Financial Planning Updates
March 21, 2019 – TFSA Owners to Be Liable for Tax Owing on Day Trading Income Made Within Their Accounts
As reported in Investment Executive “Under current legislation, if a tax liability arises from the carrying on of a business in a TFSA, the TFSA itself and the financial institution that issued that TFSA are “joint and severally” liable for the tax owing, but not the account holder.”
in the recently tabled federal budget it is proposed that the legislation be amended to hold the account holder liable.
March 19, 2019 – Federal Government Permits Deferral on Withdrawal of Some Registered Savings to Age 85
Historically, Registered Retirement Income Funds (RRIFs) require minimum withdrawals to begin at age 71. If the budget is approved, Seniors will be able to purchase an advanced life deferred annuity (ALDA) to defer withdrawal of a portion of their savings to age 85. There are several conditions including: lifetime limit of 25% of the value of any registered plan and a lifetime limit from all qualifying plans of $150,000 indexed to inflation and rounded to the nearest $10,000.
The amount in the ALDA will not be included in the calculation of the minimum RRIF withdrawal. ALDAs will be available in the 2020 tax year under the following plans: RRSP, RRIF, deferred profit sharing plan, pooled registered pension plan and definied contribution pension plan.
March 19, 2019 – New First-Time Home Buyer Incentive Announced by the Government of Canada
When purchasing a home in Canada with less than a 20% down payment, loan insurance on the mortgage is required to protect the lender. The cost of insurance is passed on to the home owner usually as part of the mortgage payment.
Minimum down payments are based on the cost of the house as follows:
- the minimum for a house that costs $500,000 or less is 5% ($25,000)
- for a house that costs more than $500,000 it is 5% on the first $500,000 then 10% on the rest. For example: the minimum down payment on a house that costs $700,000 would be $500,000 x .05 ($25,000) + $200,000 x .10 ($20,000) for a total of $45,000
- CMHC mortgage insurance is not available on a house that costs over $1,000,000
The Government of Canada’s Budget 2019 announced a ‘First-Time Home Buyer Incentive’. The incentive allows for the first-time homeowner, who has the minimum down payment, to apply for a portion of their mortgage to be financed by a shared equity loan through Canada Mortgage and Housing Corporation (CMHC).
The loan amount is:
- 10% on a newly constructed home or,
- 5% on an existing home
To qualify, the homeowner’s household income per year must not exceed $120,000 and the mortgage for the home cannot be greater than four times the participants’ annual household income. Although these loans are interest free, they must be paid back to CMHC, most likely on the sale of the property, as 5% or 10% on the sale price of the home.
Budget 2019 also proposed changing the RRSP withdrawal limit for first-time home buyers from $25,000 to $35,000.
March 19, 2019 – Federal Crack Down Announced on Transfer of Defined Pensions to IPPs
Tax rules provide for the transfer of proceeds from a defined benefit pension plan (DB) into another defined benefit plan, an RRSP, or an individual pension plan (IPP). This maintains the tax deferred status of the pension proceeds. There are prescribed transfer limits, however, that apply to the amount that can be transferred to an RRSP. The portion of the pension benefit that exceeds the prescribed limit must be received by the plan holder as taxable income. This is often about 50% of the commuted value of the pension.
The federal government is tightening the rules to discourage taxpayers from incorporating for the sole purpose of setting up an IPP in order to shelter 100% of their pension proceeds.
December 21, 2018 – Residency-Based Tax Bill vs Citizenship-Based Proposed by US Congressman
Both Republicans and Democrats are showing support for a bill introduced by a Republican congressman George Holding (R-North Carolina) to move from a citizenship-based taxation system to a residency-based one. The US is one of only a few countries administering tax on citizenship. This has made it difficult for Americans living in Canada who can be taxed in both countries as per the Foreign Account Tax Compliance Act (FACTA).
Investment Executive reported that under the new system the proposed definition of a non-resident citizen would be:
- is a US citizen;
- has a tax home in a foreign country,
- is in full compliance with US income tax laws for the previous 3 years; and
- either establishes that he/she has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or is present in a foreign country or countries during at least 330 full days during such taxable year.
November 20, 2018 – TFSA Annual Contribution Limit Boosted to $6,000 for 2019
The government announced the annual contribution limit for TFSAs will rise from $5,500 to $6,000 for 2019. This makes the cumulative limit $63,500 for a Canadian who has never contributed to a TFSA and was 18 years of age at the time the program was launched (2009).
November 2, 2018 – CRA to Boost CPP Maximum Pensionable Earnings in 2019
Canada Revenue Agency (CRA) announced an increase in maximum pensionable earnings for CPP from $55,900 in 2018 to $57,400 for 2019, a 2.7% increase. The increase was made to reflect the growth in average Canadian weekly wages and salaries. This means the maximum employee/employer contribution will rise to 5.1% from $2,593.80 in 2018 to $2,748.90 in 2019. The maximum self-employed contribution will be 10.2% or $5,497.80. The basic exemption amount remains at $3,500 annually.
Example (source CRA)
Joseph receives a weekly salary of $500 and $50 in taxable benefits. Calculate the amount of CPP contributions that you have to pay.
Step 1: Calculate the basic pay-period exemption
$3,500 ÷ 52 = $67.30 (do not round off)
Step 2: Calculate the total pensionable income
$500 + $50 = $550
Step 3: Deduct the basic pay-period exemption from the total pensionable income
$550 – $67.30 = $482.70
Step 4: Calculate the amount of CPP contributions
$482.70 × 5.1% = $24.62
Step 5: Calculate the amount of CPP contributions you (the employer) have to pay
$24.62 × 2 = $49.24
September 19, 2018 – Financial Planning Standards Council Announces National Organization to Advance Financial Planning in Canada Named FP Canada™
The mandate of FP Canada is “to lead the advancement of professional financial planning”. The organization has two distinct divisions:
- FP Canada Standards Council™: An independent structure that sets a high level of competence, professionalism and ethics standards.
- FP Canada Institute™: provides tools and services to help prospective and existing financial planners provide more effective service. This includes education to develop essential technical skills.
February 2018 – FinaMetrica Awarded WealthBriefing Swiss Award 2018
Risk tolerance tool FinaMetrica announced their award for ‘Best Risk Profiling Solution’. The WealthBriefing Swiss Awards focus on experts, products, and services for wealth managers and clients to award top class performance and innovation. These awards are granted by two expert judging panels that include bankers and trusted advisors.
February 9, 2018 – FPSC Announces Digital Credentials for CFPs
The Financial Planning Standards Council (FPSC) announced the launch of digital credentials for Certified Financial Planners (CFPs). The digital credential will allow consumers to verify in real time that their financial advisor is in fact, a CFP in good standing. This technology uses a blockchain-verified platform that is more reliable than traditional printed credentials.
September 7, 2017 – Equifax Announces Information Hack
Equifax, an American based consumer credit reporting agency, announced they had become aware of a security breach on July 29, 2017 that compromised the personal information of approximately 182,000 U.S. consumers. According to the company, limited information for certain UK and Canadian residents was also exposed. Equifax responded with apologies and access to free credit monitoring and identity theft protection for all impacted Canadian residents.
An article in the Investment Executive published on September 13, 2017, reported that “Equifax Canada’s customer service agents are telling callers that only Canadians who have had dealings in the United States are likely to be affected…” read the full story
To contact Equifax Canada about the incident, you can call 1-866-699-5712
or email EquifaxCanadaInquiry@Equifax.com
April 28, 2017 – Title Restrictions for Financial Planners Announced by Ontario Government
In the 2017 budget, the Ontario government committed to restricting the use of the title “financial planner” and other titles that could confuse or mislead consumers, to individuals who are qualified and accountable for their professional conduct. Currently Quebec is the only province in Canada that restricts who can call themselves a “Financial Planner”. The Province of Ontario is working with regulators on enforceable standards. The government will also examine the feasibility of a universal best interest duty for all professionals providing financial advice. This standard ensures the client’s interests come before all others – a standard already adhered to by Certified Financial Planners.
November 2016 – Manulife Vitality Program Highlights Trends in the Insurance Industry
Manulife recently announced a program that tracks your health and rewards you with reduced premiums for living a healthy lifestyle. Once a Vitality life insurance product has been purchased, the insured registers for the program. An online quiz provides a Vitality Age™ as an indicator of overall health. A customized health plan is provided along with tools such as a wearable device that tracks health activities. The insured begins accumulating Vitality Points™ based on healthy activities. As the points accumulate, rewards levels may be achieved that result in reduced premiums for the next policy year.