Back To School? Encourage Fitness Now – Tax Credits End In 2017

There are big changes coming for families who get the refundable Children’s Fitness Tax Credit, so use it before you lose it!

Back in 2014, Canadian families were treated to a non-refundable tax credit of up to $1,000 when they enrolled a child under the age of 16 in an eligible program of physical activity. This included programs that enhanced physical strength, balance and endurance. But it only helped families who had taxes payable.

Then, starting in the 2015 tax filing year, this credit became refundable. That meant that it provided direct benefits to families who had little or no taxable income. All that was required was the filing of a tax return to receive up to $150 back.

But now, with the March 22, 2016, budget comes a phase-out: Both the children’s fitness and arts tax credits will be phased out starting in the 2016 year. The refundable child fitness amount will remain for 2016 but will be reduced to a maximum of $500 from the current $1,000 maximum.

The children’s arts tax credit maximum claim will be reduced to $250 from $500; this credit is, however, non-refundable. Both will be eliminated in 2017. The supplemental claim for disabled children will remain at $500 in both cases for 2016.

Remember that the Children’s Fitness Tax Credit is found on Line 459 and may be claimed by either parent or split between them, as long as the total amount claimed does not exceed the allowable claim. Receipts must be retained in case of audit. Expenses that are not eligible include the purchase or rental of equipment for exclusive personal use, travel, meals and accommodation.

If you missed it, adjust your 2015 tax return to make the claim and collect your extra refund.

CPP or TFSA? It’s an Issue of Retirement Security

This week, Canada’s finance ministers met in Vancouver and agreed in principle to the expansion of the Canada Pension Plan (CPP) over a seven-year phase-in period, starting January 1, 2019. Higher contributions by workers and their employers will result. But will the revamped CPP be enough to provide for the retirement security Canadians need?

Although the CPP is large and robust, the issue is a broad one for Canadians to consider carefully from a planning perspective, especially by younger Canadians who will contribute to this new plan longer.

Some interesting statistics about the CPP:

  • The CPP paid out $38.7 billion in benefits to 5.3 million Canadians in 2014-15.
  • At March 31, 2016, the CPP Fund totalled $278.9 billion.
  • Because the CPP Fund is ranked as one of the ten largest retirement funds in the world, its board, the CPP Investment Board (CPPIB), can undertake large transactions with which few others can compete.

The new plan will include some interesting tax changes: CPP premiums would become a tax deduction, at least on the “enhanced portion” of the CPP; and the Working Income Tax Benefit will be enhanced in order to offset the impact of the CPP rate hikes on low earners. CPP premiums currently qualify for a non-refundable tax credit on the employee’s portion; proprietors can claim a tax deduction for the employer’s portion.

Proposed enhancements to the CPP would increase the premium rate by an additional 2% (1% for employers and 1% for employees) as well as increasing the maximum insurable earnings. As a result, more money will come off the top of workers’ pay, leaving less for voluntary contributions to self-funded sources of retirement income. This might include the RRSP (which generates an immediate tax reduction for those who are taxable, but taxes future withdrawals of earnings and principal) or the TFSA (which generates no immediate tax deduction or credit, but which creates future tax-free pensions).

Currently the CPP premiums amount to 9.9% of contributory earnings, when both employer and employee contributions are counted. Individual employees contribute up to a maximum of $2544.30 annually, and their employers contribute an equal amount. These numbers are based on maximum contributory earnings of $51,400 ($54,900 less a basic exemption of $3500). Those who are self-employed must contribute both portions: that’s a maximum of $5088.60 per year or $424.05 per month.

Under the new plan, the maximum contribution level will rise to $82,700 by the year 2025, and there will be a five-year phase-in of increased contribution rates for those below the Yearly Maximum Pensionable Earnings, followed by a two-year phase-in of the upper earnings limit.

Another consideration is the fact that future CPP benefits do not roll over on the death of a taxpayer to their spouse or children. A survivor’s benefit may be possible, but combined survivor and retirement benefits are capped, so the more retirement benefits the survivor has, the less survivor benefits they will receive. Those who die early and never collect CPP benefits can’t leave anything to their heirs from their long time investment in the CPP, short of an unindexed death benefit of $2500.

However, the CPP does provide a disability plan, which is important to younger workers in particular.

This new CPP plan will have the objective of replacing one-third of the taxpayer’s employment income to this ceiling, or approximately $27,300. Under the current CPP rules, the plan’s objective was to replace 25% of employment income to a maximum of approximately $51,000. However, despite the fact that the maximum CPP benefit is $13,110, the average CPP benefits are approximately $8000—about 60% of the target. There are many reasons for this, including the fact that very few people work to the maximum earnings level throughout their entire career.

From a planning perspective, then, it is important to consider how the enhanced investment in a taxable CPP benefit compares to a tax-free contribution to the TFSA (Tax Free Savings Account). We will be crunching some more numbers in future editions, taking into account the new proposals. It’s also the question we’ll be asking for your input on in the Knowledge Bureau’s monthly poll in July.

Also see How Much is Enough, this issue.

Financial Planning and Advice: Is an Integrated Regulator the Answer?

Does financial planning require its own regulatory oversight? That’s the issue the Ministry of Finance in Ontario has charged an expert committee with. Their preliminary recommendations propose an “integrated regulator” and significant restrictions on who has the qualifications to hold themselves out as a financial planner. Consultations on the matter must be submitted by tomorrow, June 17.

Knowledge Bureau has been pleased to participate in the process, providing a written submission in September 2015 and a presentation in front of the committee in Ottawa in May 2016 in response to the preliminary policy recommendations.

Eight recommendations were presented by the Expert Committee for comment, summarized below , with our additional thoughts for your consideration::

  1. Required Regulation. That financial planning in Ontario be regulated as a discrete activity within existing regulatory frameworks by an “integrated regulator” and that those to be regulated fall into three broad groups:
    1. any individual or firm that provides Financial Planning services either expressly or implicitly through Holding Out by way of titles, described services or otherwise,
    2. individuals and firms that provide Financial Planning and whose Financial Product Sales and Advice activities are regulated by the existing regulatory framework for securities, insurance and mortgage brokering and
    3. individuals or firms performing Financial Planning activities outside the current regulatory framework, who should have their Financial Planning activities regulated by a proposed Financial Services Regulatory Authority (FSRA).
  2. Harmonized Standards. That standards relating to education, training, credentialing and licensing of individuals providing Financial Planning be harmonized and subject to one universal set of regulatory standards.
  3. Statutory Best Interest Duty. That a Statutory Best Interest Duty be adopted and applied to all individuals and firms who provide Financial Product Sales and Advice and/or Financial Planning in Ontario, based on a uniform and codified standard of care.  This is defined as an explicit obligation designed to ensure that clients’ interests are put first and Conflicts are.
  4. Exemptions. That the only exceptions to the universal Statutory Best Interest Duty be those already subject to such a standard under existing licensing and registration requirements, those subject to a professional legal standard of care and fiduciary duty and “order takers” where no financial advice is being provided to the customer and the individual or firm is exempt from suitability requirements (as in the case of discount brokers).
  5. Referral Arrangements. That no individual or firm that provides Financial Product Sales and Advice or Financial Planning be permitted to pay a referral fee to a third party for the referral of a client or prospective client except if the person receiving the fee is regulated and owes a best interest duty to clients, and provides full transparency of the arrangement.
  6. Titles and Holding Out. That the use of titles be prescribed to reduce consumer confusion and specifically, amongst other criteria that regulators develop, that they be chosen from a circumscribed list of approved titles for the regulated individuals and firms. Furthermore, such regulated individuals and firms would not be permitted to use other individual designations, qualifications and credentials other than professional academic qualifications and those approved by Regulators.
  7. Central Registry. That a central registry is created to provide a one-stop source of information for consumers on licensing and registration status, credentials and disciplinary history of regulated individuals.
  8. Support of Financial Literacy and Investor Education. That financial literacy and investor education be supported by the Ontario government, regulators, public and private schools, non-profit organizations and the financial services industry.

We found the committee’s observation, that the number of individuals and firms providing Financial Planning services only on a stand-alone basis,  is too small to warrant the costs associated with a new regulatory body.    The concept of an “integrated regulator of financial services” will require focused effort on the harmonization of regulation and standards—no small task.

One of the key issues to be regulated is who can call themselves a “Financial Planner” and then provide regulated Financial Planning and Advice in conjunction with product selection and sales.  The various terms specific to the planning and advice activities will likely require some more work to bring clarity to the financial planning framework,  roles of financial planners in various industry sectors,  and responsibilities to be regulated,  as well as the consequences of non-compliance, including the omission of a financial plan when providing product sales and advice.

As activities related to planning, prescription and product selection can be provided by the same person under such a model , a Statutory Best Interest Duty can help to discourage conflicts of interest.  However, an agreement on the precise definition of this duty and its applications across the industry must be achieved between all the stakeholders involved, and ultimately enforced universally with equity and fairness.  Again, this is a difficult task, as financial planning encompasses many stakeholders and often, a long period of time.

In establishing and developing proficiency standards for those who hold themselves out as Financial Planners, it will therefore be important to plan for an academic path to lifelong learning and professional development, especially critical in this profession in which rapid change disruptors are rife, and allow for the evolution of competencies.  We have therefore recommended that one minimum professional designation be supplemented by opportunities to specialize with robust learning throughout a financial planner’s career.  Hopefully, in approving and regulating credentials, proficiencies and titles, future regulators  will plan for the evolution of required competencies that do not exclude expert education providers who can develop curriculum for such specialized expertise above that of minimum qualifications requirements.

Ultimately, the benefit of additional regulation is to empower both the advisor and the consumer of financial planning services. This collaboration, done well, will empower the consumer with access to engage in a process to confidently find and work with a knowledgeable and trusted professional, who is trained to address unique financial planning needs both strategically and tactically, as they change over time.

What’s your take on the issue? Public input is invited and written submissions can be made by email to on or prior to June 17.

Nine Key Issues for Pre-Retirement Planning

Planning for retirement is an old issue, but now there’s a new take on it: pre-retirement planning. In the past, the focus was on how much pension income was needed to replace actively earned income from employment, to live comfortably until death. But these days retirement is anything but traditional and with employer pensions on the decline, especially defined benefit plans, many other factors must be taken into account when planning for life after work.

Planning for the Boomers brings several new technical issues not only to the management of income and capital but also to many other aspects, and for many people in today’s retirement planning environment:

  1. A Longer Work Life: That means more employment and self-employment earnings in retirement, which requires new ways of planning for RRSPs, TFSAs, CPP and OAS benefits.
  2. Real Estate: More wealth and/or more debt, especially for those with one or more residences.
  3. Double Incomes: The pension accumulations of two people can be subject to income splitting, an opportunity not available in previous generations.
  4. Tax-free Accumulations: Home equity, TFSAs, insurance for life and health all bring new wealth planning opportunities.
  5. Retirement Readiness: The Boomer male or female may be ready to retire, but the financial needs of others in the family may prohibit them from doing so (for example, they may still have to help put their kids through university, assist with the care and support of elderly relatives, or XXX). This may ring even truer for the Millennial generation, many of whom have pushed their childbearing years into their thirties.
  6. More Minis: Grandparents may have younger grandchildren than in previous generations, as Millennials have their children later; these new families may require continued support from grandparents, especially for housing and for education planning for children.
  7. Inheritances: There will be a significant transfer of wealth both to the Boomers and from the Boomers to the next generation. These pools of capital need to be invested responsibly at a time when financial literacy is significantly lacking and trust tax rules are changing.
  8. Potential Conflict: Family complexities—including blended families and family members that are spread afar in a mobile, global economy—make planning with multiple stakeholders difficult.
  9. Higher Taxation: The high tax rates that Boomers and their families face are unprecedented, on both income and capital, particularly in the absence of income averaging and income splitting.

Specialists in tax-efficient retirement planning must take all of these factors into account when developing strategies for income as well as the ongoing management of capital assets in retirement. The Distinguished Advisor Workshops took on this area of specialization in its annual spring sessions, concluding May 31. Summer School for instructor-supported online training begins in June. Early registrations are being accepted until June 30. In addition, the Distinguished Advisor Videos on this subject will be available to supplement studies. For more information and to register, please call 1-866-953-4769.