canadians can save tax by arranging to share or split different sources of income. What types of income can be shared?
A. CPP payments
B. OAS payments
C. Income from a RRIF (when the recipient spouse is over the age of 65)
D. Pension income from a Defined Benefit Pension Plan
E. A, C, & D

Start Planning for 2015
In 2013, Canadians bid adieu to the 75 and 100-watt incandescent light bulb. In 2014, we said goodbye to the 40 and 60-watt bulbs. Lighting the way for us in 2015 and beyond will be energy efficient LED and compact fluorescent bulbs.

While lighting standards are certainly important to all, perhaps of more significance is our economy, which may get a slight bump in 2015 due to a new free trade agreement with South Korea. Amongst other things, this will eliminate the 40% tariff that has been imposed on Canadian beef.

On a provincial basis:
- Albertans can expect to pay $250 for paramedics to treat them at the scene of the accident and $385 for a drive to the hospital.
- British Columbians have a new transportation law that includes road-safety measures like slowing down and giving emergency vehicles a wider berth (note that a $173 fine is levied on violators).
- Ontarians can no longer smoke on patios or sports fields.
- Quebec parents will have to pay a little more for day care.

Universal Child Care Benefit (UCCB)
Beginning January 1, 2015, the UCCB is being increased for children under age six. As a result, parents will be eligible for a benefit of $160 (up from $100) per month for each child under the age of six. Under proposed changes to expand the UCCB, parents may also receive a benefit of $60 per month for eligible children ages six through 17. Payments of the additional amount and expanded amount will start in July of 2015. Note that the Child Tax Credit will be replaced by the enhanced UCCB for the 2015 and subsequent taxation years.

Child Care Expense Deduction
A tax deduction is allowed for child care expenses. In 2014, parents were allowed to claim child care expenses of $7,000 per child under age 7 and $4,000 per child aged 7 to 16. Beginning in 2015, these limits are being increased by $1,000 each.

Tax Bracket Increases
Most economists are of the opinion that there is a relationship between marginal tax rates and economic performance, believing that high marginal tax rates negatively impact, entrepreneurship, investment, savings rates, etc... A marginal tax rate refers to the additional tax an individual will owe to the government on the next dollar of income that they earn. Canada has relatively high  marginal personal income tax in comparison to many G-7 countries.

Federal Tax Rate20152014
Basic Person Exemption$11,327$11,138
15%Up to $44,700Up to $43,952
29%Over $138,586Over $136,270

Increased TFSA Contribution Amount
The amount that you can contribute annually to your TFSA increased in 2013 by $500 to $5,500 and will remain at that level for 2015. For someone who has never opened a TFSA before and was at least age 18 in 2009, your total cumulative TFSA contribution room starting January 1, 2015 is now $36,500.

Contributing to an Registered Retirement Savings Plan (RRSP)
The maxmium RRSP deduction limit for 2014 is $24,270. However, if you did not use your entire RRSP deduction limit for the years 1991-2014, you can carry forward unused RSP contributions to 2015. In 2015, the maximum RRSP deduction limit increases to $24,930.

New for your 2015 Taxes
Family Tax Cut
Through Canada's Economic Action Plan, the federal government created the Family Tax Cut, a new federal non-refundable tax credit of up to $2,000 for couples who have children under the age of 18. This tax credit is effective for the 2014 tax year. As this tax credit allows for the transfer of up to $50,000 from one spouse to the other, it will benefit families where one spouse earns significantly more than the other. In order to benefit from the Family Tax Cut, each spouse must file a tax return. The chart below depicts the savings associated with the Family Tax Cut.

Spouse 1Spouse 2DifferenceSplit Adjustment2014 Family Tax Cut

Children's Fitness Amount
Since its introduction in 2006 the Children's Fitness Tax Credit (CFTC) has allowed parents to claim up to $500 of the cost associated with 'strenuous' activities for children under 16 (or under 18 with a disability). Historically, this tax credit has been structured as a non-refundable tax credit. A non-refundable credit may not be used to reduce taxes owing to less than zero. While the CFTC remains a non-refundable credit for 2014, the amount of eligible expenses has increased to $1,000. Beginning in 2015, this credit changes to a refundable tax credit. Unlike a non-refundable tax credit, a refundable tax credit is not limited to an individual's tax liability. Thus even if you do not owe any tax, you still receive the tax savings that are associated with the tax credit.

Tax Quiz
2. Which one of the following is not true?
A. You can have more than one TFSA true.
B. Interest payments based on money borrowed to contribute to a TFSA and an RRSP is not tax-deductible.
C. You are not allowed to make an over-contribution without penalty to an RRSP.
D. If you have never contributed to a TFSA before and are over the age of 25 you can contribute $36,500 to a TFSA in 2015.

Search and Rescue Volunteers Tax Credit
The 2011 budget introduced the Volunteer Firefighters Tax Credit while the government's 2014 Economic Action Plan announced a 15% non-refundable Search and Rescue Volunteers Tax Credit on an amount of $3,000 for ground, air and marine search and rescue volunteers. This credit will be available to search and rescue volunteers who perform at least 200 hours of service during a year. Individuals who perform at least 200 hours of combined eligible search and rescue services and volunteer firefighting services in a given year will be able to choose between the Volunteer Firefighters Tax Credit and the new tax credit.

Adoption expense tax credit
The maximum eligible adoption expense that qualifies for this tax credit was boosted to $15,000 in 2014, up from $11,669 in 2013. In 2015 and subsequent years, this credit will be indexed to inflation.

Safety deposit box deduction eliminated
As of the 2014 tax year, you can no longer deduct the cost of renting a safety deposit box. Note that this change took effect for corporations in March, 2013.

Share, Split, & Combine
The following tax savings opportunities and strategies can be either transferred or combined between spouses. Doing so may help you realize more tax savings.

Split Income With Your Spouse
As withdrawals from all registered plans are taxable, minimizing the tax associated with the withdrawal should be the goal of all savers. One of the best ways to accomplish this is through the use of a spousal RSP, which allows a spouse in a higher tax bracket to allocate a future tax liability to a spouse in a lower tax bracket. While Canadians have been able to split pension income with their spouse's since 2008, they can only split income from a RRIF or from an RSP annuity provided the recipient spouse is over the age of 65. Thus for those Canadians who plan to retire or semi-retire before normal retirement age, spousal plans can still be advantageous.

Medical Expenses
Spouses can combine the medical expenses that they have incurred for themselves as well as for those of a dependent child (under the age of 18) on the return of the lower earning spouse. That's because this non-refundable tax credit is based on those eligible medical expenses, (such as dental bills and prescription drugs etc.) that are in excess of the lower of 3% of the taxpayers (lower earning spouse) net income or $2,171. A 15% federal tax credit is available on expenses above this amount to a maximum of $10,000. The list of eligible medical expenses now includes the cost of designing a therapy plan for someone who qualifies for the disability tax credit and the cost of service animals that help those afflicted with severe diabetes.

Tax Quiz
3. What is the maximum that you can contribute to a Registered Education Savings Plan?
A. $50,000
B. $5,000
C. $2,500
D. $35,000

Charitable Donations
While the first $200 of charitable donations claimed is eligible for a 15% federal tax credit, donations in excess of $200 are eligible for a 29% federal tax credit. As a result, spouses may want to combine their donations in order to take advantage of the higher tax credit on donations in excess of $200. Donations can also be carried forward for up to 5 years allowing individuals who donate smaller amounts to combine and claim their donations in a single year to also take advantage of the higher tax credit on donations in excess of $200.

Note that the 2013 Federal Budget also introduced a tax credit for first time donors to charity (defined as individuals who have not donated to charity since 2007). This new super credit supplements the charitable donation tax credit with an additional 25% tax credit on up to $1,000 in cash donations, entitiling donors to a 40% federal tax credit for donations of $200 or less, and a 54% federal credit for the portion of donations over $200.

Beginning Feb. 10 2014, the value of a cultural property gift made through a tax shelter arrangement is limited to the amount paid by the donor for the donated property.

Don't Forget About Transfers
While deductions such as child care expenses should be claimed on the tax return of the lower earning spouse other tax credits that can't be fully used by one spouse may be transferred to the return of the other spouse. Some of these credits include the:
- Pension income amount
- Age amount
- Tuition and education amounts
- Disability amount

Tax Quiz
4. Withdrawals from a TFSA may result in the claw-back of income tested benefits such as Old Age Security (OAS), Guaranteed Income Supplement (GIS), and Canada Child Tax Benefits (CCTB).
A. True
B. False

Sharing Your CPP
Sharing your Canada Pension Plan retirement pension with your spouse may also result in tax savings. The portion of your pension that can be shared is based on the number of months you and your spouse lived together while you were still contributing to the CPP.

Quiz Answers:
1. E
2. C
3. A
4. B
Issue: 52
Financial Markets
In This Issue
Implementing Your Financial Goals
What Will it Take For You To Save More This Year?
7 Habits of Wealthy Canadians

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Peter Bailey
Wealth Advisor
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1 

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