Friday, January 22, 2016

2015 RRSP Guide

It seems that every year thousands of Canadians rush to make a last minute Registered Retirement Savings Plan (RRSP) contributions before the inevitable deadline. If this sounds like you, how do you know that the decisions you're making are the right ones for your financial future? It's important to remember that an RRSP should be individualized and must fit well with your own personal financial goals and plan. 

The 2015 contribution deadline is February 29, 2016.

Consider these RRSP strategies:

1. Contribute early: Make your contribution as early in the year as possible. Tax-deferred compounding make those early dollars grow dramatically. Early in life, and early in the calendar year; both make a positive difference.

2. Contribute the maximum: Take advantage of compounds and get the maximum tax break by contributing your limit. In respect to 2016, you can invest up to 18% of your 2015 earned income, with a maximum of $25,370, less your pension adjustment or past service pension adjustment for 2015. Remember, while you can "carry forward" any unused contribution room from subsequent years (until age 71), you can never replace the lost growth opportunity.

3. Invest monthly: Many investors find it easier to reach their annual RRSP maximum by making contributions every month. You may find it easier to have your RRSP contributions automatically deducted from your bank account each month, or you may choose to belong to a group RRSP and make your RRSP contribution by payroll deduction through your employer.

4. Contribute to a spousal RRSP:
 A spousal RRSP allows the spouse with the higher income to contribute to an RRSP owned by the lower-income spouse. The spouse with the higher income takes the immediate tax deduction, but the money in the RRSP should be taxed in the other spouse's hands, usually at a lower rate, when it is withdrawn later into retirement. This is an excellent way to income split in retirement and reduce your combined tax rate.

5. Diversify: Different types of investments react differently to economic events. By diversifying your portfolio and holding various types of investments, you protect yourself against the day-today fluctuations in any one category. To achieve long-term growth you should diversify. Some investors limit themselves to fixed-income investments. The biggest danger with conservative type investments is inflation which can erode your purchasing power. If this sounds like you, consider a small amount of diversifying into growth oriented securities-such as equities and equity mutual funds-to earn returns that could protect you against inflation and provide long-term growth potential.

6. Resist the 'dip' into your RRSP: Usually there is nothing to prevent you from accessing the money in your RRSP - but consider the consequences before you do so. First of all, withdrawals attract tax at your marginal tax rate. Tax withholding at the time of the RRSP withdrawal may be as low as 10%, or as high as 30%, but you should determine how much more tax you'll have to pay when you file your tax return. Secondly, you cannot restore the lost contribution room. The amount you can contribute to an RRSP in your lifetime is limited and a withdrawal erodes some of this potential.

Special circumstances can help you access money in your RRSP without these consequences. The Home Buyer's Plan and Life Long Learning Plan allow tax-free withdrawals with the ability to re-contribute. However, even in these plans there is no ability to replace the tax-deferred growth that was lost when you made the RRSP withdrawal.

7. Consolidate your investments: If you are the type of investor who doesn't want to spend a great deal of time managing several plans, you may want to consolidate your investments into one portfolio. Yes, you should have a diversified portfolio of investments working for you, but you can usually combine them under one RRSP umbrella. This strategy also means you will get one consolidated statement, which may make it easier to track your plan.

8. Designate a beneficiary: Consider who should be designated to receive the plan assets in the event of your death. Without a designated beneficiary, the account will go through your estate and be subject to probate and other fees. You should talk to us about the tax and other consequences of designating a beneficiary to your RRSP. Who you appoint as beneficiary is also very important, as there are different rules depending on if it is a spouse or other party. This strategy does not apply in Quebec.

9. Get expert help: We are here to help you make the right long-term investment decisions. Together, we should review your plan at least once a year to make sure that it is still on track with your long-term goals.

10. Have a Plan: Investing, whether in an RRSP or non-registered, is part of a financial plan, but it is important to clearly understand that investing alone is not a plan. If we have yet to work together to build your personal financial plan, call us today to get the ball rolling towards achieving your retirement and other financial goals.

Do you have questions about your RRSP? Contact us today.

Thursday, January 21, 2016

What is an Individual Pension Plan

An Individual Pension Plan or IPP is a Canadian retirement savings vehicle.  An IPP is a one person maximum Defined Benefit Pension Plan which allows the plan member to accrue retirement income on a tax deferred basis. 

Some of these rules and regulations are:
  • The plan sponsor is an incorporated, active company.
  • The plan member is an employee of the corporation who earns T4 or T4PS employment income from the corporation.
  • The pension plan document indicates a formula defining the amount of benefit to be earned by the plan member.
  • Plan Investments must follow strict guidelines.
  • Plan sponsor contributions to an IPP, as certified by an actuary, are deductible from corporate income.
  • Benefits paid out of the IPP are taxed upon receipt.
  • The IPP member is a Connected Person or a Highly-paid Employee (who is a non-Connected Person). The ITR defines these members as Specified Individuals.
  • The plan sponsor is the corporation employing the member and paying the member's T4 income. IPP contributions are essentially a portion of the member’s compensation transferred via the corporation to the IPP funding vehicle. IPP contributions are not reported as taxable income to the member. Only a Pension Adjustment is reported in box 52 on the member's T4 slip and the pension adjustment is determined by the Plan's Actuary or Plan Administrator based on a formula prescribed in the Income Tax Act. Note the pension adjustment is not equal to the amount contributed to the IPP.
  • DB Plan contributions must be calculated by an Actuary based on the Pension benefit formula, the member’s age and T4 earnings history, and a set of actuarial assumptions.
  • Because the IPP only provides benefits to Specified Individuals, the IPP is termed a Designated Plan. While a Designated Plan, the IPP is subject to maximum funding restrictions.
  • Maximum funding restrictions require the actuary to use ITR-mandated actuarial assumptions.
  • When the IPP is no longer a Designated Plan, the actuary may use his discretion to determine appropriate actuarial assumptions.

Wednesday, January 20, 2016

What Does the Fed Rate Hike Really Mean?

A few weeks ago the Federal Reserve announced the first rate hike in nearly 10 years. The following video, by Fidelity Investments, helps to explain the rate hike, discussing four important things to keep in mind while observing the changes.

If you have any questions regarding the rate hike, or any other financial planning topics, contact us today at or (905)-332-6633

Friday, January 15, 2016

2016 Financial Resolutions

Top 10 tax resolutions that could help you make the most of your money in 2016

A new year, a new set of resolutions. Aside from the common resolutions of eating less sugar and drinking more water, we want to stress the importance of including your finances in your list of new years aspirations.

The Financial Post has put together a list of 10 tax resolutions that can help you make the most of your money in 2016. Check out the list below, and see if there are any that could apply to your own financial plan this year.

1. Contribute $5,500 to your TFSA for 2016.  Bringing your total contribution limit to $46,500.

2.  If you expect to be in a lower tax bracket when you retire than you are this year consider making an RRSP (Registered Retirement Savings Plan) contribution. While much of the focus over the next 60 days will be on the 2015 contribution deadline of Feb 29th 2016, why not get a head start on your 2016 contribution. The RRSP limit for 2016 is the lesser of 18% of 2015 earned income or $25,370.

3. If you've got kids under 18, be sure to contribute at least $2,500 to each child's Registered Education Savings Plan (RESP) to be able to take advantage of the  $500 Canada Education Savings Grant. You may also be able to catch up on missed CESGs from prior years.

4. Consider opening up a RDSP (Registered Disability Savings Plan) for a family member with a disability. You can contribute up to $200,000 over the disabled beneficiary's lifetime, which may be augmented by up to $90,000 in Canada Disability Savings Grants and Bonds.

5. Take advantage of the new "Home Accessibility Tax Credit". If If you're a senior or a person with a disability (or family member who lives with them), you may be able to claim the new HATC credit, worth up to $1,500 which was announced in the 2015 federal budget, and starts this year. It's a nonrefundable credit that provides federal tax relief of 15% on up to $10,000 of eligible expenditures per calendar year, per qualifying individual.

6. While income splitting for families, known formally as the Family Tax Cut, was eliminated for 2016, you may still be able to do some income splitting by taking advantage of the historically low prescribed rate. If you have a spouse, partner or kids in a lower tax bracket than yourself, consider a prescribed rate loan strategy whereby the higher-income earning spouse or partner loans funds to their spouse  at the record low prescribed rate, which is at 1% until at least March 31st.

7. When planning your charitable givings for 2016, consider donating appreciated securities directly to your charity of choice and eliminating tax on any accrued capital gains.

8.  Look into investing in a permanent life insurance policy. The tax rules are changing at the end of 2016, so now is the ideal time to purchase such a policy in order to maximize the tax sheltering available within these products.

9. Make sure your will is up to date. If you haven't updated your will in some time, why not resolve to have it reviewed in 2016 to ensure that it still jives with your testamentary wishes.

10. Plan now to avoid a tax refund next spring. If you regularly get a large tax refund each spring, consider applying for a reduction of tax at source using CRA Form T1213. Unfortunately, this needs to be repeated annually. 

For more information, and other tax related news, go to the

If you have questions regarding any of the above, or if you want to review your financial plan for 2016, contact us today.