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.

Life insurance

Whole life, or permanent, life insurance is more than just added security, it is a valuable tool that's well worth the cost. Here are a few reasons why you should consider getting permanent life insurance.

Coverage Is For Life 

• Coverage does not expire, as long as you pay your premiums

Level Premiums

• Your premiums stay the same for the life of the policy. There are also limited pay options where the policy is fully paid up in 15 or 20 years.

Tax Shelter

• Investment growth inside the policy is sheltered from tax and can transfer to beneficiaries tax-free upon your death

Earn Dividends

• Provide incredibly steady rates of return with low volatility.

Access To Equity/cash values

• Cash values accumulate over time and can be utilized through withdrawals, policy loans or leveraging. People who max out their RRSPs and need another place to grow tax sheltered money should look here!

Eliminates debt at an important time. 

• If you have debt, do your loved ones a huge favour and provide them with greater financial security by paying off your debt with life insurance proceeds when you’re gone.

Enhance And Equalize Your Estate

• Leave a legacy without liquidating investments or use it as a tool to provide cash to the heir that didn't get the cottage for example.

Continuity Of Your Business

• Provide a cash infusion to help provide your business and business partners the chance to grow and thrive in your absence. 

Want to know more? Contact us today and let us help you feel secure about your financial future.

Post-Secondary Savings

Do you know anyone heading to College or University this September? Here are some tips on how to financially prepare your student.

Help them make a budget: The first year of post-secondary education can be a shock financially, and will take some getting used to. Sit down with your student and make a list of expenses so they can plan ahead.

Suggest they open both a chequing and a savings account: It is important for students to learn not to spend every penny that they make. Encourage your student to split any income they may have between a chequing and a savings account.

Tell them to save their receipts: Come tax time, students could benefit from holding onto all those pesky receipts they have floating around in their wallets. Things like bus tickets for commuters and even textbooks can be applied to their income tax. It will also help your student have a detailed record of their spending to see where they can cut costs.

Encourage them to skip the Starbucks line: Buying lunch everyday or grabbing a $7 latte on their way to class is not financially savvy. Teach your student that it's okay to treat yourself here and there, but by avoiding the Starbucks line they can save big bucks.

Suggest they get a part time job: If they can manage, finding a part-time job is a great way for students to make a little extra cash while at school. Encourage them to look for jobs on campus, or tutoring jobs that can provide flexible hours.

Remind them that student loans are not a piggy bank: Remind them that their student loans are not to be used on anything else other than school. While it can be tempting to use some of that cash to buy a new pair of shoes, the debt isn't worth it.

Talk to them about the dangers of bad credit: Missed credit card payments can affect your students finances later in life. Teach them about the risks of late payments, and encourage them to pay off their balance at the end of each month.

Want extra helping guiding your students through their post-secondary journey? Contact us today, we are happy to help!

Mutual funds 101

Do you invest in mutual funds? Mutual funds are a great foundation for your investment portfolio. Mutual funds provide the added value of access to a wide variety of investments that are backed by expert money managers who aim to manage risk and maximize your returns.

How much do these added values cost? The ongoing cost to maintain a mutual fund is worked into what is called MER (Management Expense Ratio). MER isn't paid directly, but rather built into the cost of the mutual fund itself.

What does the MER pay for? The cost of the MER is paid out to three teams of experts. The mutual fund company, the mutual fund dealer and your investment representative. Within these teams, a portion of the fee is further dispersed to smaller teams within their umbrella. All of these teams work together to help you get the most out of your investments. 

MER costs can vary, but overall the minimal cost is well worth the benefits it accompanies. Watch the clip below and see for yourself.

Need extra help with your investment portfolio? Call us today and let us help you build an investment portfolio that will help you to achieve your financial needs, goals and dreams.

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

Financial Care: Caring For Your Aging Parents

Financial Care: Caring For Your Aging Parents

As the population ages, many Canadians will soon find themselves caring for their parents or asking their adult children for help. For some the change comes about gradually, but for others the onus happens suddenly. 

A common area of concern for adult children who are starting to watch their parents’ age is helping them to manage their financial situation. Learning to cope and manage someone else’s financial house including investments, real estate, cash flow, estate preservation and tax planning can be difficult.

Even if you feel as though your parents are well enough to tend to their own finances, it never hurts to keep a watchful eye.

To help prepare you and your family for managing what's to come, we suggest taking these proactive steps.

Consolidate accounts – If your parents have multiple bank accounts, try to reduce the number of accounts and institutions. This will help both you and your parent(s) stay organized, and could help them to save money in banking fees.

Review statements-If they’re comfortable sharing their financial details, your parents might be able to set you up to receive copies of their statements. Doing this adds an additional level of oversight and will allow you to watch for signs of financial abuse. Make sure to watch for large transactions, unusual money transfers, and unrecognized fees/pre-authorized payments.

Prepare a financial data organizer- Use the organizer to note account numbers and the names of their advisers. You may also choose to include details pertaining to any life insurance policies, information on safety deposit boxes and where to find important legal documents or account passwords.

Your financial organizer should be reviewed annually to make sure everything is up-to-date and that it reflects any changes that have been made. You may also want to consider talking with your parents sooner rather than later to ensure that you have all of the [correct] information, before they start to forget.

Need extra help? Continuum II has put together a personal records organizer just for you. This is a great tool to help you organize your own personal financial plan, or that of a loved one. Find it here.

Review their estate plan-It is important to ensure that wills, powers of attorney, personal directives and similar documents are up-to-date before it is too late. Even if they appear in good standing, it is important to walk through what would actually happen with assets on death, as not everything will pass through the estate and be addressed by a will.

Keeping your eye on your parents estate plan can also help with future fees and tax implications. Even for the most modest estate taxes and probate fees can reach into the tens of thousands, so it's best to plan ahead and take all proactive measures to reduce possible fees.

How can we help? With our team of experienced financial advisors we can provide you and your parents with additional care to help ensure that all of your financial needs are in order. 

Strategically, we can help develop a plan based on each unique situation to map out how your parents may be able to live comfortably in their older years. Similarly, we can identify investment, tax or estate strategies to help preserve your parents’ wealth.

Don't forget to check out Lise Andreana's book "Financial Care for Your Aging Parent" covering key decisions every adult child of an aging parent must make to provide financial support in a loving way to the people who matter most.

Have questions? Contact us today, we are here to help.