Where Should Amy Stash Her Cash?

By iA Private Wealth, April 19, 2024 While many people want to purchase a home, it’s become a greater challenge in today’s economic environment. Consumers are financially stretched by high inflation that’s lifted the price of food, fuel and just about everything else. On top of that, central banks have raised interest rates to help control inflation, leading to soaring mortgage rates. Never mind that real estate valuations – while largely off their           peak – remain high, especially in large urban centres. What’s a prospective homebuyer to do? In addition to sensible actions like watching your spending and trying to put away more of your earnings, the federal government also helps Canadians pursue home ownership via two targeted programs: the Home Buyers’ Plan (HBP) and Tax-Free First Home Savings Account (FHSA). How the HBP works This plan lets you withdraw, on a tax-free basis, up to $60,000 from your Registered Retirement Savings Plan (RRSP) to purchase your first home. Essentially, it’s an interest-free loan from your own RRSP to help you buy a home. You’re allowed to withdraw funds from more than one RRSP, to a cumulative total of $60,000, provided you’re the owner of each account. The institution(s) that issued your RRSP(s) won’t withhold tax on the money you withdraw. You should also note that certain RRSPs, such as locked-in or group RRSPs, may not qualify for the HBP. HBP withdrawals must be paid back to your RRSP account in annual minimum amounts over a 15-year period, beginning the second calendar year after the withdrawal. In April 2024, the government extended this two-year grace period to five years for withdrawals made between January 1, 2022 and December 31, 2025. Note, you may repay more than the minimum in a given year, or repay the entire amount at any time prior to the end of the 15-year period. If you fail to repay the full amount within the allotted time, your outstanding balance is considered taxable income. How the FHSA works This plan was introduced in the 2022 Federal Budget, and now that the legal and administrative details have been addressed, financial institutions are rolling it out. The FHSA is a registered account for Canadians aged 18+ who haven’t owned a home ever or, at a minimum, in the past four calendar years. It allows eligible Canadians to contribute up to $8,000 annually on a tax-deductible basis, to a lifetime limit of $40,000. If you contribute less than the maximum in a given year, the unused contribution room (up to $8,000) may be carried forward to the following year. When you withdraw funds to buy a home, this amount is not taxable (including any income earned in the account). If you don’t withdraw all your FHSA funds to buy a home within 15 years, you must close the account. You can transfer the remaining assets, tax free, to an RRSP or RRIF; otherwise, withdrawal of residual FHSA funds will be taxable. As with many registered accounts, you may invest in various types of securities in your FHSA, such as stocks, bonds, mutual funds and ETFs. Your Investment Advisor can help determine which securities best suit your time horizon, risk tolerance and financial objectives. How do you decide? While the HBP and FHSA may have their own features and distinct rules, both plans can help accelerate the home ownership process. An HBP is valuable if you don’t have much cash available, since you’re withdrawing from your established and funded RRSP. An FHSA is valuable if you can contribute a significant amount of cash, since it’ll lower your taxable income and withdrawals are tax free. The good news is, you don’t need to decide. If you wish (and have money readily available), you may use both the HBP and FHSA to assist with funding the purchase of a first home. Consult with your Investment Advisor to decide how best to use the HBP and/or FHSA to help buy your home, based on your tax situation and overall financial circumstances.

By iA Private Wealth, March 14, 2024 It’s tax season, and no matter how many times you’ve gone through the ritual of preparing your income tax return, our refresher will help get you organized and on track for what will hopefully be a smooth and painless experience. Reference materials It may help to have last year’s return handy as a guide to figuring out which slips and forms you may require for this year’s return, and which lines must be completed on those forms. Of course, circumstances can change but knowing what you needed last time is a good starting point for gathering info. Similarly, last year’s CRA Notice of Assessment could help. Each notice contains valuable info, such as your RRSP deduction limit for the next tax year, the amount of unused net capital losses that can be applied to reduce future taxable capital gains, and the correction of mistakes you might have made on your return. Finally, note any tax installments you paid over the year as well as any relevant correspondence you received from the CRA. Here’s a checklist to help gather your tax slips, forms and other required info that’ll be used when completing your income tax return. Federal tax slips T3: Investment income (allocations, distributions) received during the tax year T4: Employment income (also includes CPP/EI premiums paid, income tax deducted, pension adjustment amount, charitable donations made through payroll, etc.) T4A: Pension, retirement, annuity and other income received T4A(OAS): Old Age Security pension benefits T4A(P): Canada Pension Plan benefits T4E: Employment Insurance benefits T4RIF: Income received from a RRIF T4RSP: Income received from an RRSP T5: Investment income (e.g., interest earned from bank accounts and GICs; corporate-class mutual fund distributions) T2202: Tuition and related fees (or a TL11 form if you studied outside of Canada) T5013: Statement of Partnership Income Receipts/documentation RRSP receipts for contributions made in previous calendar year, up to first 60 days of current year Investment-related expenses, including loans used for investing purposes Child care and/or adoption expenses Child support, alimony/spousal support payments Medical expenses Moving expenses Charitable donations, political contributions Professional or union dues not on your T4 slip Digital news subscription fees Business income and related expenses Rental income and related expenses Investment counsel fees and carrying charges Documents pertaining to the sale of real estate  Work-from-home expenses Regarding the deduction for home office expenses that was introduced during COVID-19, some rules and conditions have changed. According to the CRA, eligible employees working from home in 2023 must use the detailed method to claim home office expenses. The temporary flat rate method no longer applies. Visit the Government of Canada website to learn more about eligible expenses and other important information concerning work-from-home expenses.   Our checklist is a basic compilation of common slips, receipts and other documents you may need while completing your income tax return, but it isn’t exhaustive. Not all items will apply to you, and you might need additional info to file your return. We recommend consulting a qualified professional to help ensure you complete your return accurately and fully, claiming all deductions and credits for which you’re eligible.  

By iA Private Wealth, January 11, 2024 While some people love their job so much they never want to retire, for a lot of us the only thing better than saying goodbye to the rat race is doing it sooner than expected. But before clocking out early, there are a few boxes to check to ensure you’re making the right choice. Figure out your finances The first thing to consider is whether retiring early is financially feasible. Working with an advisor to assess your wealth plan may identify issues affecting your long-term finances, and allow you to amend your plan to ensure you have the money needed in retirement. An advisor can calculate your sources of income after you stop working, and project what benefits you’ll likely receive from the Canada Pension Plan (CPP) and Old Age Security. Keep in mind that if you draw from CPP before the typical age of 65, your benefits are reduced accordingly. If you hold personal RRSP/TFSA assets and a workplace pension, those will be accounted for as income sources, as will investment accounts, a business or property you might own, plus other savings and assets. Whatever your income streams, factor in tax implications because a good portion of your cash flow could be taxable income. After totalling your financial resources, consider likely expenses, including the cost of everyday life. Where do you plan on residing and will you rent or own? Do you have health concerns or family history to be mindful of? What lifestyle do you anticipate? Will you travel regularly? What are your hobbies? Do you have dependents to look after? Once you answer these questions, you can arrive at a rough estimate of your expenses. If there’s a shortfall between income and expenses, you’ll need to address it. Proven ways to close the gap include modifying your expected lifestyle to reduce costs, possibly working part time, saving more aggressively and generating higher investment returns (e.g., maintaining enough exposure to equities and other securities with growth potential). Benefits of retiring early There are two major benefits to taking an early retirement: Mental/physical health. Over the course of many years, work takes its toll. Even if you enjoy your job and colleagues, working is often stressful and can drain you mentally and physically. Maybe long work hours compel you to sacrifice valuable activities like regular exercise, socializing and eating sensibly. If you have a serious illness, it might make sense to retire early and tend to your health care needs. Meaningful use of time. While all work has value, being retired lets you focus on things you like doing. Perhaps certain volunteer opportunities and other philanthropic pursuits are appealing, or you want to devote more energy to favourite hobbies. You’ll also have abundant quality time to spend with friends and loved ones, or to begin working on that “side job” or project you always wanted to try. On the fence? Maybe you need a change of pace but don’t want to retire completely. In this case, consider a phased retirement, which means scaling back on work (e.g., taking a part-time job or putting in fewer hours at your current job). This phased approach allows you to continue earning money for the future, provides the social benefit of interacting with colleagues, promotes mental fitness so your mind stays sharp, and offers flexibility to spend more time doing things you enjoy. Whatever you choose, ensure your decision takes into account all your unique personal and financial circumstances. <!-- We can help you with a wealth plan that addresses tax efficiency, so contact us today. -->

By iA Private Wealth, May 15, 2023 Do-it-yourself (DIY) investing is nothing new, but in recent years it has grown in popularity thanks to the proliferation of self-styled experts on the internet, particularly YouTube and social media channels such as TikTok. The idea is that personal finance and investing really aren’t that complicated, and that you’ll save money on advisor fees if you go it alone. The truth is that only a very small number of people – people who live and breathe investing and personal finance in their spare time – have a reasonable chance of doing a good job of managing their own finances. But even they would significantly benefit from the unbiased assessment of a professional advisor, in the same way that doctors and lawyers turn to other doctors and lawyers when they need health or legal advice. For virtually everyone looking to build and preserve wealth, save for their children’s education, and meet all the other goals that define our financial lives, working with an advisor will be the best financial decision you ever make. Let’s take a closer look at some of the key benefits of working with an advisor. A dedicated professional An accredited advisor has the training, skills and experience to help build and maintain your wealth plan. Think of this plan as a roadmap to help you navigate life’s many twists and turns. For instance, if you buy a home, get married (or divorced), start a family, have a change in job status, experience a serious illness&nbsp;&nbsp;&nbsp; (or a death in the family), or receive an inheritance – just to name a few notable events in life – your advisor will adapt your plan so you can remain on track towards achieving your financial goals. It’s similar to how GPS recalculates your route if you miss a turn or encounter an unexpected construction zone. Advisors also have proven methods of helping you save better, spend more wisely and budget smarter. It takes time and skill Not many people have the time or expertise to monitor their finances, including their investments. If major economic or geopolitical issues arise (recent examples include skyrocketing inflation and interest rates, the war in Ukraine and the global pandemic), would you know how they may impact your investments and overall financial situation? Would you be able to make the required adjustments to address current and impending conditions? Your advisor can be proactive and make financial decisions in your best interests, using the latest professional research and analytical insights to inform those decisions. A nose for savings Advisors know how to maximize tax efficiency so you can pay less tax and keep more money working for you. They’ll assess your life circumstances and recommend sophisticated solutions and strategies as part of your plan. Depending on your and your family’s needs, an advisor may suggest an RRSP to save for retirement, an RESP to save for your child’s post-secondary education, a TFSA to cover an upcoming large expense, an RDSP to provide financial support for a child living with disabilities, an FHSA to help save for your first home, etc. An advisor can also make you aware of certain government benefits and programs, and help you apply for them. Focus and discipline One of the biggest pitfalls of DIY investing is failing to maintain proper discipline. So many people react to short-term market and economic events (positive or negative) by being impulsive and either buying or selling when they shouldn’t. Investing is a long-term endeavour and you shouldn’t allow short-term “noise” to influence your decisions or interfere with your carefully developed wealth plan. Fear, panic, greed and overconfidence are just some of the emotions that can lead you to make poor or risky investment decisions. An advisor can help you stay calm and focused, so you can enjoy peace of mind even when markets are highly volatile. What all of this means is that any money you think you’ll be saving by going the DIY route will almost certainly pale in comparison to what you’ll save once an advisor has put your finances under the microscope. If you’re ready to take the next step towards securing your financial future, get in touch with an iA Private Wealth Investment Advisor today.

By iA Private Wealth, April 3, 2023 It may have taken some time and effort, but you managed to complete your income tax return for another year. While most of your work is done, you’re not quite finished yet. After the Canada Revenue Agency (CRA) reviews your tax return, they will send you a Notice of Assessment (NOA). Go through it carefully and also think about sharing it with your Investment Advisor. Before we consider the main reasons why, let’s look at the basics of the NOA. What is a Notice of Assessment? The NOA is an annual statement that the CRA sends (through the mail and/or electronically) after you file your income tax return. It will state whether you received a refund or had an amount owing, and will provide the exact figure. If a balance due remains outstanding, you should pay it promptly to avoid additional interest charges. The NOA is also an itemized tax assessment. It will list details from that specific tax year, such as your income, deductions, credits and tax payable (both federal and provincial). If you made an error when filing your return, CRA will correct it and provide an explanation of the adjustments they made. The NOA will also indicate your RRSP contribution limit for the next calendar year, as well as the dollar amount of unused net capital losses (if any) from previous years that you may apply to reduce taxable capital gains in the future. An advisor can help decipher your NOA As you can see, the NOA is a practical and informative snapshot of your finances for the past year. When you read through it, enhance your overall understanding of the types of income you generate and your primary sources of tax relief. Take note of any mistakes or incorrect calculations you may have made so you can avoid them when filing future tax returns. An advisor has the experience and relevant skills to review your NOA with a critical eye and offer specific advice regarding matters you might be unaware of. Maybe you missed capturing some deductions or credits that would lower your income tax payable or increase your tax refund. If you donate to charities, an advisor may recommend – depending on your financial situation – that you donate securities instead of cash, or defer claiming donations to a future tax return in order to maximize your tax savings. An advisor may also uncover opportunities to adjust your investment portfolio to increase capital gains and dividends while reducing income generated from interest, which is taxed at your highest marginal rate. Advisors are trained to develop and execute tax-efficient investment strategies so you can reduce the amount you owe each year. They may also work with other professionals* in their network, such as an accountant, to help build a tax-smart plan that is customized for your unique financial circumstances. It’s also valuable for your advisor to know how much unused capital losses you have from previous years, as it could impact decisions on selling securities that trigger capital gains. Knowing your RRSP deduction limit for the upcoming year will help your advisor create or revise your strategy regarding how much to contribute. Your advisor may also help you take advantage of a pre-authorized contribution plan so you can automatically contribute a set amount to your RRSP on a regular basis (e.g., monthly) rather than try to make a large annual lump-sum contribution. We can support all your wealth planning needs and help you manage your finances in a tax-effective manner. Contact us today.