Financial Planning for the New Year

Financial Planning for the New Year

by Financial Planning

Most people don’t really commit to their financial resolutions each New Year. Sometimes the goals are just too ambitious, and other times it’s simply because they weren’t held accountable to stick with them. Nevertheless, you’ll get another crack at it this year, and with these following tips you can get back on track with your financial planning for the New Year and keep it going over the long-term.

Determine What You Really Want

If you don’t know exactly what goals you are working towards, then you won’t achieve them. Take the time to write out all the financial goals you would like to complete this year. Then create a few milestones that you will need to accomplish and give these items a deadline. By knowing what you really want to attain and having a clear plan for succeeding, you will be starting off on the right foot.

Review Your Portfolio

There’s no better time to review your financial portfolios than now. Make it one of your resolutions to check which areas overperformed and underperformed, and rebalance your portfolio as necessary.

Revisit Your Retirement Savings

Every New Year, you should evaluate how much you have saved so far for your retirement. Then you need to create a financial plan for your current savings and see if you have the opportunity to contribute even further.

Update Your Debt Reduction Goal

As an important part of your financial planning for the New Year, don’t forget to review your current outstanding debts. If it is available to you to pay down some extra principal towards your mortgage or credit card payments, create a plan to do so. Determine how much you can realistically afford to pay off during the new year. For optimal results, avoid adding anything further to your credit card and talk to an advisor about getting a consolidated line of credit.

Plan to Save More

Make this new year the one where you form a new habit of putting more into your savings account. To resist spending what you should be putting away, set up an automatic payment plan. That way any money you need to be placed aside goes instantly into your savings account, making it much easier to save since you don’t even have to think about it.

Review Your Insurance

Take some time to think through how much protection you need and if you are on the right track to having the necessary amount of coverage. Talking to a professional can help you get a better handle on the options available to you.

Getting a head start on financial planning for the new year is always a smart step for creating a good plan that you can stick to. Take this opportunity to set realistic financial resolutions and keep track of how you are doing throughout the year. For help and guidance on how to set organize your financial future, talk to a financial advisor at The Beacon Group at Assante Wealth Management Ltd. today to review your goals and help you set achievable objectives.

 

Understanding the Tax Implications of Family Gifts and Loans

Understanding the Tax Implications of Family Gifts and Loans

by Financial PlanningTax Planning

It’s not uncommon for parents to financially support their children well into their twenties and sometimes even in their thirties and forties. With the Canadian housing market being increasingly difficult to enter for first time buyers, parents are becoming more involved with helping their children afford a down payment and more. Some even assist their kids with investment money to start businesses and to help with investment instruments. And while all this may seem harmless, difficulties can arise if parents don’t understand the tax implications of family gifts and loans. Let’s take a look at what we mean.

 

Create Clear Intentions

If you loan your child money or present it as a gift, make sure you get the correct documentation. With a loan, you will need a promissory note, loan document, or registered mortgage on the title of their home. With a gift, you should always collect a deed of gift, or make it in writing. By not having clear documentation about your intentions, your wishes won’t be clear, and you could end up with tax implications, regardless of your intentions.

 

Giving Cash Gifts

There is no tax in Canada for cash gifts that you give your child. However, if the cash is intended to help them pay for a home or for any other capital like stocks or shares, there will be tax implications for you. This is to prevent people from trying to pass on assets to their children to take advantage of the child’s tax rate as opposed to paying at the higher tax bracket.

 

Buying Your Child A Home

If you decide to give your child money for a down payment, pay their monthly mortgage bills, or buy a home outright for them, you will have certain tax implications. For one, if you buy a home for your child the law sees it as if you sold it to them at fair market value. You will be expected to pay the capital gains, not your child.

 

Loaning Money

When you loan money to your child and charge them an interest rate, you will still need to declare any interest you earn on your tax return. If your child is using that money to purchase a home, and they are taking out a Canada Mortgage and Housing Corporation Insurance, they will need to pay a surcharge since the down payment money was borrowed. So be selective on how much interest you plan to charge them.

Family loans and gifts can be very complex to navigate, so talk to us at The Beacon Group at Assante Financial Management Ltd. We can help you get over your financial hurdles and understand all the tax implications in relation to gifts and loans.

5 Ways you Can Better Organize Your Business’s Finances

5 Ways you Can Better Organize Your Business’s Finances

by BusinessFinancial Planning

Running a business can present many challenges – especially when it comes to organizing your business’s finances. If your numbers aren’t accurate or up-to-date, it can impact your bottom line, your growth, and in turn, your success. Fortunately, there are strategies that you can easily implement to coordinate and monitor the finances and day-to-day operations of your business. Check out these 5 ways you can get your company’s finances under control and get ahead.

 

Outline Financial Goals

To get your business’s finances in order, you first need to figure out what the financial goals are that you wish to achieve. Do you want to double your profits over three years? Would you like for your company to go public? Do you want to expand your company to another country? Spending time identifying your financial goals should be your first step. Then write down all the financial milestones for this coming year, along with the next three, five, and ten-year marks. Once you have an idea of how you want the future of your business to unfold, you can then start to figure out how your business will achieve each of the objectives.

 

Create a Budget

Once the financial goals have been set and you have an idea of how to achieve them, now is the time to set achievable targets. By creating a budget, you can better plan how your business will allocate money. This will help you get a grip on where your money should be going.

 

Set Company Standards

An important part of organizing your business’s finances is to set the standards and regulations for partners and/or employees to follow in order to stay within your budget. For example, if you have employees who will expense incidentals during business travel, make sure you outline what the business will cover, how much, and what they are expected to pay out of pocket. Having well defined best practices and company rules will help to ensure your employees don’t go over budget.

 

Organize Paper

Even though many processes have now gone digital, you will still need to work with paper and receipts for many of your dealings. And just throwing your hard copies into a box won’t cut it. You need to set up a properly organized system where you can find what you need quick and simply. Having a filing cabinet and a proper filing system that organizes each part of your business into separate sections – accounting, contracts, HR, operations, sales, etc. – and then by sub-sections, (alphabetically and then by date), will make everyone’s lives much easier.

 

Track Corporate Spending

When you run a business, you need to have finance software and technology to track all of your corporate spendings properly. All the outputs, such as printing, office supplies, leasing costs, utility bills, expense receipts, and extras like coffee and vending machine snacks, should be accurately inputted and accounted for. Neatly organizing all your expenses and income earned will help you to organize your business finances better.

Let us help you achieve the level of organization that your business needs. At The Beacon Group of Assante Financial Management Ltd., we help leaders and business owners fix their problems to gain more effective processes geared for success. Call us today!

Beyond the Will: What’s Involved in Estate Planning?

Beyond the Will: What’s Involved in Estate Planning?

by AgingEstate PlanningFinancial Planning

Every Canadian should have a will. We understand how uncomfortable this discussion and process can be, but it’s crucial to take care of to gain peace of mind and to know that your family and your assets are well taken care of. A Will allows you to determine how you want your possessions and estate handled, who the executor will be, and who the guardians of your children will be if something should ever happen to you.

If you’re wondering what’s involved in estate planning, here’s what you need to know when it comes to gaining that important peace of mind during the creation of your Will.

 

Create your Will

An essential part of estate planning is creating your Will. This key legal document outlines how your assets will be distributed and to which beneficiaries. It also stipulates who will be responsible for ensuring your wishes are carried out exactly as you planned.

 

Name the Executor

Naming your executor is the next important step of your Will planning process.  This person or corporation will have the responsibility for carrying out your wishes after you pass away.  This named individual will also have the responsibility to issue payment from your bank account to cover any taxes or debts that you owe.

 

Choose the Power of Attorney

Important to your estate planning is also determining a Power of Attorney. This refers to someone you designate to have the power and legal precedence to make any financial or health-related decisions on your behalf.

 

Set up your Insurance

Many people underestimate the amount of money that’s necessary to cover the funeral expenses, taxes, debts, and probate fees. Setting up a life insurance policy can help reduce these burdens on your family and can also help your heirs receive inheritance money to help them out in the future.

 

Ensure Business Continuity

Without a plan for business continuity, you may end up leaving your business partners or family members in a bind. Instead, plan out how your business will operate after you pass on.

 

Outline Personal Care and Funeral Arrangements

Without a detailed plan on personal care and funeral arrangements, your family will be left with the burden of making these painful and challenging decisions for you. An estate plan can help you pre-plan your before and aftercare, how it will be paid for, and your desired wishes for the service.

 

Designate Charitable Gifts

If part of your estate plan includes charitable gifting, ensuring this is included in your Will is vital to guaranteeing that your charitable plans will be carried out correctly.

 

Minimize your Income Tax and Probate Fees

Although you’re not charged an estate tax in Canada, there are other fees that do exist in relation to your Will. There are ways that your estate plan can help minimize your fees that will be charged by your province to process and probate your will.

 

Appoint a Guardian

A guardian will be the person you name to take legal custody of your minors in case of your death.

Talk to an advisor at The Beacon Group of Assante Financial Management Ltd. today to help guide you through the process of creating your Will and your estate plan, so you can take care of any unforeseen situations in the future. It will ensure your loved ones are looked after once you are gone, and it will help settle your affairs preventing any further stress or burdens from being placed on your family.

3 Investment Rules for Estate Trustees

3 Investment Rules for Estate Trustees

by Estate PlanningFinancial Planning

An estate trustee is responsible for performing various duties to encourage the wellbeing of the estate in question, as well as its beneficiaries. Among those duties includes careful and thoughtful investment in order to bolster the strength of the estate. There are three main rules pertaining to this duty, and by following them diligently and accurately, an invested estate can prosper for many years to come.

 

Obey the Trust Deed at All Times

A trust deed normally includes an agreement or term that protects the estate by limiting the trustee’s investment authority. Sometimes this is incorporated intentionally, but even if it isn’t, trustees are required to follow the instructions written out in a testator’s investment clause. Even if they are poorly explained or overly broad, the trustee and investment advisor are responsible for remaining faithful to the testator’s wishes. If not, they are essentially breaching their contracted duties and can be held liable in a court of law.

 

Invest Sensibly and Consider Outcomes

To guarantee sound and prudent trust investments, a trustee must consider the economic climate, including potential effects of inflation or deflation. Additionally, they must ruminate on any tax implications or impacts on the trust’s portfolio from any investments, as well as the expected total return, required payments or liquidity, and asset values to beneficiaries (such as family business shares). Case law also enforces the need for a trustee to diversify the trust’s portfolio to an appropriate extent — even in provinces where legislation doesn’t require diversification. You need to follow a designated investment plan that assesses risks and return potentialities associated with the investment portfolio, as well. You are permitted in any Canadian province to consult with a prudent investment advisor, stemming from applicable qualifications and experience investing within the trust setting. More commonly, an advisor is pre-selected in a clause of a trust deed to ensure continuity. In any case, a written agreement between you and the advisor is required in addition to the investment plan.

 

Be Fair to Beneficiaries (Even-Hand Rule)

On many occasions, trusts include a clause directing the estate trustee to favour or bypass an income beneficiary or a capital beneficiary. This request must be adhered to if included, but if not, you as the trustee need to consider the best interests of all beneficiaries prior to and during the investment process. Not doing so or investing in a beneficiary’s own business could be used against you in a court of law as a violation of the even-hand rule.

A trustee is quite literally trusted with the wellbeing of an estate and its applicable beneficiaries from a financial standpoint. To legally and diligently adhere to the testator’s wishes and follow specific guidelines, invest prudently, and follow the even-hand rule will enable for a smooth and efficient process. To learn more about selecting a trustee for your estate or ensuring your legacy is carried out according to your wishes, schedule a consultation with The Beacon Group of Assante Financial Management Ltd.

Maximizing Tax Deductions as a Parent

Maximizing Tax Deductions as a Parent

by FinancialFinancial PlanningTax Planning

As a parent in modern society, it can be difficult to make ends meet given how low the Canadian dollar is and the multitude of expenses related to raising a child. However, there are several ways to minimize tax deductions and make life easier for yourself, your spouse, and your children. Here’s how to do it.

Apply for Benefits

When tax time rolls around, fill out the RC66 Canada Child Benefits Application. This used to enable parents to apply for the Canada Child Benefit (CCB), which was worth a maximum of $6,400 annually per child 6 years old or under, and $5,400 per year for each child between 6 and 17 (note that these amounts reduced when family net income exceeds $30,000). However, the Canada Child Tax Benefit (CCTB), the National Child Benefit Supplement (NCBS), and the Universal Child Care Benefit (UCCB) replaced the CCB in 2016. This means that CCB does not to be applied nor is taxable, but adjustments can be requested. You may also apply for the Child Disability Benefit (CDB) if applicable. Parents have the option of registering online as well, or even upon registering a birth. The biological mother is considered the primary caregiver, so all social benefits are directed to her, but the lower-income parent must report the income on their return regardless. Same-sex parents are permitted to designate a primary caregiver in their application to ensure that they are eligible for benefits, also.

Claim Expenses

Fees and expenses paid for by parents for child care while at work, school, or during research need to be claimed to help create comprehensive and accurate tax-deductible figures so long as the child is under 16 years old sometime during the year (this rule doesn’t apply to children with disabilities, however). The more that you include, the likelier it will be that these deductions will decrease in size. Then, attach Form T778 Child Care Expenses Deduction to your return, bearing in mind that the lower-income partner is required to claim expenses unless if enrolled in studies, suffering a long-term illness, imprisoned, or separated.

Claim Credits

While adding expenses to your forms, be sure to include those that could be credited upon your return. Children’s Fitness, Disability, and Family Caregiver amounts are examples of creditable expenditures. For sports (refundable) and arts (non-refundable) program fees, up to $500 and $250 per child under 16 (18 if disabled) can be claimed, respectively. To transfer a child’s Disability Amount to your return, use line 316 of the federal worksheet to ensure accurate calculation, followed by line 318 to calculate how much can be transferred to you, followed by entering the total on line 318 of Schedule 1. To claim the Family Caregiver Amount if your child has a long-term illness or is infirm but not necessarily disabled, include a signed doctor’s statement that details when the illness or impairment began, its expected duration, and that it makes the child depend more on personal assistance than children of their age group. Enter the number of children you are claiming for in box 352 and multiply by $2,121, then claim the calculated result on line 367.

With these adjustments applied to yours and your spouse’s return (if applicable), you can expect a decrease in tax payments and a higher payout than usual from the CRA. If you require detailed information or guidance or would like to discuss further tax planning strategies, The Beacon Group of Assante Financial Management Ltd. is ready to lend a helping hand.

Understanding Pension Splitting

Understanding Pension Splitting

by FinancialFinancial PlanningInvestment Planning

Since its inception in 2007, pension splitting has enabled taxpayers in a common-law relationship or marriage to split eligible pension income with a spouse, provided they meet all requirements. A useful way of saving on taxes and mitigating credit erosion, pension splitting allows for couples to work together to create a more sound and secure future.

The Basics

Two spouses or common-law partners both residing in Canada at the end of the taxation year are able to jointly elect to split eligible pension income. Each taxpayer files CRA Form T1032 – Joint Election to Split Pension Income with their individual returns. This means that it isn’t split at source, unlike CPP sharing (when possible). One spouse can claim up to 50% of reported income, and their partner can claim a like amount. Pension splitting is subject to proration depending on changes in marital status or death, and unique elections can be made annually.

Qualifying Sources of Income

There are several sources of income eligible for pension splitting. Those aged 65 or older on December 31 of a given tax year can allocate up to 50% of qualifying income to a spouse of any age. Additionally, amounts may be paid out of RCA payments in the form of life annuities (not exceeding $102,005.40 for 2017), as well as RPPs and retroactive lump-sum payments. Taxable RRIF payments to the annuitant and/or a beneficiary also qualify, including those from locked-in plans. However, bear in mind that RRSP withdrawals do not qualify and, as a result, if an amount has rolled over to an RRSP, the RRIF or annuity can’t be split. There are many more qualifying and disqualifying sources of income, and it is recommended to consult the CRA’s list for further information.

The Advantages of Pension Splitting

The biggest benefit is that if the spouse being allocated the income is in a lower tax bracket, overall income tax savings rise dramatically. Additionally, only income qualifying for the $2000 pension credit is eligible for splitting, which means that generating income qualifying for it will save even more tax. Spouses receiving allocated amounts may also be eligible to claim this credit in certain circumstances. Another advantage of pension splitting is that it minimizes or even eliminates the erosion of the age credit, which is normally reduced once a taxpayer’s net income exceeds a threshold amount ($36,430 in 2017). The same rules apply for Old Age Security (OAS), which is also better protected against reduction.

Pension splitting enables for retirees to worry less about scraping to make ends meet, thanks to its ability to reduce taxes and raise credits while protecting against erosion. If you and your spouse or common-law partner are considering pension splitting, The Beacon Group of Assante Financial Management Ltd. can help clarify whether or not it is a viable option, and discuss this and other retirement planning strategies.

Salary vs. Dividends – Which is Right for You?

Salary vs. Dividends – Which is Right for You?

by FinancialFinancial PlanningTax Planning

Many business owners are unsure of whether to opt for salary-based earnings or payments in dividends. There are various advantages and disadvantages between the two, and it is important to research whether or not one of these options is suitable for your business. By comparing salaries and dividends, we can clarify the differences between the two.

CPP and RRSP Payments

Being paid a corporate salary means that you will be able to contribute towards an RRSP. This is a result of you having a personal income, and it means that you’ll also be paying into the Canada Pension Plan (CPP) to secure a financially bolstered retirement. However, take into consideration the fact that as salary is 100% taxable as opposed to dividends (the latter taxed at a lower rate), you’ll need to pay both portions of the CPP as an employer and employee.

With dividends, you won’t be required to make regular CPP payments, which can help to save money, though it may be best to invest anyway as it can increase what you are entitled to upon retirement. Also, the logging of payments is a relatively simplified process compared to that of salary-based earnings that entail setting up payroll accounts with the Canada Revenue Agency and filling out extra paperwork. That being said, by receiving dividends you forfeit the ability to make RRSP contributions as a result of not having any income.

Tax Deductions and Increases

When it comes to taxes, salaries are seen as a burden due to the fact that they are 100% taxable. This means that your personal income is subject to higher rates and a smaller return. Additionally, you may not be able to carry back a business loss in future years when paid via a salary, which is quite the reverse if you were earning in dividends. That being said, owning a corporation that pays in salaries and bonuses enables for greater company tax deductions.

Dividends are taxed at a much lower rate than that of salaries, resulting in lower personal tax rates. This can enable for easier budget management, greater savings, and opportunities for investment in order to bolster income flow. However, it can also remove some personal income tax deductions, such as those for child care expenses.

Limitations for Small Businesses

It is important to bear in mind that the Small Business Limit is $500,000, which relates to income tax deductions available to private controlled Canadian corporations (CCPCs). On many occasions, salaries and bonuses are paid to ensure a corporation’s earnings don’t exceed this amount, with dividends being utilized if further income is required. This is due to the fact that after a business exceeds this figure, it pays much more in taxes.

Depending on cash flow needs, your income level, predicted company income for the year, and RRSP and tax deduction importance, salaries and dividends both offer a wide range of pros and cons. It is highly recommended that you consult with a financial advisor from The Beacon Group of Assante Financial Management Ltd. who can help you determine which option is more suitable for your situation and discuss other tax planning strategies to put more money back in your pocket.

Mother reading a book with her daughter

Making Financial Sense Out of Stay-at-Home Parenting

by BusinessFinancialFinancial PlanningInvestment PlanningTax Planning

When you and your spouse decide to start a family together, you have to make an important decision together: will both parents return to work, or will one remain as a stay-at-home parent? While there is no right or wrong answer, it is crucial that you first weigh whether or not it is suitable from an earnings and expenses-related standpoint.

Guaranteeing Sufficient Income

The most important thing to do is work out a budget with your spouse in advance of making such a change. It is important to ensure that the household can remain financially secure with a sole breadwinner. Factor in additional bills, investments, and savings to determine whether opting to be a stay-at-home parent is a viable option. Staying at home will also shift expenses; you’ll save on gas and lunches out, but you’ll have whole new expense categories for diapers and baby clothes.

Taking into consideration the age of your children, hours that they’re home, and amount of attentive care they require (special needs, etc.), the stay-at-home spouse may be able to work part-time or launch a home-based business. This can help to maintain a steady income flow as home office-based expenses and other legitimate costs associated with a home business are tax-deductible.

Saving Opportunities

If you are looking to save on expenses as a household, having one parent remain at home with the children can be a blessing in disguise. The biggest contributor is the lack of daycare costs, which in Calgary top $1000 per month per child. Child care for infants is even more expensive. If the family unit includes an older parent or in-law in need of consistent support, there may be an opportunity to save even more money. Having someone at home helps to reduce for care-related expenses either via facility or home care.

Tax Planning and Maintaining Insurance Coverage

Income-splitting opportunities are ripe for the picking for households with a stay-at-home spouse and the other being the primary source of income. The main breadwinner can contribute towards a spousal Registered Retirement Savings Plan (RRSP). Additionally, they have the option to give funds to the spouse with a lower income to invest in their own Tax-Free Savings Account (TFSA). Combined, expect a considerable deduction on taxes. Clever spousal loan strategies involving higher earning spouses lending money to their lower-earning partner to invest and be taxed at a lower rate are also applicable. In this sense, having a stay-at-home spouse can allow for lower taxes and higher return rates.

These savings may be important in regards to maintaining adequate insurance coverage. With one spouse no longer earning an income, it is more crucial than ever that the appropriate amount of insurance is readily available to cover the cost of replacing their services. Also, you may want to consider critical illness insurance to compensate for whoever remains at home with no income being ineligible for disability insurance.  

By considering your options and weighing the pros and cons appropriate for your income and expenses, becoming a stay-at-home parent may be more of an opportunity than a burden. Making sense of the financial aspects of such a lifestyle change is important to maintain a sound future, and reaching out to The Beacon Group of Assante Financial Management Ltd. to speak with one of our financial advisor will help make sense of it all. Feel free to contact us if you require further assistance with financial planning, investment planning, tax planning, and insurance planning with stay-at-home parenting in mind.

A Closer Look at the Probate Process

A Closer Look at the Probate Process

by Estate PlanningFinancial Planning

When it comes to creating a will, you should also become familiar with the probate process. This approval process is crucial for your estate and your executor. Applying for a probate approval confirms that your executor is the right person to be handling your money after death and ensures they’re using the most recent version of your will. Plus, the process can involve probate fees that will need to be arranged. Taking a closer look at the probate process can help you to properly prepare your will and executor to be ready when it comes to distributing your assets.

When is a Probate Required?

After death, your executor is responsible for securing the assets of the estate, paying your debts, and determining if probate is needed. The situations in which your executor will need to apply for a probate is:

  • If you pass away with debts
  • If there are bank accounts or registered investments without a named beneficiary
  • If there is owned property that isn’t being passed directly to a spouse or common-law partner through joint ownership

Why is a Probate Recommended?

Institutions like your bank will want proof that you passed away, confirmation that your executor is the right person and that they possess the final testament of your will. Many institutions will also want a proof of probate to avoid any legal issues if the will becomes contested.

How Does the Executor Apply?

The executor will need to visit the province’s probate court to be granted probate approval. There are different laws for each province, so it’s important for your executor to understand your province’s rules, approval process, and the costs involved. If they have issues obtaining or understanding the information, they should talk directly to a lawyer.

Are There Fees Involved?

Each province sets out their own specific amount of probate fees. Some charge a flat rate, while others charge a percentage of your assets.

How Can You Better Plan to Distribute Assets?

You can arrange to have two wills; one that will be used to distribute assets that need to go through probate, and one that will be used to distribute assets that do not. Legal counsel can help you arrange to have the two wills properly worded. If this option is not available in your province, you could also give cash gifts to family instead which may be exempt from tax. Another option would be set up a trust or private company to own your assets, this way your assets will not go through probate.

The probate process can be difficult to understand, not only for you, but your executor as well. Hiring a professional who can help guide the both of you through the process can ensure your estate planning goes smoothly and as intended. Book a consultation with your financial advisor at The Beacon Group of Assante Financial Management Ltd. today.