RRSP Tips

An RRSP should be individualized and must fit well within your own personal financial goals. With the upcoming March 1st contribution deadline, here are 10 RRSP tips to remember.

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

2. Contribute the maximum: Take advantage of compounding and get the maximum tax break by contributing your limit. (In respect of 2018, you can contribute 18% of your 2017 earned income, to a maximum of $26,230-less your pension adjustment or past service pension adjustment for 2017). While you can "carry forward" any unused contribution room to subsequent years (until your 71), you can never replace the lost growth opportunity. 

3. Invest Monthly: You might find it easier  to reach your annual RRSP limit by making monthly contributions. Consider having your RRSP contributions automatically deducted from your bank account each month, or consider a Group RRSP and make your RRSP contribution by payroll deduction through your employer. It's also a good idea to increase your monthly contribution if your income rises, and be sure to keep up with inflation. 

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. (This is an excellent way to income split in retirement and reduce your combined tax rate). 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deduction, but the money in the RRSP should be taxed in the other spouse's hands, usually at a lower rate when it is withdrawn later into retirement.

5. Diversify: By diversifying your portfolio and holding various types of investments, you protect yourself against the day-to-day 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 can protect you against inflation and provide long-term growth potential. 

6. Resist the dip: There is nothing to stop you from accessing the money in your RRSP, however, you should consider the consequences before dipping into your RRSPs.  First, withdrawals attract tax at your marginal tax rate. Tax withholding at the time off the RRSP withdrawal may be as low as 10%, or as high as 30%-be sure to determine how much more tax you'll have to pay when your file your return. 

Secondly, you cannot restore lost contribution room. The amount you can contribute to an RRSP in your life is limited and a withdrawal erodes some of this potential. 

There are a few circumstances that allow you to access the money in your RRSP without consequence. The Home Guyers Pan and Life Long Learning Plan allow tax-free withdrawals with the ability to re-contribute. However, even in these [lans there is no ability to replace the tax-deferred growth that was lost when you make the withdrawl.

7.  Consolidate your investments: If you don't want to spend a great deal of time managing several plans, you may want to consider consolidating 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 will be the designated beneficiary for your investments.  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 rues depending on if it is a spouse or other party. ** This strategy does not  apply in Quebec**

9. Get help from an expert: Our advisors at Continuum II inc. are here to help you make the right investment decisions. Together, we should review your plan at least once a year to make sure that your plan is on track with your long-term goals.

10. Have a plan: Investing of any kind, whether in an RRSP or non-registered, is part of a financial plan-but it is important to note that investing itself is not a plan. Contact your Continuum II Inc. advisor today to work your investment strategy into part of a larger financial plan.

Beware of 'Robo-advice'

Although most investors continue to work with human advisors, the rise of web-based investment platforms has made it more important than ever to understand the difference between 'robo-advisors' (Automated portfolio management services) and 'human advisors'.

Solutions Magazine has provided the following to help define the difference, and highlight the importance to maintaining 'human advice'.

How does “robo-advice” work?
Because these platforms don’t offer individualized advice, the term “robo-advisor,” although catchy, is a misnomer. It’s actually just software. When a client registers for a service, she or he answers a set of questions that determines a generic investor profile. The software then presents the client with choices of ready-made portfolios based on the profile. Because the profiles are formulaic – quite literally based on a mathematical formula – they can only account for a limited range of goals and risk tolerances. Robo-advisor software is designed to sort clients into broad categories and to serve those categories quickly and at a lower cost. This model relies on the investor answering the questionnaire accurately. It also places the responsibility of choosing the best portfolio on the client instead of the advisor, because there is no advisor.

The role of an advisor
Human advisors are licensed experts who create comprehensive financial plans designed to build wealth, minimize taxes and accomplish a diverse range of other goals. These may include everything from being able to afford next year’s vacation to buying a home to living comfortably in retirement. Because money is more than an account balance – it’s a family’s home, a child’s university tuition, an emergency fund for tough times – creating a plan requires understanding the emotional importance of each financial goal.

An advisor also does much more than portfolio rebalancing. She or he can help rearrange investments for tax efficiency, review budget and saving strategies, and put in place the right financial protection. As a result of understanding the full picture of a client’s life, a financial professional can handle varying degrees of complexity. If a client experiences major changes, plans can be adjusted to respond to the client’s new circumstances.

By the same token, if the economy changes, an advisor has the depth of knowledge to provide a proper analysis and plan of action. When faced with the decision of staying the course or making an adjustment, you can sit down with an expert intimately familiar with your investments. An advisor can evaluate what the decision will mean, not just for your portfolio, but for your long-term financial well-being.

Overall, the primary advantage of working with an advisor is nuanced “big picture” planning. Investing isn’t so much about buying a product; it’s about acquiring the component parts of a far-sighted strategy. Ideally, investments complement each other and click neatly into place within a financial plan. They’re allocated to generate growth or provide an income, to meet short- and long-term goals, to save taxes and to build a legacy. Furthermore, the plan must adapt – and the investments must be rebalanced – as the investor’s circumstances change. An advisor’s unique skill set supports the ability to translate a client’s vision into a concrete, achievable plan, where as a 'Robo-advisor' does not-to them you're just a number.

Test Your Financial Knowledge

Studies show that Canadians aren't as financially savvy as they think they are. When asked, 70% of Canadians claimed to be financially literate, but when asked to test their knowledge 60% failed. How do you compare?

Test your knowledge by answering the following 15 statements with ‘true’ or ‘false’

1. A mortgage term refers to the length of time you need to pay off your mortgage.

2. You must pay for government insurance on mortgages where you put down less than 20% of a down payment-unless the home is worth $1 million or more.

3. A car that is more expensive always costs more to insure than a cheaper car.

4. You never have to report interest and profits gained in your TFSA when filing taxes.

5. You can have multiple TFSA accounts with different banks at the same time.

6. Your auto insurance automatically goes down when you turn 25.

7. Applying for a credit card can negatively affect your credit score.

8. Home insurance can sometimes protect you if your dog bites someone in your home.

9. Your home insurance will always cover you if a tree falls on your home.

10. Checking your credit score has no impact on the score itself.

11. The colour of your car affects your car insurance rate.

12. All banks charge you money to have a chequing account.

13. Auto insurance premiums can be cancelled mid-way through their term.

14. You need to be licensed to buy stocks in Canada.

15. There's no need to get travel insurance if you're travelling within Canada between provinces.

How did you do?

Check your answers below.

Answers: 1. False  2. True  3. False  4. False 5. True  6. False 7. True 8. True 9. False 10. True

11. False 12. False 13. True 14. False 15. False

See how Pattie Lovett-Reid scored on her financial quiz.

Financial Plans For Your Future

Here at Continuum II we get asked all the time "What's the most beneficial way for me to invest my money?".

Our answer is always the same; everyones financial landscape is unique, and that everyones financial portfolio should reflect that. But overall, the most important thing is that everyone has a plan.

Many people don't realize that there is difference between a financial plan and an investment plan. 

An investment plan focuses solely on your investments, and your return on those investments. While investments are important, they are nothing without a solid financial plan.

What you have to ask yourself is, will your investment plan stand up if something goes wrong in other areas of your life? What if you suffer from one of the four D's (death, divorce, disability or disaster)?. This is where a financial plan will help to ensure you're protected.

Here is what a financial plan can offer, that an investment plan can not.

• A financial plan looks at all of the financial aspects of your life, not just your investments.
• Financial plans look at insurance and estate needs, educational planning.
• Financial plans help you to make big financial decisions, like whether to buy or rent.

In acknowledging you need a plan, the next step is to hire a financial planner. A financial planner typically provides a written financial plan that outlines your goals, challenges and considerations, recommendations and action plan. A comprehensive written financial plan generally includes the following:

• A clarification of your short, medium and long term goals
• A statement of Net Worth
• An analysis of your cash inflows and outflows
• A detailed budget and debt-reduction strategies
• A review of your current investments and investment strategy advice
• Projections regarding your retirement, including pension recommendations
• A review of your insurance needs, group benefits and estate planning, including recommendations
• The action steps needed to implement your plan

Do you have an individualized comprehensive financial plan? Get started now with the quick RediNest questionnaire below. With RediNest you'll discover how your financial readiness compares to other Canadians with similar goals. It’s easy to use, free and a great way to preview the work we do here at Continuum II Inc. - C2Inc.

RESP Withdrawals

Think before you withdraw. 

If you have kids heading to university or college in September you are probably starting to think about dipping into those RESPs. Before you do, here are 4 things you should know about withdrawing from your RESPs. For more information, check the full article by the Globe and Mail.

1. Maximize grants without over-contributing

2. Adjust the asset mix as you get close to drawing the funds

3. Get the money out tax-effectively

4. Deplete the RESPs near the end of university

Overall, the key to withdrawing from your child's RESP is knowing how, and when, to do it in order to fully benefit from it's perks. Below is an example of how to do it;

 To figure out roughly how much EAP money you can withdraw each year without federal and provincial income tax, using 2017 figures. Start with the basic personal tax credit that everyone gets ($11,635 for federal taxes). Then add a tax credit for tuition paid (we’ll assume $9,000 for a full-year at school). Then subtract income (we’ll assume $7,000 from a summer job), offset partly by job-related tax credits for EI, CPP, and employment ($1,465 federally in this example).

In this case you should be able to withdraw roughly $15,100 in EAP money in 2017 without your kid having to pay any significant amount of income tax ($11,635+$9,000-$7,000+$1,465). (If your kid’s gross income is relatively low, you can also transfer up to $5,000 of unused federal tuition credit to a parent.) In this example you would pay no federal tax but would pay a small amount of provincial tax in some provinces because of differences in provincial tax practices.

If you want help managing your children's RESPs call our offices today.

Spend Less, Save More

As we 'spring' into May, many of us are receiving an income tax return. Should you save it or spend it?

If you choose to save, it presents the question of whether to invest in a TFSA or an RRSP. This debate comes up often here at Continuum II and here is what we suggest: 

There are both pros and cons to TFSAs and RRSPs.

RRSP Pros
- Used to save for retirement.
- Contributions are tax deductible and investments grow tax-free within the account.

RRSP Cons
- Contributions are taxable once they are withdrawn.
- Withdrawals are considered income and can affect eligibility for federal-income benefits and tax-credits.
- Once you withdraw from your RRSP the contribution room is gone.

TFSA Pros
- TFSAs can be used for both retirement and extra savings.
- Investments grow tax free within the account.
- Withdrawals do not count as income and therefore do not affect your eligibility for federal-income benefits or tax-credits.
- Contribution room is not lost upon withdrawal of investments, it is added to your limit for the following calendar year.

TFSA Cons
- Contributions are not tax deductible.
- Must be 18 years or older to have a TFSA account.
- Contributions are limited, and there is a penalty for going over your limit.

Which is right for you? While there are pros and cons to both a TFSA and an RRSP- the ultimate choice on where to invest your savings will depend on your unique financial situation.

If you are in a low income tax bracket, a TFSA might be more beneficial to your financial situation. Based on your income, the tax savings of an RRSP are less significant and you risk being in a higher tax bracket when you eventually make a withdrawal.

If you are in a middle tax bracket, we suggest having both a TFSA and an RRSP. By having both types of investment plans you could contribute to your TFSA now and accumulate RRSP room to be used later if you move into a higher tax bracket. This can help you to optimize the tax benefits attached to both types of accounts.

For those in a high tax bracket, having both an RRSP and a TFSA can also be beneficial. For similar reasons to those in the middle tax bracket-an RRSP might be a better choice if your current tax rate is higher than you expect upon withdrawal of your savings. You'll benefit from the tax deduction given on contributions and your withdrawals will be taxed less when you withdraw during retirement. You can also use your tax refund from your contribution benefit to fund your TFSA.

Talk to your Continuum II advisor today and let us help you determine the best tax-advantaged savings strategy that meets your needs.

Financial Planning Code of Ethics

You may have noticed that over the last few weeks there has been a lot of negative press in the media about Canadian banks; their practices, education, lack of ethical behavior and lack of fiduciary responsibility. We would like to extend our concern and regret to anyone this has affected. 

At Continuum II Inc. we take all of these areas very seriously.   With a quick look at our website, you will find ALL the credentials the team has worked particularly hard to earn and maintain. Please take a moment to have a look at what the credentials mean and why they are important to you - http://c2inc.com/credentials.htm. As an office we have always held the Certified Financial Planner (CFP)  designation in the highest regard, which is why Lise, Lori, Stuart and Peter all felt it was so important to attain this premier qualification.  We are dedicated to continually build our education as investment professionals and insurance specialists, and rely on the CFP Continuing Education credits to keep us sharp all the time. 

This week, Peter spent the morning with the Financial Planning Standards Council (FPSC) enrolled in a session specifically tailored to ethics in this industry. The FPSC (completely independent 3^rd party governing body) has always taken ethics seriously, thereby creating the Guidance to FPSC® Code of Ethics, that  holds all  CFP professionals accountable to a higher level of service. 

Guidance to FPSC® Code of Ethics

http://www.fpsc.ca/guidance-code-of-ethics  

Principle 1: Client First

Principle 2: Integrity

Principle 3: Objectivity

Principle 4: Competence

Principle 5: Fairness

Principle 6: Confidentiality

Principle 7: Diligence

Principle 8: Professionalism 

Hopefully you will gather that we take your financial success extremely seriously, including an immense focus on education, caring, and consistently doing the right thing all the time.

IMPORTANT information for anyone who has an IPP (Individual Pension Plan) with B2B Trustco

In a recent decision by B2B Trustco, a division of B2B Bank and a wholly-owned subsidiary of Laurentian Bank of Canada, they are getting out of the IPP business Effective May 1^st.  They are citing reasons of increased complexity and are unable to keep up with regulatory requirements.  This is forcing all IPP clients with B2B Bank/B2B Trustco to find a new home.  IPPs offer business owners an incredible opportunity no other Canadians have available to them, allowing them to save significantly more for their retirement while taking tax advantaged dollars out of the business as an expense.  If you find yourself with a B2B Trustco IPP and need to find a new home we would be happy to help, and can offer you lower IPP administration fees, lower Investment Management Fees (IMFs/MERs) and better investment options with a track record of great returns. 

 

Contact us today as the May 1^st deadline is approaching quickly. Office: (416) 855-9892 or Email us at info@c2inc.com

If you don’t have an IPP, here is a list of some reasons you should consider an Individual Pension Plan:

• Further tax sheltering in excess of RRSP contributions
• Additional tax deductible lump sum contribution at retirement on sale of assets of the company or sale of the company itself
• Full creditor protection
• Pre-planned retirement income
• Succession planning within a family business
• No payroll tax levied on IPP contributions (depends on province)
• All costs associated with the pension plan are tax deductible to the company – including IMFs (Investment Management Fees)
• Prescribed rate of return within the IPP by Pension Legislation, ensuring your retirement portfolio is always growing as it should

Mortgage Insurance

Your insurance should protect you, not your bank.

Mortgage insurance is designed to protect the bank. Protecting your mortgage with life insurance protects you.

Are you aware of the difference?

Let's take a closer look at how personal life insurance compares with the mortgage insurance that's offered by most lending institutions.

Lending Institutions' Mortgage Life Insurance

• Decreases as your mortgage is paid down
• Premiums remain level, even though your mortgage is decreasing
• Terminates when your mortgage is paid off
• Proceeds are paid directly to the bank
• The lending institution owns the policy
• You cannot switch your mortgage insurance to another lender. If you find a better rate, you may have to re-qualify medically for the mortgage insurance protection.
• Premiums are determined by the lending institutions insurance provider and based on the value of the mortgage

Personal Life Insurance

• Coverage remains level for the duration of the mortgage
• Premiums remain level, while your coverage remains level
• Coverage remains in effect after your mortgage is paid off
• Coverage is paid directly to your beneficiary and used according to their needs
• You own the policy
• You are free to switch your mortgage while maintaining your life insurance coverage
• Premiums are determined by the insurer and are based on many factors including insured amount, age, health and time frame. Often personally owned life insurance cost less than mortgage insurance

Contact our office today and let us help you build a life insurance plan that will protect you and your estate.

info@c2inc.com or (905)332-6633

Reviewing your statement

Mutual Fund Investing
Understanding cost and value

 The following breaks down the cost of investing in mutual funds, and what you need to know about MER's (management expense ratio).

Management Expense Ratio (MER)

• You don't pay it directly
• It's the built-in cost of owning a mutual fund
• It's taken out of the fund before the performance is calculated

Example

Portfolio value: $100,000

Approximate value to invest in first year: $2,200 (2.2% MER)  

Breakdown the ongoing cost to invest

Mutual Fund Company

Investment management expertise

• Fund research
• Analysis
• Insight

Mutual Fund Dealer

• Processes investments
• Partners with investment representatives to keep your best interests top of mind
• Pays a portion of the trailing commission to your investment representative

Investment Representative

• Provides financial advice, service and a plan to help you stay on track
• Adjusts your plan for different stages of your life
• Helps you create savings habits that can pay off in the long run
• Offers access to a strong and stable company built on a foundation you can trust

Why it's worth partnering with an advisor
Partnering with a financial security advisor to create a sound financial security plan can help you deal with the inevitable bumps in life. On average...

• 60% of advised households feel they can deal with unexpected financial emergencies
• 65% of advised households believe they can deal with tough economic times
• 73% of advised households feel confident that their loved ones will be looked after financially if something should happen to them 

Want to know more? Like us on Facebook for weekly updates. Follow the link, here.

RRSP Strategies

Top 10 RRSP Strategies

It seems that every year thousands of Canadians rush to make a last minute Registered Retirement Savings Plan (RRSP) contribution before the inevitable deadline. If this sounds like you, how do you know the decisions you are making are right 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 2016 contribution deadline is March 1, 2017. Consider these RRSP strategies:

1. Contribute early: Make your contribution as early in the year as possible. Tax-deferred compounding makes 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 compounding and get the maximum tax break by contributing your limit. In respect of 2017, you can invest up to 18% of your 2016 earned income, to a maximum of $26,010, less your pension adjustment or past service pension adjustment for 2016. Remember, while you can "carry forward" any unused contribution room to 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 the RRSP contribution 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. Remember, it's a good idea to increase your monthly contribution if your income rises, and be sure to keep up with inflation.

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-to-day 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 can 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 or email us today to get the ball rolling towards achieving your retirement and other financial goals.

Shape up your finances for 2017

January is the month of resolutions, commit yourself to taking control of your financial house. When making your list of financial resolutions, we encourage you to consider the following;

Be honest with yourself
To help establish a budget, lay everything on the table, debts and all. It’s only when you know how much money you owe that you can realistically start to develop a financial plan to pay it off. Need a little extra help? Try using an app like Mint or Expense Manager to track your day to day expenses.
Think ahead
Build an emergency fund to cover unforeseen expenses. As financial advisors, we always encourage our clients, if they can, to save enough to cover at least three months worth of expenses.

Do your homework
Once your goals are clarified, make your plan. When establishing your plan, be sure to explore all of your investment options.

Ask an expert
Need a little extra help with your homework? Don't be afraid to ask for help. A financial planner, like our experienced team here at Continuum II, will help you to look at your financial situation as a whole. We will take into consideration your goals, your habits and your retirement needs and help you better forge a plan to save.

Be consistent
Start small with your investments and grow over time. Don’t start with anything you can’t afford to maintain. It is more efficient to make continuous investments, than to do large sums every once and awhile. Be consistent, it will pay off in the long run.

Establish goals
Set goals for yourself so you know how to allocate your savings, then create savings plans for each goal. Consider making automatic monthly payments to each goal. Note: It's important to prioritize your goal. While you may be longing for some sunshine, paying off your taxes is more pressing.

Focus on your finances.
Take a break from all the day-to-day responsibilities that stand in the way of planning your financial future. Many people take more time planning for their summer vacation than they do for retirement. This year, focus on your financial future.

The Value Of Planning Ahead

    The Value Of Planning Ahead

You can't predict the future but you can plan for it.

A job loss. A prolonged illness. A sudden death. The decision to go back to school, or travel the world -these are just a few of the unexpected life events that can send you-and your finances-

reeling.

Households with a plan are more satisfied with their current financial situation, more comfortable with their current debt load and feel more confident that they will have enough money to retire comfortably than households with no plan. 

Such households are also more likely to enjoy annual vacations and the occasional splurge. They feel confident that they are making the right financial choices. Choices made with the help of a financial security advisor.

Clear, professional, financial advice can provide you with a financial road-map for life. So you can stop worrying about money and live the life you want with confidence.

Plan ahead. Be prepared. Ensure you're ready for anything.
Let us help you plan ahead.


Contact our office today (905)332-6633 or email us at info@c2inc.com

Capital gains and tax strategies

Under new rules (effective as of October 2016), Canadians are now required to report the sale of a principal residence. For most, this new rule is nothing more than a compliance exercise, albeit, one shadowed by the threat of unrestricted audits and sizable penalties.

To help maximize the capital gains tax strategies under this new rule MoneySense has given us a list of tips to keep in mind.




- Report each sale
- A change in use is considered a sale
- You can still use strategies to minimize taxes
- Keep detailed records
- Be mindful if  you own property through a trust
- Don't be surprised by these changes
- No more 1+ for foreign buyers

Tip #1: You must remember to report each sale

The new rules, announced in early October 2016, will require you to report every single property sale on your tax return. That means in your 2016 income tax return (due sometime in April 2017) you will need to report the sale of property, even if you don’t end up owing tax on the sale.

Fail to report the sale—whether intentionally or unintentionally—and you risk an audit, penalties and interest charges and the ability to shelter future home sales through the principal residence exemption (PRE).

Tip #2: A change in use is also considered a sale

Even if you haven’t actually put your home up for sale, the CRA will deem it to be sold if you change the use of the property. Take, for example, you decide to buy a new, larger home for your growing family but want to hold onto your current property and rent it out. The CRA considers this a “deemed disposition”—you haven’t actually transferred the ownership to another person, but you have changed the primary use of the property, from your family home to a rental property. As such, the CRA will consider the home sold, for tax purposes, at the current fair market value.

Tip #3: You can still use strategies to minimize taxes

For years, many Canadians minimized the amount of capital gains tax owed by strategically designating when each property was their principal residence, for tax purposes. To make this strategy work, however, the properties can not be income-producing during the years they are designated as a principal residence.

“Canadian families with a home and a cottage owned personally will be impacted by these new rules, as they’ll need to report the sale of each property,” explains John Sliskovic, private client services tax leader at EY LLP. “A family could still optimize the benefit of the principal residence exemption by designating the property with the greatest accrued gain as the principal residence.”

Example: Say you and your spouse bought a home in 2001 for $250,000. In 2002, you received an inheritance and bought a cottage about two hours away from Toronto for $200,000. For the next 14 years, until 2016, you and your spouse lived full-time in your city home and spent summers and holidays at the cottage. In that time, your family home appreciated and is now worth $650,000. During the same time period, the cottage’s fair market value rose to $725,000. Now you want to retire and part of that transition is to simplify your life by selling both properties and downsizing. If you needed to sell both properties this year, you’d end up having to pay capital gains tax on at least one—designate your city home and the exemption would save you from paying $60,000 in tax*; designate your cottage and the exemption would save you from paying $78,750 in tax. Already strategically choosing to shelter the property with the highest appreciation would save you $18,750 in tax. That’s not chump change. Talk to a tax specialist and you could further fine-tune this strategy to save even more on your taxes.

Tip #4: But now you have to keep much better records

While the new requirement to report all property sold in 2016 and in future years won’t impact strategic tax planning, it will put more onus on property owners to establish and keep better records. It will mean diligently keeping all receipts and invoices—an important aspect of real estate investment, particularly if you want to increase your adjusted cost base (ACB) on the property, and save tax later on when you go to actually sell the property.

Tip #5: Big changes if you own property through a trust

Families that own a home or cottage through a trust may be impacted in a different way. “The proposed changes limit the types of trusts that are eligible to designate a property as a principal residence,” says Sliskovic.

Example: a trust that is no longer eligible to designate the property as a principal residence under the new rules, but owns that property at the end of 2016, must separate its gain into two components: The gain accrued to 31 December 2016 may potentially be sheltered by the principal residence exemption, and the gain accruing from the beginning of 2017 to the date of disposition that will be subject to tax.

“Families that have utilized trusts to hold principal residences will need to carefully review the amendments and make any necessary changes to ensure that their estate planning is still appropriate,” explains Kim G. C. Moody, director, Canadian Tax Advisory at Moodys Gartner Tax Law LLP, in a recent legal brief.

“Non-residents who utilized trusts to acquire property and claim the principal residence exemption will also be greatly affected,” explains Moody. With these new rules the strategic use of such trusts and similar “planning is now effectively dead.”

Tip #6: House-flippers watch out!

For real estate investors that specialize in buying, renovating and then quickly selling homes—a process known as house-flipping—the new reporting requirements will force you to justify the “ordinarily inhabited” rule.

As Moody explains: “The property also has to be a “capital property” of the taxpayer.” This means that it cannot be part of the trade of the business. This obviously isn’t the case for house-flippers. “House flippers are not eligible for the principal residence exemption since properties that are quickly sold after the acquisition will likely not be considered capital property but rather inventory,” writes Moody. As a result, any profits from selling the house are no longer considered a capital gain but rather as business income and would not be entitled to the principal residence exemption.

Tip #7: Don’t be surprised by these changes

The recent changes to how sold property is reported to the Canada Revenue Agency is not the first time the principal residence exemption has been significantly changed. One of the more significant changes occurred in the early 1980s, when each spouse was no longer allowed to claim a principal residence exemption for different properties (thereby enabling married couples to “double-up” on the benefits of the principal residence exemption). As a result, all family units are restricted to sharing the principal residence exemption for every calendar year for properties disposed of after 1981. While Federal Finance Minister Bill Morneau has stated that the feds are in a holding pattern right now, when it comes to the country’s real estate markets, don’t be surprised if additional changes are announced in the near future. Right now, the Liberal government wants to assess how recent changes have impacted each property market; if the shifts they are anticipating don’t transpire, it’s quite possible the federal government, or other levels of governments, will consider additional measures.

Tip #8: No more 1+ for foreign buyers

Anyone who was a non-resident of Canada in the year a property is bought, will no longer be able to automatically add a year to the number of years the property is considered a principal residence. (Tax specialists often point out that every Canadian is allowed to claim the PRE for each year the property is owned, plus one, effectively decreasing the capital gains taxes owed, where applicable.) This new rule applies to any property sold (or deemed to have been sold) after October 3, 2016.

For the full article and more information on each tip visit moneysense.com

If you, or someone you know, wants more information on this topic, contact us today info@c2inc.com

Peter's Story

Everyday Peter Andreana, a partner and financial advisor here at Continuum II Inc., works closely with clients to help them develop individual financial plans. Taking his own advice, Peter has developed an extensive portfolio of insurance policies that he would like to share with you.

For Peter, life insurance meant the difference between a financially secure estate and leaving behind debt and a deficient income for his wife and family. It is also a way to provide income in his retirement years.

Peter's first [small] life insurance policy was taken out in 2000. In 2009, Peter applied for and was issued his first significant whole life insurance policy at London life with an annual premium of $13,000.

In 2013, Peter took out another whole life policy with Great West Life.This policy has a $15,000 annual premium and provides substantially better cash values in the later years. Through the different policies Peter has a combined personal death benefit of $1.4 million of whole life insurance coverage.

Peter’s wife Laura also has her life insured. It started early on with a small ten year term life policy with a death benefit of $500,000, then a second whole life policy was added with an annual premium of $960. This smaller whole life policy provides a death benefit and generous cash values in later years.

Note: You can hold more than one type of life insurance policy at one time. Laura is a great example, as she holds both term and whole life insurance.

When their children were born, Peter and his mother jointly took out whole life insurance policies on the lives of each child. The kids policies (designed as a gift) provide great investment opportunities, as annual contributions from both Peter and his mom will leave the kids with generous savings via the policies cash values that could be accessed later in life. This money grows tax sheltered and creditor protected.

Both Peter and Laura also have critical illness insurance. This type of insurance provides a lump-sum of cash in the event of a critical illnesses. Peter's combined policies hold $120,000 benefit and Laura's a $65,000 benefit. Should either of them face a critical illness (eg: cancer, stroke, heart attack) the insurance will provide them with a cash payout that can be use to cover medical expenses, pay bills or anything they decide to do with it.

For another layer of protection, Peter also has disability insurance. If Peter becomes unable to work due to a disability the insurance provider will pay out a monthly benefit to supplement his income until age 65 or the disability ends. (Laura does not have T4 income, therefore she does not qualify for disability insurance.)

As a financial advisor, Peter understands how daunting all of this information can be. His choice to share his risk protection journey with you stems from his desire for current, and future, clients to know that he doesn't just give the advice, he lives it. Don't worry, you don't need do everything at once, these things take time. Start small and build on it overtime.

What the BREXIT vote means for investors

As you may have heard, following Thursdays referendum, the people of Britain have voted to exit the European Union (EU). Given the unexpected nature of the vote, coupled with the uncertainty of the situation, this will most certainly cause some volatility in the Global Markets.  It is important to note that prior to Thursdays vote, the majority of experts felt that the chances of this separation happening were slim to none, leaving many unsure of whats to come. While we cannot predict the future, there is one thing to remember during times of uncertainty. That is, that markets tend to over-react, which tends to cause a dislocation between stock prices and their actual value.  This is when it really pays to have great ACTIVE MANAGEMENT, who can take advantage of these situations. 

As your financial advisors, we want to ensure you that, just as with any other significant event around the world, this is definitely not a time to panic. 

Please let us know if you would like to discuss this issue and/or your current investment holdings. To contact our offices directly, please email info@c2inc.com

Tax-Saving Tips

Tax-Saving Tips

No one likes to pay more taxes than they have to-but when was the last time you checked to make
sure you're taking full advantage of all the tax-saving opportunities that are available to you?

Here are a few ways that you could be saving on your taxes. This information is provided by our friends at Manulife Financial.

Deductions
Deductions can help reduce your taxable income. The following outlines some different types of deductions that could help save you more.

- RRSP contributions: RRSP contributions can be deducted (up to the contribution limit)
- Investment expenses: You can deduct fees paid to manage or administer your non-registered investments.
- Daycare expenses: You can deduct qualifying child care expenses paid so you or your spouse can earn income, to go to school or conduct research.
- Relocation: You can claim moving expenses if you moved at least 40KM closer to your place of work, or school.

Credits
Tax credits work to reduce your taxes payable and can be received on the following.

- Are you a first time home buyer?  You could qualify for the First-Time Home Buyers' Tax Credit-worth up to $750.
- Medical expenses: You can claim eligible medical expenses for yourself, your spouse and dependent children under age 18-that were not paid for by a provincial or private plan.
- Do you give to charity? Donations over $200 receive a more generous credit, so consider pooling your donations with your spouse.
- Are you a student? If so, you can claim your tuition, textbooks and interest paid on student loans.
- Transit: If you pay monthly transit fees (i.e: bus pass)  you can claim the cost.
- Pension income: The first $2,000 of eligible pension income qualifies for the income tax credit.

If you have more questions about how you can save on your taxes, contact us today. We are here to help!

DON'T FORGET THIS YEARS TAX DEADLINE IS MAY 2ND

Tax Return Checklist

With the this years Tax deadline (April 30th 2016) fast approaching, we want to ensure that you have everything you need to file. What exactly do you need to file your taxes? The following checklist has been complied by our friends at Manulife Financial to help you better prepare for filling your taxes. Do you have everything on the list?

If you have questions regarding anything on this checklist don't hesitate to contact us. We are here to help!

Don't forget-this years Tax deadline is May 2nd 2016.