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 

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Working with family- buisness and their advisors

When working with clients that are business owners my first instinct is to strive towards aligning the many advisors who may be around the table. 

The role taken by Continuum II Inc. is often as quarterback. We are the advisors responsible for keeping the eye on client goals and we do this with our Keys to Success™ document. We are also the ones, and often the only ones, who will have meetings with a focus on the softer and more emotional issues that may be at play.

When working with a number of advisors it is easy to end up with conflicting advice for clients, which can be confusing and frustrating for the business owner. This conflicting advice can sometimes come from the advisor’s, but it can also originate with the business owner themselves. (I call it the broken telephone – when someone tries to interpret what one advisor is saying and then tries to relay it to another advisor at a later date)

It may also stem from lack of awareness of the work that other advisors are doing. Things can get worse if advisors start angling for better positioning with the client and may criticize or minimize the work of others. (This is very difficult because how do you know if the criticism is warranted or not? There could be instances when one advisor is truly giving bad advice.) 

 Advisors must leave their ego and self-interest at the door to ensure everyone is truly working in the client’s best interest, but this is often easier said than done. Here are a few points which can help;

1. Clearly define roles and responsibilities of all advisors.

More than one advisor may focus on the same problem, with each being responsible for a different task. i.e. legal, accounting, insurance, investments. Each advisor should have a clear understanding of who is doing what, and be sure that no advisor gets left out of the picture. (this means you must know all the advisors and their roles and responsibilities)

2. Joint meetings with a well-defined agenda, clear objectives and expectations is KEY.
Clearly defining the goals and seeking input from each advisor all together pays huge dividends. This gives the opportunity for each advisor to hear what the others are planning. More importantly it gives the opportunity to give feedback on how what one advisor is doing and how it may be affecting the work of others (an example of this would be a lawyer suggesting a shareholders agreement shot gun clause which can clearly have accounting implications. OR an accountant suggesting the use of the capital dividend account for an insurance policy which the insurance advisor will need to set up with the correct ownership structure to have it work as the accountant intends). Sharing information contributes to successful teamwork and it is important for the advisors to agree on who will do what during the multi-party meeting.

3. Advisors should be able to give and receive constructive feedback.
This ensures that any hurt feelings are cleared and that disagreements can be put to rest to avoid negatively influencing future work together. There are likely going to be times when the advisors are not going to agree or may see alternative ways of solving a problem, this is normal and actually a healthy step towards ensuring the best outcome for the client. If there are never any tough questions and everyone is nodding their heads agreeing all the time, I would be concerned. In a fair and constructive way the advisors should be asking challenging questions of each other to ensure there isn’t a better way to achieve the clients’ goals.

4. Family meetings.
Once the advisors have found alignment, it's a good time to bring the family into the fold when it comes to a family run business. The family members, especially those not working in the business, don’t need all of the details but a big picture summary can often help set the stage for healthy relationships in the future. Conflicts between parents and children or siblings or spouses often arise when there is a lack of communication. (i.e. Dad didn’t want that, he wanted this!) All “dad” had to do was actually tell the adult children what he wanted and that future fight can be avoided. These meetings are often most effective when there is a third party moderator.

Overall, there is a lot that goes into building and running a successful family business, but one thing I know for sure is that it is worth spending the time to get it right! (and that may not be the first time).

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.

Year End Tax Tips

Year End Tax Tips

Time flies during the holiday season and before we know it December 31st will sneak up on us. Here are some helpful tips from Moneysense.ca that will help you get every tax break coming to you for 2016.

1. Give a little

If you want to claim charitable donations on your 2016 tax return, the deadline is December 31. Remember, the First-Time Donor’s Super Credit is available until 2017 so take advantage of it if you can. (This credit boosts the tax savings for a new or lapsed donor.) To qualify for an extra 25% federal credit, a donation must be in cash and only the first $1,000 qualifies. To qualify as a first-time donor, neither the taxpayer nor his or her spouse can have claimed a donation credit since 2007.

2. Pay attention to the date

Your province of residence is decided on December 31 of the tax year and it determines your provincial tax rate for the year. “So if you live in Alberta for 11 months of the year and then move to Ontario in December—where tax rates are higher—your tax will be be calculated based on Ontario tax rates,” says tax expert Cleo Hamel. “And that means you may have to pay more taxes than you originally thought.” Hamel recommends that if you plan to move to another province, you should take some time to look at what the difference is in tax rates between the two provinces and time your move accordingly. “If you’ve already moved, check the tax rate of your new province of residence and compare it to the rate you paid while living in another province earlier in the year. “That will give you a good idea of if you’ll have to pay a couple of extra thousand dollars in taxes and if so, you can plan for it now.”

3. Plan your TFSA withdrawals

If you’re planning to take funds out of your Tax Free Savings Account (TFSA), you may want to withdraw it before the end of the year. Then you can replace the amount in 2017. 

4. Explore tax loss selling

“A lot of stock investors hate selling at a loss because they’ve been conditioned to buy low and sell high,” says Hamel. “But selling at a loss can be advantageous, especially in high-income years. And if you sold a stock that did well in 2016, then it may be worthwhile to review your portfolio now to see if you can take a loss on another stock to help offset your capital gain and reduce your tax liability. “Losses can be written off against any gain in the year they are incurred, back three years, or forward indefinitely,” says Hamel. Just remember, that any transaction needs to be settled on or before December 23 in order to qualify for your 2016 tax return.

5. Use these credits before it’s too late

This is the last year students will be able to claim Textbook and Education Tax Credits. But remember, starting in 2016, students will not have to repay their student loans until they are earning at least $25,000. 

Want a little extra help organizing your savings before the year end.

 Contact our office today  (905)332-6633

or

info@c2inc.com

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