Estate Planning - it's never too early

In a recent article in The Toronto Star, Gordon Pape talked about tax efficient investments. Depending on whether your investments generate interest, dividends or capital gains, their tax rates vary. For example, if your income is from Canadian dividends, you could save $157.10 of tax for every $1,000 received, compared to interest income.

As per Wikipedia,

Estate planning is the process of anticipating and arranging for the disposal of an estate during a person's life. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses.

In reality, we should start estate planning early in life, as building your estate is step one of estate planning.

I often get asked by people where they should invest their money - paying off debts, paying off their mortgage, in an RRSP, in a TFSA, in real estate, etc. There is no correct answer, as many factors contribute to estate planning.

From a retirement perspective, your sources of income vary by how flexible they are. That is true based on when you can take the money, the flexibility of taking the money and how tax efficient during both the accumulation and withdrawal phases they are. In order of least to most flexible at retirement, most advisors would itemize them as follows:

1. OAS - money may be claw-backed starting at incomes of $71,492
2. CPP - can be started between age 60 and 70; can be shared by spouses; is considered taxable income
3. Annuity - once started, it continues for life; there may be guarantees; tax rates vary depending on the source of the original funds (e.g. registered or not)
4. Employment Income - is always taxed, but you may be able to decide how much you work and earn; if you are under 65, you may need to pay CPP on this earned income
5. Work Place Pensions - both Defined Benefit and Defined Contribution; can be shared by spouses
6. RRSP - at 71 must be converted to a RRIF or Annuity or cashed in (not recommended); watch the attribution rule for Spousal RRSPs
7. Non-registered investments - you paid tax through the accumulation phase, but they are normally not taxed when you spend the money
8. TFSA - growth is tax free. Current limit if you have not opened an account yet is $36,500; they are normally not taxed when you spend the money

At any stage of life, you want to minimize the amount of tax you pay. You really need to contact a Tax Accountant for complete advice.

April 21, 2015 Federal Budget Highlights

As you know, Finance Minister Joe Oliver delivered his Federal budget on April 21 in Ottawa.

 

While you've probably seen plenty of media coverage, I thought you would appreciate an overview of how some of the budget items that relate to investments and taxes.

 

This year, the government reported balanced books and wants that to continue. So it's introduced balanced budget legislation requiring Ottawa to stay in the black unless there's a recession, war, or natural disaster. One way the government will do that is by closing certain tax loopholes.

 

Still, this year's budget contains some generous changes

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Foremost is an increase in the TFSA contribution limit from the current $5,500 to $10,000. The proposed change is retroactive to January 1, 2015, and clients over age 18 who have not contributed since the TFSA's creation in 2009 now have $41,000 in contribution room.

 

For some clients, especially those in lower tax brackets, this change means TFSAs can become more advantageous than RRSPs. Many clients nearing retirement also will benefit from the limit increase, because they can take advantage of early RRIF withdrawal benefits and then move the money into a TFSA and keep it sheltered.
 

Or, if you've already contributed the old $36,500 maximum, you could now move some non-registered investments into TFSAs. In cases where large capital gains might apply, this might not be a strategy worth pursuing. But we can talk about whether this strategy is a good idea when next we meet.

 

TFSA limit increases also have been decoupled from the inflation rate, meaning future increases aren't automatic and instead will have to be legislated by the government.

 

Meanwhile, proposed changes to RRIF rules will mean seniors won't have to withdraw as much money from their retirement savings. The budget cuts the required withdrawal amount at age 71 to 5.28% from the current 7.38%. Required withdrawal rates still increase every year, but instead of topping out at 20% at age 94, the cap isn't reached until age 95.

 

Another budget item aimed at seniors and others who qualify for the Disability Tax Credit is a new Home Accessibility Tax Credit. This 15% non-refundable tax credit applies to up to $10,000 of renovations, such as wheelchair ramps, walk-in bathtubs and wheel-in showers.

 

And, small businesses will get to keep more of their earnings. This year's budget proposes to reduce the small business tax rate to 9% by 2019 - or 2% over the next four years. The reduction generally applies to the first $500,000 of business income.
 

Small business owners also will get a tax break if they sell their companies and donate the private company shares to charity. To be eligible, a sale must take place in 2017 or later.

 

Lastly, rules for reporting specified foreign income will be changing, again. Ottawa's announced a revamp of Form T1135 to streamline the process for people with assets between $100,000 and $250,000 in time for the 2015 tax year. But those reporting $250,000 or more will need to follow the existing requirements.

 

I hope you find these highlights useful. If you'd like to discuss these and other Federal budget initiatives and how they affect your financial plan, please don't hesitate to contact me.  

The need for Travel insurance

A study released by the Bank of Montreal (BMO) on March 24, 2015 examines why and how Canadians use travel insurance.

One of the findings of the study is that 36% of Canadians do end up requiring medical attention while they are on vacation, and that many have had to file a claim when they returned home in order to recover out-of-pocket expenses. Among those with travel insurance, 76% described the claims process as "easy" and none of those surveyed had their claims rejected. BMO says that 74% of those who had filed claims received the full balance of what was owed and 26% were partially reimbursed.

 

If you leave Ontario, do you ensure that you have Out of Province Medical Insurance? It can be part of your benefit package or on your "gold" credit card or purchased separately through your travel agent or a life insurance agent.  

Have you verified what it covers? For example some group policies will only cover you for travel in Canada. Some credit card policies will only cover you if you are under 65 and purchased the travel package using that card.

The best way to ensure that your claim is paid for is to contact the insurance company at the number on your wallet card as soon as possible. Not only will you know right away what is covered, they will often guide you through getting the medical assistance that you need.

Tax Return Filing Tips for 2014 Taxes

Filing a tax return isn't always an easy task. You want to ensure you claim every credit and deduction that you are entitled to, whether you do it yourself or give it to a tax preparer.   The following notes are designed to highlight some federal deductions and credits that may be of interest.     Home buyers' amount: Did you buy a home in 2014? You may be able to claim up to $5,000 of the purchase cost, and get a non-refundable tax credit of up to $750. Medical expenses threshold: For the 2014 tax year, the maximum is 3% of net income or $2,171, whichever is less. NOTE: If your medical expenses exceed 4% of your household's combined net income and are due to a medical condition, you may want to check out the Ontario Government Trillium Drug Program  Donation tax credits: after March 20, 2013, the first-time donor super credit is 25% for up to $1,000 in donations, for one tax year between 2013 and 2017 Lifetime capital gains exemption:The lifetime capital gains exemption is $813,600 in 2015. Low-interest loans: The current family loan rate is 1%. Children's Fitness Amount - Is now $1000 (it was $500) for children under 18 enrolled in a prescribed fitness program. Maximum RRSP contribution:The maximum contribution for 2016 is $25,370, and for 2015 is $24,930.  However, you should check your Notice of Assessment from your 2013 taxes TFSA limit: The TFSA limit for 2015 is $5,500, for a total of $36,500 in room available for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009.       Maximum pensionable earnings: For 2015, the maximum pensionable earnings is $53,600, and the basic exemption amount is $3,500. Maximum EI insurable earnings: The maximum annual insurance earnings (federal) for 2015 is $49,500. Turning 65 this year? - There are a number of credits that take effect. Turning 71 this year? -In the year you turn 71, you must convert your RRSP to a RRIF Did your children turn 18? - Many credits and deductions may no longer be available to the parents For more information, the Canada Revenue Agency web site can be found here.

 

You and Your Dental Benefits

One of the areas people often ask me questions about are dental benefits.  I’m not an expert.  However, the Ontario Dental Association has a great web site with explanations written for the non-dentist.  Check it out here.

This web site covers a number of areas regarding your dental plan including the differences between your plan and the fees that your dentist may charge, claim forms, billing, what to do if your dental claim was denied, the ODA suggested fee guide and more.

If you are having any major work done (i.e. more than routine cleanings, x-rays or small cavities filled), you may want to have your dentist submit a pre-treatment determination to your insurance company.  This way, you will know in advance what the insurance company will cover.  If you are having a bridge, crown or inlay, there may be laboratory fees in addition to the dental fees.

The ODA site also explains many of the common dental procedures.  Click here to read about them. 

They even have an IQ test that you can take. 

New Estate Information Return

Ontario releases new Estate Information Return

Effective January 1, 2015, estate trustees (i.e., executors) in Ontario have additional duties, with Ontario’s release of its Estate Information Return.   Part of the probate process, this new return must be filed within 90 calendar days after a certificate of appointment of estate trustee is issued.  This return is not required where an application for probate was made prior to January 1, 2015.

On the Estate Information Return, the estate trustee will need to provide information on the Fair Market Value of the assets forming part of the estate for estate administration tax (i.e., probate fee) purposes.

In the FAQ, Ontario has confirmed that certain assets are excluded from the value of the estate for purposes of the tax.   Excluded assets include “RRSPs, RRIFs, TFSAs and life insurance policies where there is a living named beneficiary”. (Please see the 8^th point in the section entitled, "Value of estate assets" in the FAQ)

The return, as well as the Guide for completing it, can be accessed from the Ontario Ministry of Finance’s web-site.

Also, in 2012, when the proposed changes had been tabled, we prepared a summary of the changes to the Estate Administration Tax Act in Probate Process – Ontario (7193).  Here, you will also find an example of how the legislation has impacted estate executors’ responsibilities.

More than ever, it’s the right time to discuss segregated funds’ advantages, which include estate bypass when a named beneficiary is designated.   Contact your sales office for more details.

Information provided by Standard Life 

Your Legacy

Your legacy is more than a bank balance. It's the impact you make on your community and your family. Here are six tips for turning a nice thought into a powerful reality:

1) Get Organized - Ensure your personal information - bank account and investment contract numbers, insurance policies, tax information, etc. - are up to date and stored somewhere safe and accessible by your advisor, attorney, beneficiaries or family members.

2) Check your Will - Make sure you have a will and it reflects your current intentions. Do the same with any power of attorney or other legal documents. If you don't have a will, or need to change it, contact me or someone you trust to obtain the name of an estate lawyer ho can help draft yours.

3)  Name Names - Select an executor for your estate and ensure that all beneficiary designations complement those outlined within your will.   

4) Consolidate your Finances - Streamline your investments and bank accounts to simplify administration. Having joint accounts makes it easier to ensure resources are readily available.

5)  Minimize Taxes - Consider investments and strategies that allow your estate to bypass probate and minimize the tax bill for the next generation.

6) Discuss your Plans with your Family - Keeping them informed can help them understand your decisions.    

Over time, situations change.  Your children become adults, tax laws change, your executor ages.  It is important to review your plans every few years to ensure that they are still appropriate.