Getting Ready for Money Emergencies

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Life can throw unexpected events your way that can hit you in the wallet. Whether it’s falling ill, getting laid off, or facing hefty repair bills for your car or home, these situations can strain your finances. To stay ahead and avoid falling into debt, it’s a good idea to have an emergency fund. This is cash you set aside specifically to handle unforeseen expenses, so you’re not left scrambling for money when the unexpected happens.

Why Emergency Funds Matter

An emergency fund is like an insurance policy for unexpected expenses that everyone can benefit from. It’s a stash of money specifically saved to cover daily living costs during emergencies that catch you off guard, such as:

  • Sudden car repairs

  • Vet visits

  • Losing your job

  • Sudden home repairs

  • Medical emergencies

Creating an emergency fund helps you to:

  • Deal with surprise costs without going into debt

  • Stay away from expensive loans like payday loans or credit card cash advances

  • Keep control of your finances

  • Feel less worried about unexpected expenses.

An emergency fund offers peace of mind during life’s surprises, preventing debt by covering costs without needing to use up savings or retirement funds, which could result in extra fees.

How much do you need?

The amount you should save depends on your financial situation, like how much you earn, what you spend each month, and if you have any dependents. A good rule is to have enough money to cover three to six months of necessary expenses, like rent, groceries, bills, and childcare.

How to Build Your Emergency Fund

Building an emergency fund to cover three to six months of essential living expenses might feel overwhelming, but the key is to start saving gradually. Even putting away a small amount regularly can add up significantly over time.

Here are some ways to build up your emergency fund:

  1. Automate your savings: Pick how much money you want to save, when you want to save it, and how often. Then, arrange for the money to be automatically moved from your regular account to your savings account. You can set up this automatic transfer to happen on your payday. That means the money you’ve chosen to save will be moved as soon as your paycheque is put into your account.

  2. Take advantage of opportunities to boost your emergency fund whenever you can. This might happen when you get extra money, like a tax refund, a pay raise at work, or when you sell things such as a car. Even receiving money as a gift or getting a bonus from your job can help. Additionally, when you finish paying off a loan, consider putting the money you used for payments into your emergency fund instead. Since you’re already used to budgeting for those payments, it’s an easy way to increase your savings without much extra effort.

  3. Make it a habit: Make saving a regular part of your routine by incorporating it into your daily habits. Here are some simple tips to help you get started: drop any loose change into a container whenever you come home, set up a savings, mark your saving dates in advance on your calendar, and use sticky notes on your fridge to remind yourself to save regularly. These small actions can make a big difference in building your savings over time.

Where to keep your emergency fund?

Given that emergencies can occur unexpectedly, having quick access to your funds is important. Although a regular chequing account may offer immediate access to your money, it’s best to keep your emergency fund separate from your regular account. This prevents accidental spending on non-emergencies. Look for an account that:

  • Is distinct from your regular spending account

  • Has minimal or no transaction fees

  • Permits penalty-free withdrawals

  • Earns interest on your savings

Consider exploring “cash equivalents” as an option to invest your money. They’re a bit like cash but can also help your money grow with interest. They’re safe and easy to get your money from. But before you decide, make sure you understand how and when you can take your money out and if there are any extra fees or charges. Examples of cash equivalents include:

  • Savings accounts

  • Chequing accounts

  • High-interest rate savings accounts (HISA)

  • Guaranteed Investment Certificates (GIC)

  • Money market funds

Having an emergency fund can be a lifeline during tough financial times, preventing you from falling into debt. While there’s no fixed amount you should stash away, assessing your financial situation can guide you in determining your ideal emergency fund size. If you need assistance in planning your emergency fund, don’t hesitate to reach out to us for personalized guidance and support.

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Network of Professionals

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Our Network of Professionals

As a financial advisor, my primary goal is to help you achieve financial clarity. I do this by accessing a network of dedicated professionals, each bringing their unique expertise to the table. Together, we provide personalized advice and services that help you make informed decisions and secure your future.

Financial Advisor

Think of me as your financial coordinator. I help you figure out your goals, create plans to achieve them, and keep everything on track. Whether it’s planning for retirement, managing investments, or saving for a major purchase, I have access to a network of professionals who ensure every aspect of your financial life works together smoothly.

Accountant/Tax Professional

Having an accountant or tax professional in your financial network is essential for keeping your financial records in order. They handle tasks like bookkeeping, preparing financial statements, and assisting with tax planning. Their role is particularly important during tax season. They help you file your taxes accurately and on time, taking the stress out of the process. By optimizing your tax strategies and ensuring everything is reported correctly, they help you save money. Their skills are invaluable for both your immediate needs and long-term financial planning.

Investment Advisor

Investment advisors focus on building and managing investment portfolios tailored to your short-term, medium-term, and long-term goals. They thoroughly research the market, evaluate investment opportunities, and offer valuable insights to help you create a well-rounded portfolio. Whether you’re saving up for a major purchase, planning for retirement, or aiming for other financial milestones, they assist in choosing the right investment vehicles, such as RRSPs, TFSAs, RRIFs, and non-registered accounts, to support your financial stability and future needs.

Life Insurance and Living Benefits Advisor

Life insurance and living benefits advisors are here to help you protect your greatest asset: yourself. Their job is to make sure you and your family are financially secure if unexpected events occur. These advisors walk you through different insurance options, including disability insurance, critical illness insurance, and life insurance, to find the coverage that fits your needs best. By understanding your unique situation and recommending the right policies, they provide you with peace of mind, knowing that you have a safety net in place for life’s uncertainties.

General Insurance Specialist

General insurance specialists cover a wide range of insurance needs, including auto, property, travel, and liability insurance. They assess your risks and recommend policies that provide the protection you need. Their advice helps you understand your options, compare quotes, and select the best policies to safeguard your assets, ensuring you are well-protected in various aspects of your life.

Banker

Bankers are there to help you navigate a wide range of financial services, especially when it comes to getting loans and credit products. They offer advice on securing personal loans, understanding credit options, and managing debt effectively. Whether you’re looking to finance a major purchase, consolidate debt, or build your credit, bankers provide the support and guidance you need to make informed financial decisions.

Mortgage Broker

Mortgage brokers assist you in securing financing for property purchases by accessing multiple lenders on your behalf. They assess your financial situation, compare mortgage products from various sources, and recommend the best options for you. With their ability to shop around and understand different interest rates, loan terms, and application processes, they ensure you get the best possible mortgage deal, making homeownership more accessible and affordable.

Realtor

Realtors are your go-to professionals for buying or selling property. They provide market insights, negotiate deals, and manage the legal aspects of real estate transactions. With their knowledge of local market trends and property values, realtors help you make informed decisions whether you’re purchasing a home, investing in real estate, or selling property.

Legal & Estate Professional

Legal and estate professionals play a vital role in your financial planning by handling the legal side of things, such as estate planning, wills, trusts, and probate. They make sure your assets are distributed according to your wishes and that all the necessary legal documents are properly set up. Their guidance helps you reduce estate taxes and smoothly navigate the legal processes, ensuring your wealth is transferred to future generations just as you intended.

Having a network of financial professionals is essential for achieving financial well-being. Each member brings their own expertise to address different aspects of your finances, from investments and insurance to legal and real estate matters. As your financial advisor, I act as the coordinator, ensuring that all these professionals work together seamlessly. By leveraging their combined knowledge and skills, you can gain financial clarity and know that every aspect of your financial life is taken care of.

Ready to take control of your financial future? Contact us today.

Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates

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With the upcoming 2024 Canadian tax rule changes, it’s important to review your financial strategies. We’ve identified the key changes that we expect to influence financial decisions for investors, business owners, incorporated professionals, retirees, and individuals with high income or net worth.


Capital Gains Inclusion Rate

Starting on June 25, 2024, the tax on capital gains is changing. Until now, you would only have to include half of your capital gains in your income for tax purposes. But after that date, you’ll have to include two-thirds of any capital gains over $250,000 on your tax return. This is also the case for employee stock options. 

Consequently, for corporations and trusts, they will have to include two-thirds of all their capital gains, no matter the amount. This is a significant change. 


Lifetime Capital Gains Exemption (LCGE)

The budget proposes increasing the LCGE for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. This change increases tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.


Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, suggesting revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.


Employee Ownership Trust (EOT)

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met. 


Canadian Entrepreneurs’ Incentive

This new tax measure offers a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years. However, it’s important to know that not all businesses qualify—this doesn’t apply to businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care.

Below is a checklist to help you navigate the tax adjustments and ensure your financial plans are updated and aligned with the new rules.


Investors

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate.

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Employee Stock Options: Adjust the timing of exercising stock options to align with the upcoming changes in inclusion rates.


Business Owners:

  • Corporate Investments: Assess the impact of increased inclusion rates on corporately held assets, exploring the timing of gains realization. Review trust-held investments. 

  • Lifetime Capital Gains Exemption: Maximize the benefits of the increased LCGE for qualifying business assets.

  • Employee Ownership Trust: Consider the advantages of transferring business ownership via an EOT.

  • Succession Planning: Update your succession plans to consider the potential impact of capital gains tax changes.

  • Entrepreneurs Incentive: Check if you are eligible to reduce capital gains taxes. 


Incorporated Professionals:

  • Investments: Assess both personal and corporate investments for the new inclusion rate. Determine the most tax-effective structure for holding and realizing gains from investments.

  • Succession Planning: Time the potential sale of your professional corporation to capitalize on the current LCGE.


Retirees:

  • Estate Planning: Update estate plans considering the impending increase in capital gains rates.

  • Life Insurance Coverage: Ensure life insurance is adequate to cover increased capital gains tax liabilities upon death.

  • Non-Registered Investments and Retirement Income: Review your strategy for non-registered investments to manage taxes on gains and adjust your retirement income plans to accommodate the upcoming changes in capital gains rates.


Individuals with High Income or Net Worth: 

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate. Review trust-held investments. 

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Charitable Contributions: Align your charitable giving strategies with the new tax benefits and AMT considerations.

Please reach out to us to review your financial strategy together and ensure it aligns with the upcoming changes. 

2024 Federal Budget Highlights

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On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget.

While there are no changes to federal personal or corporate tax rates, the budget introduces:

  • An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate.

  • The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs.

  • The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions.

  • This year’s budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants.

  • Introduces new support measures to aid people buying their first homes.

  • Costs for specific patents and tech equipment and software can now be written off immediately.

  • Canada carbon rebate for small business.

Capital Gains Inclusion Rate

The budget suggests raising the inclusion rate on capital gains after June 24, 2024:

  • Corporations and trusts, from 50% to 66.67%.

  • Individuals, on capital gains over $250,000 annually, also from 50% to 66.67%.

For individuals, the $250,000 annual threshold that applies to net capital gains—the amount remaining after offsetting any capital losses. This includes gains acquired directly by an individual or indirectly through entities such as partnerships or trusts. Essentially, this threshold acts as a deductible, considering various factors to determine the net gains eligible for the increased capital gains tax rate.

Individuals in the highest income bracket, who earn above the top marginal tax rate threshold, will face a higher tax rate on capital gains exceeding $250,000 due to these changes. Furthermore, the budget modifies the tax deduction for employee stock options to align with the updated capital gains taxation rates yet maintains the initial 50% deduction for the first $250,000 in gains. Regarding previously incurred financial losses, the budget plans to adjust the value of these net capital losses from past years so that they are consistent with the current gains, upholding the uniformity with the new inclusion rate.

The budget outlines transitional rules for the upcoming tax year that straddles the implementation date of the new capital gains rates. If the tax year begins before June 25, 2024, but ends afterward, capital gains realized before June 25 will be taxed at the existing rate of 50%. However, gains accrued after June 24, 2024, will be subject to the increased rate of 66.67%. It’s important to note that the new $250,000 threshold for higher tax rates will only apply to gains made after June 24.

Consequently, for individuals earning capital gains beyond the $250,000 threshold and who fall into the highest income tax bracket, new rates will be effective as outlined in the table below. Specifically, this pertains to individuals with taxable incomes exceeding $355,845 in Alberta, $252,752 in British Columbia, $1,103,478 in Newfoundland and Labrador, $500,000 in the Yukon, and $246,752 in all other regions.

Further details and guidance on these new rules are expected to be provided in future announcements.

Lifetime Capital Gains Exemption

The budget proposes raising the Lifetime Capital Gains Exemption (LCGE) for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. Additionally, the exemption will once again be adjusted for inflation starting in 2026. This change aims to increase the tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.

 

Canadian Entrepreneurs’ Incentive

The Canadian Entrepreneurs’ Incentive is a new tax measure which provides a reduced inclusion rate on capital gains from the disposition of qualifying small business shares.

Qualifications for the incentive include:

  • Shares must be of a small business corporation directly owned by an individual.

  • For 24 months before selling, over half the corporation’s assets must be actively used in a Canadian business or be certain connected assets.

  • The seller needs to be a founding investor who held the shares for at least five years.

  • The seller must have been actively involved in the business continuously for five years.

  • The seller must have owned a significant voting share throughout the subscription period.

  • The incentive does not apply to shares linked to professional services, financial, real estate, hospitality, arts, entertainment, or personal care services sectors.

  • The shares must have been acquired at their fair market value.

  • The incentive allows for a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years.

This measure will apply to dispositions after December 31, 2024.

Alternative Minimum Tax (AMT)

The 2023 budget included updates to the AMT, with proposed changes outlined in the summer of 2023. The budget suggests revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.

Further proposed changes to the AMT include:

  • Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation benefits.

  • Exempting employee ownership trusts (EOTs) entirely from AMT.

  • Allowing certain tax credits, like federal political contributions, investment tax credits (ITCs), and labour-sponsored funds tax credit, to be carried forward if disallowed under the AMT.

These changes would take effect for tax years beginning after December 31, 2023. Additionally, the budget proposes technical amendments that would exempt specific trusts benefiting Indigenous groups from the AMT.

Employee Ownership Trust (EOT) Tax Exemption

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met:

  • Sale of shares must be from a non-professional corporation.

  • The seller, or their spouse or common-law partner, must have been actively involved in the business for at least two years prior to the sale.

  • The business shares must have been solely owned by the seller or a related person or partnership for two years before the sale, and mainly used in active business.

  • At least 90% of the EOT’s beneficiaries must be Canadian residents after the sale.

  • If multiple sellers are involved, they must jointly decide how to divide the $10 million exemption

  • If the EOT doesn’t maintain its status or if the business assets used in active business drop below 50% at any point within 36 months after the sale, the tax exemption may be revoked.

  • For Alternative Minimum Tax purposes, the exempted gains will face a 30% inclusion rate.

  • The normal reassessment period for the exemption is extended by three years.

  • The measure now also covers the sale of shares to a worker cooperative corporation.

This exemption is valid for sales occurring from January 1, 2024, to December 31, 2026.

Home Buyers Plan (HBP)

The budget proposes enhancements to the HBP for 2024 and beyond, effective for withdrawals after April 16, 2024. These include:

  • Raising the RRSP withdrawal limit from $35,000 to $60,000 to support first-time homebuyers and purchases for those with disabilities.

  • Extending the grace period before repayment starts from two to five years for withdrawals made between January 1, 2022, and December 31, 2025, deferring the start of the repayment period and thereby providing new homeowners additional time before they need to commence repayments

Interest Deductions and Purpose-Built Rental Housing

The budget proposes a selective exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules for certain interest and financing expenses related to arm’s length financing. This exemption is for the construction or purchase of eligible purpose-built rental housing in Canada and applies to expenses incurred before January 1, 2036. To qualify, the housing must be a residential complex with either at least four private apartment units, each with its own kitchen, bathroom, and living areas, or 10 private rooms or suites. Additionally, at least 90% of the units must be designated for long-term rental. This exemption will be effective for tax years starting on or after October 1, 2023, in line with the broader EIFEL regulations.

Accelerated Capital Cost Allowance (CCA) – Purpose built rental housing

The budget introduces an accelerated CCA of 10% for new rental projects that start construction between April 16, 2024, and December 31, 2030, and are completed by December 31, 2035. This accelerated depreciation applies to projects that convert commercial properties into residential complexes or expand existing residential buildings that meet specific criteria under the EIFEL rules. However, it does not cover renovations to existing residential complexes.

Additionally, these investments will benefit from the Accelerated Investment Incentive, which allows for immediate depreciation deductions for properties put into use before 2028. Starting in 2028, the regular depreciation rules, including the half-year rule, will apply.

Accelerated Capital Cost Allowance (CCA)- Productivity-enhancing assets

The budget introduces immediate expensing for newly acquired properties that become operational between April 16, 2024, and December 31, 2026. This applies to specific categories such as:

  • Class 44- Patents and rights to patented information

  • Class 46- Data network infrastructure and related software

  • Class 50- General electronic data-processing equipment and software

Properties that are put into use between 2027 and 2028 will continue to benefit from the Accelerated Investment Incentive.

To qualify for this accelerated depreciation, the property must not have been previously owned by the taxpayer or someone closely connected to them, and it must not have been received as part of a tax-deferred deal. Also, if a tax year is shorter, the depreciation will be adjusted accordingly and will not carry over to the next year.

Canada Carbon Rebate for Small Businesses

The budget introduces a Canada Carbon Rebate for small businesses, offering a new refundable tax credit automatically. To be eligible, a Canadian-controlled private corporation must:

  • File a tax return for its 2023 tax year by July 15, 2024, for the fuel charge years from 2019-20 to 2023-24. For subsequent fuel charge years, it must file a tax return for the tax year that ends within that fuel charge year.

  • Employ 499 or fewer people across Canada during the year that corresponds with the fuel charge year.

The amount of the tax credit for each eligible business will depend on:

  • The province where the company had employees during the fuel charge year.

  • The number of employees in that province multiplied by a rate set by the Minister of Finance for that year.

  • The CRA will automatically calculate and issue the tax credit to qualifying businesses.

We can help!

Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!

Understanding Tax-Free Savings Accounts (TFSAs)

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A Tax-Free Savings Account (TFSA) is an investment vehicle available to Canadian residents. It offers numerous benefits, including tax-free growth of your investments and tax-free withdrawals. Before you decide to open a TFSA, it’s essential to understand the eligibility requirements, contribution limits, eligible investments, and withdrawal rules. 


Eligibility Requirements

To open a TFSA, you must be a resident of Canada with a valid Social Insurance Number (SIN) and be at least 18 years old. However, in some provinces and territories, the legal age to enter a contract (which includes opening a TFSA) is 19. The TFSA contribution room for the year an individual turns 18 is carried over to the following year if the individual resides in a jurisdiction where the legal age is 19.


Benefits

One of the primary benefits of a TFSA is that it allows your investments to grow tax-free. Any income you earn from your investments within the TFSA is not taxed, even upon withdrawal. This includes interest, dividends, and capital gains. 

Additionally, you can withdraw any amount from your TFSA at any time, and the withdrawals are tax-free. It’s important to note that withdrawing funds from your TFSA does not reduce the total amount of contributions you have made for the year. The amount withdrawn in a year will be added back to your TFSA contribution room at the beginning of the following year.


Contribution Limit

The annual TFSA dollar limit has varied over the years. From 2009 to 2012, it was $5,000; in 2013 and 2014, it was $5,500; in 2015, it increased to $10,000; from 2016 to 2018, it was $5,500; from 2019 to 2022, it was $6,000, and in 2023, it is $6,500. This annual limit will be indexed to inflation and rounded to the nearest $500. 

The maximum amount you can contribute to a TFSA is determined by your TFSA contribution room. This room is the sum of the TFSA dollar limit of the current year, any unused TFSA contribution room from previous years, and any withdrawals made from the TFSA in the previous year. 

Let’s look at two examples to better understand this:

Example #1: Carry Forward Unused Room to Your Current Contribution

In 2020, the annual TFSA contribution limit is $6,000. If you only contribute $5,000, you would have $1,000 of unused room. This unused room gets carried over to the next year. So, in 2021, the annual contribution room is $6,000, but because of the unused room from 2020, you actually have a total contribution room of $7,000 ($6,000 for 2021 + $1,000 carried over from 2020).

Example #2: Reclaim Your Contribution Room in the Following Year When You Make a Withdrawal

In 2021, you have $7,000 in contribution room and decide to contribute the full amount. However, you also decide to make a withdrawal of $1,000 in 2021. In 2022, the annual contribution limit is $6,000, but because of the withdrawal made in 2021, you actually have a total contribution room of $7,000 ($6,000 for 2022 + $1,000 withdrawn in 2021).

Please note that if you exceed your available TFSA contribution room at any time in the year, you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.


Eligible Investments

The types of investments that are permitted in a TFSA are generally the same as those allowed in a Registered Retirement Savings Plan (RRSP). These include cash, segregated funds, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, and bonds.


Withdrawals

As mentioned earlier, you can generally withdraw any amount from the TFSA at any time, depending on the type of investment held in your TFSA. However, if you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. 

For example, if in 2023 you withdraw $1,000 from your TFSA and later in the same year decide to re-contribute that amount, you can only do so if your contribution room for 2023 allows for it. If it doesn’t and you re-contribute the $1,000 anyway, you will be considered to have over-contributed to your TFSA in that year. This will result in a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account


Beneficiary

When establishing a Tax-Free Savings Account (TFSA), you are given the choice to designate a beneficiary. This person will be the recipient of the investments within your TFSA in the event of your death. The assets inherited by the beneficiary are not considered income, and as such, are received tax-free. It’s important to note, though, that while the inherited amount is tax-free, the beneficiary will be responsible for any tax on earnings that the TFSA generates after the original account holder’s death. 


Start Planning for Your Future Today!

Demystifying MER’s (Management Expense Ratio)

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Investing in a fund requires a good understanding of its associated costs, including the Management Expense Ratio (MER). In this article and infographic, we’ll break down the different components of the MER.

Understanding the Management Expense Ratio

The Management Expense Ratio is a percentage of the total assets in an investment fund that covers the cost of managing and operating the fund. It’s essential to remember that the MER is deducted from your investment returns. Therefore, a higher MER means lower net returns for you.

For instance, if a fund’s expenses added up to 2% of its assets, its MER would be 2%. It’s essential to keep in mind that your returns are reported after the MER is deducted. Therefore, a higher MER can lead to lower net returns for you. Understanding a fund’s MER is important in making informed investment decisions and ensuring you’re getting the most value for your money.

Components of the Management Expense Ratio

There are several components of the MER, including:

Investment Management Fee

The investment management fee is the cost of professional investment management, fund administration, and support services. Investment fund managers and analysts conduct research and analysis of current and potential holdings for the fund, providing investors access to their expertise, education, and experience.

Trailing Commission

The trailing commission compensates the investment dealer and financial advisor for selling the fund and providing ongoing financial advice and service to the investor. The commission also covers trade confirmation, account openings and closing, issuance of statements and communications, and regulatory compliance activities.

Operating Expenses

Operating expenses are essential for the smooth operation of the investment fund, and they ensure that investors receive the information they need to make informed investment decisions. These expenses cover day-to-day costs, including record-keeping fees, accounting and fund valuation costs, custody fees, audit and legal fees, reports and prospectuses, and filing fees.

Taxes

Investment funds are required to pay taxes on their management and administration fees. In addition, they must also include GST/HST in their fees.

It’s essential to comprehend the different factors that comprise the Management Expense Ratio to make informed investment decisions and maximize your investment’s value.

To obtain further details, please do not hesitate to contact us.

 

The Five Steps to Investment Planning

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The Five Steps to Investment Planning

For a long time, there were limited options for most investors. But now, there are hundreds of investments for investors to choose. However, this amount of choice can be overwhelming. Fortunately, an investment advisor can help you figure out what the right investment choices are for you.

Meeting your investment advisor

When you first meet with your investment advisor, they will tell you about their obligations and responsibilities. They should:

  • Give you general information about your various investment choices (e.g. stocks, bonds, mutual funds)

  • Tell you how they are compensated for their services

  • Ask if you have any questions about specific investment vehicles (such as RRSPs or TFSAs)

Determining your goals and expectations

The next step is to for your investment advisor to fill out a “Know Your Client” type of worksheet. The information on this worksheet will help your investment advisor determine the most suitable investment options for you. You’ll need to provide information on your:

  • Income

  • Net worth

  • Investment knowledge

  • Risk tolerance

  • Time horizon (how long you want to invest for)

  • How frequently do you want to invest

Developing your investment plan

Once they have all the information they need, your investment advisor will suggest the investments they think are appropriate for you.

Implementing the plan

Once you approve your investment advisor’s suggestions, you will fill in all the appropriate paperwork to set things in motion. After that, you must provide a way to fund your investments. Your investment advisor can then make any initial purchases and set up any ongoing fund purchases or transfers from other investments.

Monitoring the plan

Your investment advisor should contact you at least once a year to make sure your plan is still suitable for you and discuss any changes you want to make to it. If you have any major life events, such as getting married or changing jobs, you should contact your investment advisor to see if you should revisit your plan.

The sooner you start your investment planning, the sooner you can reach your investment goals! So contact us today!

2022 Federal Budget Highlights

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Federal Budget 2022 – Highlights

On April 7, 2022, the Federal Government released their 2022 budget. We have broken down the highlights of the financial measures in this budget into the following different sections:

  • Housing

  • Alternative minimum tax

  • Dental care

  • Small businesses

  • Tradespeople

  • Canada Growth Fund

  • Climate

  • Bank and insurer taxes

Housing

There were several tax measures related to housing introduced in the budget.

Budget 2022 introduced a new kind of savings account – a Tax-Free First Home Savings Account (FHSA).

These are the key things you need to know about the new FHSAs:

  • You must be at least 18 years of age and a resident of Canada to open an account. You must also not currently own a home or have owned one in the previous four calendar years.

  • You can only open and use an FHSA once, and you must close it within a year after your first withdrawal.

  • Contributions are tax-deductible, and income earned in an FHSA will not be either while it is in the account or when you withdraw it.

  • There is a lifetime contribution limit of $40,00, with an annual contribution limit of $8,000. You can’t carry contribution room forward.

  • If you don’t use the funds in your FHSA within 15 years of opening it, you can transfer them to an RRSP or RRIF tax-free. Transfers to an RRSP do not impact your RRSP contribution room.

Two existing tax credits were increased, and a new one was introduced:

  • The First-Time Home Buyers’ Tax Credit amount was increased from $5000 to $10,000, giving up to $1,500 in direct support to home buyers. This tax credit applies to all homes purchased on or after January 1, 2022.

  • The annual expense limit for the Home Accessibility Tax Credit has been increased to $20,000 for 2022 and subsequent tax years.

  • A new tax credit, the Multigenerational Home Renovation Tax Credit, was introduced, which will start in 2023. This tax credit is a 15% refundable credit for eligible expenses up to $50,000 (maximum tax credit is $7,500) for constructing a secondary suite for a senior or an adult with a disability to live with a qualifying relative.

Budget 2022 proposes new rules, effective January 1, 2023, that anyone who sells a residential property they have held for less than 12 months would be subject to full taxation on their profits as business income. However, there will be some exemptions to these rules due to life events such as a death, disability, the birth of a child, a new job, or a divorce.

Budget 2022 also announces restrictions that would help ensure that Canadians, instead of foreign investors, own housing. A two-year ban will be introduced on non-residents buying residential property, with some exceptions, such as individuals who have work permits and are living in Canada.

Alternative Minimum Tax

In Canada, the top federal tax rate is 33% and starts at an income of $221,708. However, many high-income filers end up paying less tax than this due to tax deductions and tax credits.

The goal of the Alternative Minimum Tax (AMT), which has been around since 1986, is to ensure high-income Canadians are paying their fair share of taxes. However, it has not been substantially updated since it was introduced. In Budget 2022, the government indicated they would be investigating changes to the AMT, which will likely be disclosed in the fall 2022 economic update.

Dental Care

For many Canadians without private coverage, going to the dentist is too expensive. Budget 2022 commits $5.3 billion to provide dental care for Canadians with family incomes of less than $90,000 annually. Coverage will start for children under 12 this year and expand to children under 18, seniors and those living with a disability in 2023, with the program will be fully implemented by 2025.

Small Businesses

Small businesses currently have a 9% tax rate on the first $500,000 of taxable income (compared to the corporate tax rate of 15%). However, after a small business’ capital employed in Canada reaches $15 million, it is no longer eligible for the 9% tax rate.

Budget 2022 proposes gradually phasing out the small business tax rate so that businesses are not discouraged from expanding. The new cut-off for the lower tax rate will be $50 million.

Budget 2022 also includes a proposal to create an Employee Ownership Trust. This would be a new, dedicated trust under the Income Tax Act to support employee ownership.

Tradespeople

Budget 2022 introduces the Labour Mobility Deduction. This would allow eligible tradespersons and apprentices to deduct up to $4,000 a year in eligible travel and temporary relocation expenses.

Budget 2022 also commits to providing $84.2 million over four years to double funding for the Union Training and Innovation Program, which would help 3,500 apprentices from underrepresented groups each year.

Canada Growth Fund

Budget 2022 introduces a new Canada Growth Fund, with the goals of both diversifying our economy and helping achieve our climate goals.

The Canada Growth Fund aims to attract considerable private sector investment, support the restructuring of vital supply chains, and bolster our exports. The Canada Growth Fund will also provide backing to reduce our emissions and invest in the growth of low-carbon industries.

Climate

Budget 2022 continues to confirm the government’s commitment to fighting climate change. It commits $1.7 billion over five years to extend the Incentives for Zero-Emission Vehicles Program until March 2025 and also provides funding to create a national network of electric vehicle charging stations.

Budget 2022 also commits $250 million over four years to support the development of clean electricity, including inter-provincial electricity transmission projects and Small Modular Reactors.

Bank And Insurer Taxes

Budget 2022 introduced a new financial measure called the Canada Recovery Dividend. Banks and insurers will have to pay a one-time, 15% tax on 2021 taxable income above $1 billion. This tax will be payable over five years.

Budget 2022 also proposes increasing the tax rate on income above $100 million for banks and insurers to 16.5% (currently 15% for other corporations).

Wondering How This May Impact You?

If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!

Group Retirement Benefits

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Working at an organization that offers a pension plan is one of the greatest financial advantages a Canadian can enjoy. Pension plans are designed to provide retirement income and help employees reach their retirement goals and for business owners- help retain key employees.

Pension plans can offer:

  • Employer contributions

  • Forced retirement savings for employee

There are 2 main types of pension plan:

  • Defined Benefit Plan

  • Defined Contribution Plan

Defined Benefit Plan

  • Retirement income is guaranteed, contributions are not.

  • The pension amount is based on a formula that includes the employee’s earnings and years of service with the employer

  • Usually, contributions are made by the employee and employer

  • The employer is responsible for investing the contributions to ensure there’s enough money to pay the future pensions for all plan members.

  • If there’s a shortfall, the employer pays the difference.

Defined Contribution Plan

  • Contributions are guaranteed, retirement income is not.

  • Usually, contributions are made by the employee and employer.

  • The employee is responsible for investing all contributions.

  • The amount available in retirement depends on how the investment performs including total contributions.

  • At retirement, the money in the account can be used to generate retirement income through purchasing an annuity or transferring the amount to a locked-in retirement income fund.

In summary, a defined benefits plan guarantees you a retirement income and a defined contribution plan guarantees contributions but not retirement income.

Talk to us, we can help.