Financial & Wealth Planning

As a financial and wealth planner, my goal is to help you establish a plan to achieve your objectives. The process starts with understanding you and your family situation, your goals and objectives, and your available resources. A plan is then established and we will assist you with implementation and on-going monitoring.      

While any planning cannot be accomplished in less than a month, I hope to provide a few simple, effective tax strategies and reminders that can be implemented before the end of 2019 or early in 2020. If you have any questions, please do not hesitate to contact me or consult with your accountant.

I look forward to meeting you all to discuss your plan.

Godfrey Yu

RRSP

The RRSP deadline for the 2019 tax year is February 29th, 2020. Your contribution is limited to 18% of your 2018 earned income, to a maximum of $26,500. If you would like to kick start your 2020 RRSP contribution early, the maximum contribution room for the 2020 tax year is $27,230 if your earned income is $151,278 or higher in 2019.

If you turn 71 this year, this will be the last year you are allowed to contribute to your RRSP. Since your RRSP needs to be converted to an RRIF before year-end, your RRSP contribution needs to be done by December 31, 2019, before the RRSP is converted (not February 29, 2020). If you continue to work beyond 71 and your spouse has not reached 71 yet, you can continue to take advantage of the tax savings by contributing to a Spousal RRSP up until the year your spouse reaches the age of 71.

If you have earned income in the year you turn 71, which generates RRSP contribution room for the following year, consider making an RRSP over-contribution to your RRSP based on your 2019 earned income. You will be charged a 1-month penalty for the over-contribution amount (less $ 2,000-lifetime over-contribution allowed); however, you’ll be entitled to an RRSP deduction in 2020 as long as you have income in 2020.

TFSA

The maximum amount you are allowed to contribute to your TFSA account is 6,000 for 2019 as long as you are 18 or over and resident in Canada. TFSA room is cumulative so if you have never made a TFSA contribution and you are 28 or older in 2019, you may be able to contribute a total of $63,500. For 2020, the contribution room will remain the same at $6,000.

If you need to withdraw funds from your TFSA early next year, consider withdrawing funds in 2019 rather than deferring to 2020, because withdrawals from a TFSA can be re-contributed to the TFSA account in the next calendar year.

RESP Contributions

You receive a 20% government grant for every dollar you contribute to the plan; you can contribute $2500 to receive the maximum $500 government grant every year until the year your child reaches the age of 17. 

Be aware of the Age 16/17 rule: 
Beneficiaries who are 16 and 17 years old will receive the Canada Education Savings Grant (CESG) only if one of the following conditions was met by the end of the year in which they turned 15:

• $2,000 or more has been contributed to an RESP (and not withdrawn for non-educational purposes), or

• $100 or more has been contributed to an RESP (and not withdrawn for non-educational purposes) in each of any four previous non-consecutive years

So if your child is 15 this year and you have not met either of the above conditions but would like to take advantage of the government grant in 2020 and 2021, you need to make a contribution by end of 2019.

Donation

If you plan to make charitable donations, consider donating securities that have a capital gain. The entire amount is eligible for the tax credit while no capital gain tax will be paid.

Crystalizing Capital Gains/Losses

The equity market has done very well for investors in 2019. If there are realized capital gains during the year or in any of the last 3 years, you may want to consider selling investments that have unrealized capital losses to offset some of your capital gains or to recover taxes paid in the three prior tax years.

Please note the superficial loss rules:
A superficial loss occurs when you dispose of capital property for a loss and you, or a person affiliated with you, buys or has a right to buy the same or identical property during the period starting 30 calendar days before and ending 30 calendar days after the sale. In these circumstances, the loss is called a superficial loss and is not deductible.

When disposing of listed securities, i.e. stocks, mutual funds, ETFs, remember that the disposition is deemed to take place at the settlement date, which can sometimes be two business days after the trading date. If you want a sale to close in 2019, you should ensure that the transaction settles before the end of the year.

Please note that to realize a gain or a loss on your JCIC Fund units, the order must be in for the last valuation date on December 19, 2019.

Lend money to your spouse or common-law partner to split income

If you are in a higher tax bracket than your spouse and you earn non-registered investment income, consider a loan to your spouse so investment income is taxed at the lower tax rate. The current CRA prescribed rate is 2%. This rate will not change even if prescribed interest rates increase in the future. Under this arrangement, your spouse must pay you the interest on the loan no later than January 30 of the following year. If your investment generates an income of more than 2%, the excess will be taxed at your spouse’s lower tax rate.

If you have sold your principal residence

If you sold your primary residence this year, you must disclose and report the sale in your tax return. Failing to do so may result in a penalty charge by the CRA.

If you own a business

Compensation

As a shareholder-manager of a Canadian-controlled private corporation, it could be to your advantage to properly structure the mix of salary, bonus, and dividends in your compensation package. Optimal planning does not only consider the individual’s and the corporation’s tax rate. Please discuss with your accountant your cash flow needs in the next few years so proper planning and strategies can be considered. For example, declaring a bonus could be beneficial since the payment can be deferred until after the company’s year-end and, in some cases, can defer the individual’s tax.

Shareholder Loan

If your corporation granted you a loan or advance during the year, you would normally have to repay these amounts within one year following the end of the fiscal year during which the loan or advance was made to you. Otherwise, you might have to include the amount of the loan or advance in your income as a taxable benefit.

Passive Investment Income

2019 is the first year that the small business deduction limit is phased out for a Canadian-controlled private corporation (CCPC) that (together with associated CCPCs) earns between $50,000 and $150,000 of passive investment income in the previous taxation year. Ontario has decided not to match this rule. Due to this mismatch, if you spend all the money in the current year, you actually have a tax-savings opportunity compared to a small business with less than $50,000 of passive investment income. If you have more than $150,000 of passive investment income in your corporation, you should consult with your accountant regarding your compensation structure. This “loophole” could be “fixed” by the government.

Individual Pension Plan (IPP)

If you are a business owner, over 40 years old, and have a T4 income of over $100,000, an IPP could be beneficial. IPP is a pension plan you establish for yourself through contribution by your company. It is similar to an RRSP in that it accumulates over time as retirement benefits. IPP however, allows for the accumulation of greater assets – up to 65% more than an RRSP. We can discuss whether an IPP is for you.