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Take 2: New Complex Tax Rules, Short Comment Periods

If the date July 18, 2018 rings a bell it should: it marked the one-year anniversary of Morneau’s controversial small business tax proposals. This year, mid-summer tax complexity is again in the news, as Finance Canada released two important new tax documents for Canadians on July 27: the Draft Sales and Excise Tax Legislative and Regulatory Proposals and the Draft Income Tax.

The Draft Sales and Excise Tax Legislative and Regulatory Proposals impact the GST/HST holding corporation rules, the excise refund for diesel used for certain purposes, the GST/HST rebate for printed books for qualifying public service bodies, information sharing in criminal matters, and reassessment periods for compliance orders.

The Draft Income Tax Legislative Proposals are designed to improve access to the Canada Worker’s Benefit, and also affect the deductibility of employee contributions under the Quebec Pension Plan, the reporting requirements for trusts, cross-border surplus stripping for partnership and trusts, more complex rules on the holding of passive investment income, and reassessment periods, among other provisions.

Canadians are invited to submit comments on both of these proposals until September 10, 2018. This, despite protests from tax practitioners and business owners on the short comment periods allowed on the very complex corporate tax changes announced last year.  The Finance Department also initiated consultations on two other aspects of the GST/HST holding corporation rules, with an accompanying consultation paper. Comments on this paper must be made by September 28, 2018.

Further, in a statement from a G20 Summit in July, Finance Minister Morneau indicated that Canadians can expect competitiveness issues to be addressed with this fall’s Economic Statement, which will be covered at Knowledge Bureau’s CE Summits in early November. The opportunity for advisors will be to learn how to help their clients assess the impact of uncertain trade relations and Canada’s high tax rates, on year-end personal and business tax and wealth planning.

Mr. Morneau noted in his statement, that his priority will be lowering the cost of new investment rather than cutting tax rates overall, despite the pressures posed to match the newly implemented rates south of the border.

At the same time, he announced the government will invest $16.8 million in the Global Sharing Platform for Tax Administrations, which will have to goal of helping countries around the world to deal with the challenge of international tax evasion and aggressive tax avoidance. This platform will provide governments around the world access to virtual classrooms, networks of experienced tax administrators and a growing library of global best practices, according to the July release.

Mr. Morneau has also teased that other focal points of the Fall Economic Statement will include NAFTA renegotiation, and plans to build Canada’s oil pipeline; in an effort to enhance Canada’s competitive stance. This Economic Statement is also widely expected to clear the path for another Bank of Canada rate hike this fall, making debt management a key issue for advisors to discuss with clients, especially pre-retirees, now until year-end.

Additional educational resources:

Considering the focus of the fall economic statement, tax and financial advisors will need to be up to speed on the latest issues impacting their corporate clients. Knowledge Bureau’s fall CE Summits will help you do just that, with workshops focusing on year-end planning for investors and small businesses. Reserve your spot today in one of four Canadian cities – Winnipeg on November 2, Vancouver on November 5, Calgary on November 6, or Toronto on November 7. We also recommend the Business Valuation for Advisors certificate course, which can provide needed credits towards a Master Financial Advisor – Business Services Specialist designation and the Debt and Cash Flow Management Course as a professional development choice this fall.



Non-Residents in the Family: What’s the CRA’s Take?

Summertime is family time; but it is also the time of year when people prepare for big life changes taking place in the fall. Young adults make plans to work abroad, travel or go to school and empty-nesters journey to warmer climates. However, non-residency comes with tax consequences, so a visit to a tax advisor should be part of your travel preparation.

In fact, it can pay handsomely to find a cross-border tax expert who can help you determine with confidence what your filing status is, both before and after you leave. Knowing that will help you comply and avoid costly penalties and interest for failure to file various returns, especially if you are compelled to do so retroactively.

In fact, it can pay handsomely to find a cross-border tax expert who can help you determine with confidence what your filing status is, both before and after you leave. Knowing that will help you comply and avoid costly penalties and interest for failure to file various returns, especially if you are compelled to do so retroactively.

You will also make better decisions about contributing to and withdrawing from Canadian investments left behind: TFSAs, RRSPs, RRIFs, taxable Canadian real estate or business properties, for example.

You should be especially concerned about your tax ties if you are going to a country with which Canada does not have a tax treaty that prevents double taxation. You must be prepared to show that you have severed ties with Canada and have a permanent home elsewhere to avoid attachment to the Canadian tax system. However, taxable assets left in Canada will still have tax consequences for non-residents upon their disposition.

In addition to taxing the worldwide income of residents, the government of Canada imposes income taxes on non-residents who earn income in Canada. Except where there is an international tax agreement restricting the collection of such taxes, anyone in Canada who pays income to a non-resident is required to withhold income taxes from those payments.

In most cases, this is the only tax that the government will get on that income, as the non-resident will generally not be filing a Canadian income tax return. In fact, an expatriate of Canada may find that withholding taxes on Canadian income earned while a non-resident is cheaper than paying taxes in Canada.

Even in cases where there is little or no Canadian income, a non-resident may wish to file a tax return in Canada, in order to attempt a refund of the withholding taxes. There are three opportunities:

  • Under Section 216—Collection of rents and timber royalties. These filings are not eligible for any personal amounts and so are subject to 48 percent non-resident surtaxes, the same taxes levied to deemed residents.
  • Under Section 216.1—Non-resident actors may file a return in Canada under this section to report net Canadian-source acting income.
  • Under Section 217—Non-residents receiving any of the following sources of income may file a return for amounts that include:
    • Old Age Security pension, Canada Pension Plan or Quebec Pension Plan benefits, most superannuation and pension benefits, deferred profit- sharing plan payments, RRSP or RRIF payments, certain retiring allowances or death benefits.
    • Employment Insurance benefits or registered supplementary unemployment benefit plan payments, or amounts received from a retirement compensation arrangement (RCA), or the purchase price of an interest in a retirement compensation arrangement.
    • Prescribed benefits under a government assistance program.

In these cases, if Canadian-source income is 90 percent or more of their worldwide income, taxpayers will be allowed to claim full personal amounts. If Canadian-source income is less than 90 percent of world income, then personal amounts are limited to 15 percent of eligible income. The 48 percent non-resident surtax will apply but will be reduced by the factor of eligible income divided by non-eligible world income. Paying the 25 percent withholding taxes may be simpler and less expensive.

It’s complicated, and that’s why you may need help from a tax professional in making the right filing decisions when your life changes and takes you across the border or overseas.

Excerpted from Evelyn Jacks’ latest book, Essential Tax Facts: How to Make the Right Moves and Be Audit-Proof, Too. Pick up your copy today as your guide for tax-efficiency at all life stages.

Additional educational resources: Ready to improve your skillset and help your clients navigate complex issues in a tax-efficient way? Try Knowledge Bureau’s Cross Border Taxation course. Or complete a full designation to become a Distinguished Financial Advisor – Tax Services Specialist, or Master Financial Advisor – Business Services Specialist.



CSA’s Proposed Client-Focused Reforms: KYC and KYP Guidelines

The Canadian Securities Administrators (CSA) recently proposed expanded guidelines on registrants’ obligations to act in a client’s best interests and on its proposals regarding embedded commissions. Knowledge Bureau is pleased to announce that Ian Russell, President and CEO of the Investment Industry Association of Canada (IIAC) will provide expert commentary on the matter at the Distinguished Advisor Conference November 10-14 in Quebec City.

The proposed amendments outline ways in which a registrant may tailor it’s Know Your Client (KYC) process to reflect its business model, the nature of its relationships with clients, as well as how to collect KYC information using technology. This article setout some of the details released.

Know Your Client and Your Product. Advisors will be particularly impacted by a new section 13.2.1 [Know your product] that will require a much more detailed information-collection process by registrants, in order to better determine investment suitability with a more fulsome KYC process:

  • 13.2(2)(c) — Explicitly sets out KYC information that must be collected by registrants to understand their clients well enough to meet their suitability determination obligations. The information required includes the client’s personal and financial circumstances, investment needs and objectives, investment knowledge, risk profile and investment time horizon.
  • 13.2(3.1) – This new subsection will require registrants to take reasonable steps to obtain clients’ confirmation of the accuracy of their KYC information, collected at account opening and when any significant change occurs.
  • 13.2(4.1) – This new subsection will specify the circumstances when a client’s KYC information must be reviewed and updated, including when the registrant knows, or reasonably ought to know, of a significant change in a client’s KYC information and, in any event, at minimum intervals of:
    • 12 months for managed accounts
    • 12 months prior to making a trade or recommendation for exempt market dealers
    • 36 months for other accounts

The CSA is considering a phased implementation schedule for the final amendments:

  • Referrals: immediately upon coming into force, except three years to bring pre-existing arrangements into conformity;
  • Relationship Disclosure Information (RDI): One year to provide publicly available information under new requirement; two years for the other new requirements;
  • KYC, KYP, Suitability and Conflicts of Interest: Two years.

The news has received mixed reviews, particularly because on the same day, CSA Staff Notice 81-330 Status Report on Consultation on Embedded Commissions and Next Steps, was released. In that document, the CSA announced its policy decision on mutual fund embedded commissions, which was essentially to allow them. This has not sat well with some critics of the industry.

The CSA’s policy decision in this regard has three components. The first is integrated into the proposal on Client-Focused Reforms, to require registrants to address conflicts of interest in the best interest of the client, including conflicts of interest associated with embedded commissions and other third-party compensation. The CSA says it will address the other two components with a publication of rule proposals for comment in September 2018. It intends to prohibit:

  • All forms of the deferred sales charge option, including low-load options and their associated upfront commissions; and
  • The payment of trailing commissions to dealers who do not make a suitability determination.

For those who wish to make comment, feedback must be submitted in writing on or before October 19, 2018. Those who are not submitting by email should send a CD containing the submissions (in Microsoft Word format).

Address the submission to your local CSA as follows:

British Columbia Securities Commission
Alberta Securities Commission
Financial and Consumer Affairs Authority of Saskatchewan
Manitoba Securities Commission
Ontario Securities Commission
Autorité des marchés financiers
Financial and Consumer Services Commission of New Brunswick
Superintendent of Securities, Department of Justice and Public Safety, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland and Labrador
Registrar of Securities, Northwest Territories
Registrar of Securities, Yukon Territory
Superintendent of Securities, Nunavut

But deliver your comments only using one of the addresses below, for distribution to the other participating CSA members.

The Secretary
Ontario Securities Commission
20 Queen Street West
22nd Floor, Box 55
Toronto, Ontario M5H 3S8
Fax: 416-593-2318
Me Anne-Marie Beaudoin

Corporate Secretary
Autorité des marchés financiers
800, Square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
Fax: 514-864-6381

Additional educational resources:

The Real Wealth Management Program, leading to the RWM certification, is focused on the strategy and process required to assist clients with the accumulation, growth, preservation and transition of sustainable family wealth – after eroders like taxes, inflation and fees. Emphasis is placed upon the use of strategies to better know your clients and approach wealth planning holistically. The Master Financial Advisor – Retirement Planning Services can also help you meet your clients’ needs, including in securing retirement income needed for future financial security.

If you prefer instructor-led strategic education, plan to attend the Distinguished Advisor Conference, which will be held in Quebec City, November 10-14.

CE/CPD credits are earned for completing both options, and free course trials are available.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading national financial education institute and author of a new book in 2018: Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof, Too.  Follow her on twitter @evelynjacks


Protecting Investors’ Best Interests: It’s Been a Long Journey

On June 21st the Canadian Securities Administrators (CSA) released a harmonized set of proposals that requires investment industry representatives (registrants) to promote the best interests of their clients and put them first, to improve client outcomes. It’s something most clients would expect of their professional advisors; yet there are several investor protection concerns to address.

The CSA, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) – together known as the SROs – have committed themselves to these new reforms. By way of background, this all began close to a decade ago with National Instrument (NI) 31-103, which came into force on September 28, 2009 and introduced a harmonized, streamlined and modernized national registration regime.

The Proposed Amendments were developed after an extensive consultation process, beginning with the publication on October 25, 2012, of CSA Consultation Paper 33-403 The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients (CP 33-403). After publishing a status report, the follow up, CP 33-404, was published on April 28, 2016. Next came findings in CSA Staff Notice 33-319 Status Report on CSA Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients (SN 33-319) on May 11, 2017. 

The CSA identified certain reform areas that should be given higher priority. After a consultation exercise with stakeholders, key concerns to be addressed:

  • Clients are not getting the value or returns they could reasonably expect from investing: in their suitability analysis, some registrants fail to consider all of the factors relevant to helping clients meet their investing goals.
  • Expectations gap: clients often have misplaced reliance on or trust in their registrants, which can result in sub-optimal investment decisions.
  • Conflicts of interest: the application of the current rules is, in many instances, less effective than intended in mitigating conflicts of interest.
  • Information asymmetry: the current regulatory framework is often less effective than intended.
  • Clients are not getting outcomes that the regulatory system is designed to give them.

As a result, clients were suffering a variety of harms. The CSA noted:

  • Research that shows financial self-interest may inappropriately influence registrants’ recommendations to clients,
  • Persistent findings in compliance reviews of inadequate KYC (Know Your Client) information collection, affecting registrants’ capacity to make sound suitability determinations for clients,
  • The persistence of suitability as a leading source of client complaints.

To address these concerns, the current Proposed Amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and to Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations — Reforms to Enhance the Client-Registrant Relationship (Client-Focused Reforms) are proposing specific changes relating to conflicts of interest and suitability:

  • Registrants must address all existing and reasonably foreseeable conflicts of interest, including conflicts resulting from compensation arrangements and incentive practices, in the best interest of the client
  • Registrants must put the client’s interest first when making suitability determinations
  • Restrictions on referral arrangements have been proposed.
  • Prohibitions on misleading marketing and advertising have been strengthened.
  • Relationship disclosure information (RDI) will have to provide information on any restrictions on the products or services a registrant makes available to a client, including situations when the registrant uses proprietary products.  What impact these restrictions have a client’s investment returns, and the potential impact of costs and charges will need to be discussed. A new requirement will require key information to be publicly available.
  • Training of representatives and maintenance of policies, procedures, controls and documentation will need to change accordingly.

Next time: Guidelines on the CSA’s Know Your Clients and Product and transitional requirements.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading national financial education institute and author of a new book in 2018: Essential Tax Facts – How to Make th Right Tax Moves and Be Audit-Proof, Too. Follow her on twitter@evelynjacks.

Additional educational resources: 

Advisors, now that you’ve brushed up on your compliance requirements, enhance your credentials online by enrolling in an online program or course, to help you prepare for the new changes. The Real Wealth Management Program, leading to the RWM certification is focused on the strategy and process required to assist clients with the accumulation, growth, preservation and transition of sustainable family wealth – after eroders like taxes, inflation and fees.

If you prefer instructor-led strategic education, plan to attend the Distinguished Advisor Conference. This will be held in Quebec City, November 10-14.  CE/CPD credits are earned for completing both options, and free course trials are available.



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U.S. Repatriation Tax Is Hitting Canadians Hard: Are Your Clients Affected?

Donald Trump’s U.S. tax reforms are having a significant spillover effect north of the border, as many individuals with private businesses in Canada are facing an enormous tax bill in the U.S. If your client base includes any corporation in which a U.S. shareholder controls at least 10 percent of the voting rights or value, you need to know the details of this punitive measure.

he one-time “repatriation” tax of 15.5 percent that is part of Trump’s Tax Cuts and Jobs Act is intended to bring back to the U.S. a portion of the billions in profits that major corporations (think Apple and Google, for example) have parked in foreign subsidiaries and in countries with lower tax rates. But it is also hitting hard many individual U.S. citizens, dual citizens and green card holders who have businesses abroad, and many of these people are longtime Canadian residents.

Any money sitting in affected corporations is being hit by this repatriation tax, and for those that are Canadian-controlled private corporations (CCPCs), the owners themselves will have to declare the money on their 2017 US personal tax return. According to a CBC article, the U.S. tax bill in these cases could easily amount to six figures, or even over $1 million, for those using a CCPC to save for retirement. And it gets worse for taxpayers who have to withdraw money from their business in order to pay a whopping repatriation tax bill (also called the “transition tax” in these cases): they will be hit by CRA on the withdrawals they make to pay the IRS.

Many business owners are literally losing sleep over this issue and some will even be forced to close their corporations—it simply won’t be worth it for these taxpayers to do business in Canada any longer. In a February 2018 article, the Financial Post cautioned that ripple effects could also be felt by Canadian start-ups seeking U.S. venture capital, where typically those investing the funds would set up a parent company north of the border. Structuring a portfolio in this way could be detrimental under this new tax regime and could contribute to a decline in Canadian innovation.

So far, there is no relief for business owners affected by this one-time, retroactive tax, other than a slight reprieve. Signed into law in December 2017, the Tax Cuts and Jobs Act initially stipulated a June 15, 2018, deadline for the first payment; however, in early June the IRS announced a last-minute extension to April 15, 2019, for the first instalment. This reprieve will buy some time for affected taxpayers as tax lawyers and advocacy groups go to bat with Congress to seek an exemption for Americans who are resident outside the U.S. and are shareholders in controlled foreign corporations.

The Financial Times reports that some nine million Americans live outside the country, but it’s difficult to say how many of them own foreign corporations and will be facing a big repatriation tax bill. Unfortunately, expatriates hold no political clout in the U.S., but the hope is that legislation will be passed to resolve this worrisome issue. In the meantime, you can be a trusted advisor and advocate for any of your clients who are affected by the repatriation tax, by staying up to date with news and changing legislative measures on this front.

Additional educational resources:

  1. As U.S. tax reforms make cross-border business issues more complex, you need to keep up with the changes and repercussions for your clients. Knowledge Bureau’s Cross Border Taxation course can help you stay abreast of this changing landscape.
  2. Year-end planning for investors and small businesses is a focus of the Fall CE Summits taking place in four cities—Winnipeg, Vancouver, Calgary and Toronto—in November 2018.
  3. Learn more about the tax issues and reforms affecting Canadian business owners at this year’s Distinguished Advisor Conference (DAC), taking place in beautiful and historic Quebec City, November 11-14, 2018. Speakers such as Dr. Jack Mintz, Kim Moody and Dean Smith address cross-border issues in an exciting, varied and information-packed agenda.


IMF Predicts Slowing Growth for Canada: What Can You Do About It?

The IMF predicts that if Canada and the U.S. fail to reach agreement on NAFTA, Canada’s competitiveness could take a serious hit, resulting in a drop of 0.4 percentage points or more in GDP. Donald Trump’s tweets about Justin Trudeau could further dampen the outlook. But, astute financial advisors can help clients meet their goals in these difficult times by staying on course.

According to CBC, the IMF lists the recent tense trade negotiations and the threat of major correction in the housing market as “significant risks.” Predicting that Canadian economic growth will slow in the near term from 3 percent last year to 2.1 percent in 2018, with another drop to 2 percent in 2019. The news gets worse the longer the forecast period, with potential growth limited to as little as 1.75 percent in the medium term due to “sluggish labour productivity growth and population aging.” Other factors playing into this overall picture are U.S. tax cuts and stronger government spending, as well as other policy changes in the U.S. under the Trump administration.

There are domestic challenges to our competitiveness as well.  As reported in last week’s Knowledge Bureau Report, the Bank of Canada is expected to raise its benchmark interest rate in July, which will put pressure on anyone carrying personal or household debt.  It could also increase the risk of a major correction in the housing market. There have already been significant slowdowns in the once-hot markets of the Greater Toronto Area (GTA) and in Metro Vancouver.  In the GTA, May home sales were down over 22 percent from last year. Metro Vancouver faced a decline of more than 35 percent in the same period.

These are serious challenges to Canada’s competitiveness on the global stage. They signal the need for a review of financial plans by advisors here at home, especially for their nervous clients. Reviewing debt management opportunities and sticking to investment plans, with a good measure of tax efficiency is the key to weathering the storm clouds gathering.

Now more than ever, it’s essential for advisors and clients to keep on top of economic change and to develop strategies to shore up your clients’ wealth. Knee-jerk reactions could secure unwanted tax liabilities or lock in irreversible losses, and strategies must address this economic uncertainty and potential decline of family wealth.

Additional educational resources:

  1. Join Knowledge Bureau in November for this year’s Distinguished Advisor Conference where Dr. Jack Mintz will address Canada’s declining competitiveness. Learn more about this can’t miss speaker session here.
  2. Knowledge Bureau’s Debt and Cash Flow Management course will show you how you can help your clients avoid the erosion of their wealth that comes with debt.
  3. Or, go one step further and learn strategies for building sustainable wealth for your clients with our Elements of Real Wealth Management course, the first step in working towards your Real Wealth Manager Enroll in any of our courses today to save on tuition before the June 15 registration deadline.



Interest and Inflation Rate Hikes Ahead? Time to Manage Real Wealth

After holding interest rates at 1.25 percent since January, the Bank of Canada appears ready for raise the rate in its next announcement, July 11, when many economists expect it to increase to 1.5 percent. This small jump could affect millions of Canadians and is an opportunity for advisors and clients to lean in and plan for change.

Interest rates are one tool at the bank’s disposal to keep inflation in check, around the 2 percent mark. Due to steady growth in the Canadian economy in recent months, plus increases in gasoline prices, inflation is at or above this targeted level.

According to a May 30 Globe and Mail article, “The odds of a July rate hike is now just shy of 80 percent, up from slightly more than 50 percent on Tuesday, according to Bloomberg’s interest rate probability tracker.”

The article goes on to speculate on the nuances of language in the central bank’s May 30 announcement as an indicator of what is to come in the next announcement, but what does all this talk of a probable interest rate hike mean for Canadians? And how can you help your clients manage in the face of rising interest rates?

  1. Your clients will need your help not only to save and plan for home ownership, but also to develop broader strategies for building wealth. An article in the May 30 KBR pointed to real estate ownership as one of the three big secrets to wealth accumulation and financial success. But rising interest rates will mean that home ownership will get tougher for Canadians to achieve, especially with new mortgage stress test rules in effect that require home owners to be able to afford a rate that is the greater of the Bank of Canada’s benchmark mortgage rate (currently 5.34 percent), or the rate negotiated by the buyer with their lender, plus two percent.
  2. Your clients will need your good counsel on debt management strategies to shore up their chances of financial success. In addition to mortgages, any form of debt will become more costly to service. Anyone carrying debt such as student loans, lines of credit, credit card debt and more will be stretched even further than they currently are.
  3. Real Wealth Management requires a solid look at the effect of taxes, inflation and fees on accumulation, growth, preservation and transition of family wealth. This framework will help you have better discussions about lifecycle changes in the context of emerging economic cycles.

Rising interest rates have a very real impact on your clients’ ability to be financially successful. Make appointments now to discuss debt loads, and forward-thinking investment strategies.  Stay tuned to KBR to stay informed and prepare for this developing trend.

Additional educational resources: You can prepare your clients for impending interest rate hikes with the debt management strategies you’ll learn in Knowledge Bureau’s Debt and Cash Flow Management course. And the Real Wealth Manager designation will give you all the tools you need to help them plan for and afford the home of their dreams—a cornerstone in a broader, more holistic approach to building wealth.



Canada’s Tax Freedom Day: Implications to Wealth Management

Every year there is a milestone date when Canadians can shift their focus from paying taxes due to using their income to secure their financial future. Several countries track “Tax Freedom Day” annually, and Canada’s is coming up in June. It falls weeks behind other countries, which can have negative repercussions to wealth management and retirement planning.

In 2017, Canada’s Tax Freedom Day was June 9, one day later than 2016’s June 8. Compared to the U.S. date of April 19 and Australia’s April 13, it turns out we work almost two months longer to pay taxes, and that’s not likely to change anytime soon.

According to the Tax Foundation, a Washington, D.C.-based think tank that tracks Tax Freedom Day down south, Americans will pay $3.4 trillion in federal taxes and $1.8 trillion in state and local taxes, for a total bill of $5.2 trillion, or 30 percent of the nation’s income in 2018. But the American Tax Freedom Day has come three days earlier  than past years thanks to recent tax reforms.

Meanwhile, back home in Canada, the Fraser Institute, which publishes Canada’s Tax Freedom Day, has estimated that all households will pay over $2,000 more in taxes each year going forward, starting in 2019. It found, “. . .when looking at all 2.988 million families with children in Canada (excluding those in Quebec), 2.756 million, or 92.2 percent, will pay higher taxes—$2,218 more, on average, each year. Indeed, once the increase in CPP pay¬roll taxes is fully implemented, nearly all Canadian families—regardless of where they stand in the income distribution—will pay higher taxes.”

The federal government appears to concur. Its largest revenue line item is personal taxes, but due to a labor force slowdown that will result with large numbers of boomers retiring over the next decade, it will be difficult to maintain the current tax base.

The Finance Department has noted in a long-term forecast, issued on December 22, 2017, that “no single initiative can guarantee sustainable growth in our prosperity. . .(but) in particular, improving the economic participation of groups traditionally under-represented in the labour market, including women, Indigenous peoples, older workers, newcomers and persons with disabilities, is key to Canada’s long-term fiscal and economic performance.”

We’ll soon know what Tax Freedom Day looks like for 2018; but with a declining population and all levels of government carrying increasing debt into a significant demographic reduction, Tax Freedom Day could be pushed out further into the summer as time goes by.

Sadly, for many Canadian households that means less money available for retirement savings. For these reasons it is important to find ways to invest sooner, rather than later. With an eagle-eye to tax efficiency, money can be freed up for saving and investing, and investment performance can also be propelled forward. Be sure to see a qualified Real Wealth Manager for help in developing and securing a well-rounded family wealth management plan.

Additional educational resources:

Canadians looking to expand their financial literacy and make tax-efficient decisions at all life stages should pick up a copy of Essential Tax Facts, by Evelyn Jacks.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading national financial education institute and author of a new book in 2018: Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof, Too.  Follow her on twitter @evelynjacks


Staying Prosperous: Market Performance Outstrips Government Transfers

Significant gains in transfer payments combined with good market income growth translated into an increase in median income for Canadian households, to $57,000 in the period 2000 to 2016. There is a message in the numbers for pre-retirees, and in particular women: be proactive about tax-efficient investing now or risk poverty in retirement.

According to Statistics Canada’s Canadian Income Survey 2016, an increase of 8.7 percent in income from market sources—which includes employment, investment and retirement income—added more to retirement income than government transfers did. While Canadians are lucky to live in a country with many generous social safety nets, particularly the Canada Child Benefit, it’s critical to prioritize retirement planning early if you want to manage risk and at least beat inflation and taxes in your future.

Here are the numbers: median income after tax for all families was $57,000 in Canada in 2016. But that was also the year that top marginal tax rates increased significantly for some. Broken down in profile groups, you’ll see some critical trends:

PROFILE After Tax-Income in 2016
Couples with kids $94,500
Couples no kids $76,400
Unattached with kids $44,600
Unattached no kids $30,400
Seniors, highest earner is over 65 $57,800
Seniors, unattached $26,100

Noteworthy: we now know that unattached senior (often women) are the poorest of Canadians. These numbers don’t measure assets held, however, only income. That means there is an important opportunity for tax and financial advisors to work harder with families, and in particular with younger women, to set up sound financial plans to avoid poverty in retirement.

The first and most powerful step in doing so is with TFSA planning, which begins when a Canadian resident turns 18. A TFSA deposit of $5,500 a year for 40 years between the ages of 25 and 65, for example, will provide a very significant retirement nest egg. At an average rate of return of 5 percent, it can generate capital totalling $697,619. Parents and grandparents can help: there are no income splitting or attribution rules to be concerned about with this investment.

Assuming an average retirement of 20 years from age 65 to 85, a tax-free annual income of $34,880 is created, just from the TFSA investment in the example above. Add to this taxable public pensions like the universal Old Age Security (OAS) and the contributory Canada Pension Plan (both employer and employee must make contributions), employer-sponsored savings plans and the RRSP (Registered Retirement Savings Plan)—all can help significantly increase those median income numbers for seniors in the future.

However, the financial terms above, and the optimal order of investing (which comes first?) are a mystery to many Canadians. For professionals in financial services, there is much good work to do with clients to educate them and position them for financial success, both in retirement and before. It can be truly rewarding, but it’s important to get started now before taxes, inflation or interest rates rise to contribute to the significant changes Canadians face in the economy moving forward.

Next Time: Maximizing the Canada Child Benefit

Additional educational resources: Brush up on your skills to better help your clients prepare for retirement. Become a Master Financial Advisor by taking Knowledge Bureau’s comprehensive Retirement and Estate Services Specialist designation. Register before the June 15 session deadline for tuition savings. A free trial is available for Tax-Efficient Retirement Income Planning, a certificate course that earns you credits for the full designation. Completion of a free trial also gives you 2 CE/CPD credits! Also pick up your copy of Essential Tax Facts, by Evelyn Jacks, for tips on tax-efficient wealth management during all life stages. It’s written in easy-to-understand language and is perfect for sharing with your clients.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading national financial education institute and author of a new book in 2018: Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof, Too. Follow her on twitter @evelynjacks


Canadian Debt Solutions Demanded: Personal Debt Hits $2 Trillion

Canadian personal debt levels are now at such an alarming level, that most Canadians can’t even comprehend the size of the rising figure: $2 Trillion, as of last week. As part of their best interest duties to clients, financial advisors need to broach this uncomfortable subject, as things could get worse, soon.

According to the Bank of Canada, increasing interest rates, anticipated in the second half of 2018, could impact the financial security of many Canadians. On May 1, Bank of Canada Governor Steven Poloz shed light on why a cautious approach has been taken with interest rate hikes in recent months – and the $2 Trillion personal debt owed by Canadian taxpayers is among the primary concerns.

It’s not a new issue, as it continues a trend that has been witnessed over the past three decades. Canadian debt levels just keep rising due to low interest rates designed to stimulate the economy, and a hot housing market, according to Poloz. The numbers support this, as $1.5 Trillion of the current debt can be accounted for in mortgages.

After a lengthy period of maintaining lower interest rates, the central bank’s concern is that Canadians will become increasingly unable to meet their financial obligations or pay down their debt when interest rates do start to climb. As the Bank of Canada notes, there is potential for detrimental effects on the economy.

It is an issue of particular concern for those who have access to lots of credit; and, contrary to perception, that’s often higher net worth individuals. This is where the “Know Your Client” process is of utmost value; in fact, financial advisors must be sure to explore the entire financial environment and this includes the amount of debt being carried by the investor.

A professional strategy and process is therefore required. Knowledge Bureau’s Debt and Cash Flow Management course can assist advisors in developing knowledge and key skills in this field and provide credentials after a rigorous process of true-to-life practical applications that can enable more confident discussions, too. This course will help you lead your clients through a discovery and empowerment process to maintain a healthy balance sheet and use debt more responsibly and deliberately to build family wealth.

Tax efficiency in managing debt is explained as well. This certificate course will help you help your clients plan to pay down debt, maintain ideal debt-to-income ratios and make smart debt consolidation choices. It includes access to EverGreen Explanatory Notes and the following calculators to help you work out scenarios and what-if examples:

  •  Take Home Pay Calculator
  • Financial Assessment Calculator
  • Cash Flow Calculator
  • Income Tax Estimator
  • Debt Reductions Solution Calculator

Take advantage of our spring early-bird deadline by June 15 and save on tuition fees. A free trial of this course is available, and once you’ve brushed up on your debt management skills, credits from this course can be applied towards a Designation – either DFA – Bookkeeeping Services Specialist, or MFA – Retirement and Estate Services Specialist.

 Additional educational resources:

  1. Pick up a copy of Essential Tax Facts, by Evelyn Jacks. Written in easy-to-understand language, it’s great for sharing with your clients so they, too, can learn more about tax-efficient income planning.
  2. Sign up for our free trials, which offer a preview of EverGreen Explanatory Notes and important tax calculators, as well as a glimpse at course content, including Debt and Cash Flow Management.
  3. Earn CE credits efficiently while you enhance your education by attending a live event with Knowledge Bureau. Spring CE Summits are quickly approaching, and this fall the Distinguished Advisor Conference heads to Quebec City!