The Difference between Segregated Funds and Mutual Funds

Segregated Funds and Mutual Funds often have many of the same benefits such as:  

  • Both are managed by investment professionals. 

  • You can generally redeem your investments and get your current market value at any time. 

  • You can use them in your RRSP, RRIF, RESP, RDSP, TFSA or non-registered account. 

So what’s the difference? Who offers these products? 

  • Segregated Funds: Life Insurance Companies

  • Mutual Funds: Investment Management Firms

Why is this important?  

  • Since Segregated funds are offered by life insurance companies, they are individual insurance contracts. Which means….

  • Maturity Guarantees

  • Death Benefit Guarantees

  • Ability to Bypass Probate

  • Potential Creditor Protection

  • Resets

  • Mutual Funds do not have these features.

What are these features?

Maturity and Death Benefit Guarantees mean the insurance company must guarantee at least 75% of the premium paid into the contract for at least 10 years upon maturity or your death. 

Resets means you have the ability to reset the maturity and death benefit guarantee at a higher market value of the investment.

Bypass Probate: since you name a beneficiary to receive the proceeds on your death, the proceeds are paid directly to your beneficiary which means it bypasses your estate and can avoid probate fees. 

Potential Creditor Protection is available when you name a beneficiary within the family class, there are certain restrictions associated with this. 

What are the fees?  

  • Segregated Funds: Typically higher fees (MERS)

  • Mutual Funds: Typically lower fees

We can help you decide what makes sense for your financial situation. 

The Value of Financial Advice

 

“If it has a price, it must have value.”

This study, based on a new Canadian survey and adjusting for the causality issue, reconfirms the positive value of having financial advice. As in our earlier paper, the discipline imposed by a financial advisor on households’ financial behavior and increased savings of adviced households are to improving asset values of households relative to comparable households without an advisor. Benefitting from a subset of participants in both surveys, dropping an advisor between 2010 and 2014 was costly: those households lost a significant percentage of their asset values while the households who kept their advisor have gained in asset values.

To learn more, read the paper.  

 

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The Best Way to Buy Mortgage Insurance

Before buying insurance from your bank to cover your mortgage, please consider your options. What does the insurance cover?  

  • From the bank: only the balance of your mortgage

  • From us: whatever you need it to cover such as debts, line of credit

What happens as my mortgage balance decreases? 

  • From the bank: the coverage amount decreases as your balance decreases.

  • From us: the coverage stays the same for as long as you own your policy

What if I switch banks?  

  • From the bank: You might lose your coverage and need to reapply

  • From us: Your coverage stays the same, since it’s not tied to your mortgage

Who gets the benefit if I die? 

  • From the bank: The Bank

  • From us: You decide who gets the insurance and how to use it, such as to pay your mortgage, medical expenses or child’s education- whatever is best for your family

Talk to us, we can help.

2019 Ontario Budget

2019 Ontario Budget

The 2019 budget for Ontario was announced by Vic Fedeli, Finance Minister, giving details of a deficit of $11.7 billion for 2018-19 and $10.3 billion for 2019-20. Below are details of the key changes in relation to personal and corporate finances.

Personal

The budget did not announce changes to personal tax rates.

Ontario Childcare Access and Relief from Expenses (CARE) tax credit

Effective the 2019 tax year, the budget introduces a new refundable Ontario Access and Relief from Expenses (CARE) personal income tax credit, beginning with the 2019 tax year.

The tax credit will be based on the taxpayer’s family income and eligible child care expenses. It will provide the following tax credit per child up to:

  • $6,000 under the age of 7

  • $3,750 between age 7 to 16

  • $8,250 with a severe disability

The new credit will be calculated as the amount of eligible child care expenses multiplied by the credit rate shown below. The credit is eliminated when family income is greater than $150,000.

For 2019 and 2020, the taxpayers may claim the new tax credit on their tax returns. In 2021, Ontario intends to allow families to apply for regular advance payments.

Estate administration tax

Effective Jan 1, 2020 the budget eliminates the Estate Administration Tax on the first $50,000 of an estate’s value and extends the filing deadline of the Estate Administration Tax Information Return with the Ministry of Finance to 180 days (from 90 days) after the receipt of an estate certificate, and extends the deadline for filing amended information returns to 60 days (from 30 days).

Review of property tax assessment system

The province will review the property tax assessment system.

Addressing tax loopholes and tax integrity

The province has created a specialized unit of tax experts to find and address tax loopholes and abuse.

Corporate

The budget did not announce changes to the provincial corporate rate.

Ontario interactive digital media tax credit

The budget reduces the minimum Ontario labour expenditure to qualify as a specialized digital game corporation to $500,000 (from $1 million.)

Review

The budget will review the Ontario Innovation Tax Credit, other research and development incentives and cultural media tax credit certification process.

Please don’t hesitate to contact us if you have questions about how the budget will affect you.

Estate Planning for Business Owners

Writing an estate plan is important if you own personal assets but is all the more crucial if you also own your own business. This is due to the additional business complexities that need to be addressed, including tax issues, business succession and how to handle bigger and more complex estates. Seeking professional help from an accountant, lawyer or financial advisor is an effective way of dealing with such complexities. As a starting point, ask yourself these seven key questions and, if you answer “no” to any of them, it may highlight an area that you need to take remedial action towards.

  • Have you made a contingency plan for what will happen to your business if you are incapacitated or die unexpectedly?
  • Have you and any co-owners of your business made a buy-sell agreement?
  • If so, is the buy-sell agreement funded by life insurance?
  • If you have decided that a family member will inherit your business when you die, have you provided other family members with assets of an equal value?
  • Have you appointed a successor to your business?
  • Are you making the most of the lifetime capital gains exemption ($835,714 in 2017) on your shares of the business, if you are a qualified small business?
  • Are you taking care to minimize any possible tax liability that may be payable by your estate in the event of your death?

Estate freezes

The process of freezing the value of your business at a particular date is an increasingly common way of protecting your estate from a large capital gains tax bill if your business increases in value. To achieve this, usually the shares in the business that have the highest growth potential are redistributed to others, often your children, meaning that they will be liable for the tax on any increase in their value in the future. In exchange, you will receive new shares allowing you to maintain control of the business with a key difference – the value of the shares is frozen so that your tax liability is lower and that of your estate when you die will also be reduced.

2019 Federal Budget

2019 Federal Budget

The 2019 budget is titled “Investing in the Middle Class. Here are the highlights from the 2019 Federal Budget.

We’ve put together the key measures for:

  • Individuals and Families

  • Business Owners and Executives

  • Retirement and Retirees

  • Farmers and Fishers

Individuals & Families

Home Buyers’ Plan

Currently, the Home Buyers’ Plan allows first time home buyers to withdraw $25,000 from their Registered Retirement Savings Plan (RRSP), the budget proposes an increase this to $35,000.

First Time Home Buyer Incentive

The Incentive is to provide eligible first-time home buyers with shared equity funding of 5% or 10% of their home purchase price through Canada Mortgage and Housing Corporation (CMHC).

To be eligible:

  • Household income is less than $120,000.

  • There is a cap of no more than 4 times the applicant’s annual income where the mortgage value plus the CMHC loan doesn’t exceed $480,000.

The buyer must pay back CMHC when the property is sold, however details about the dollar amount payable is unclear. There will be further details released later this year.

Canada Training Benefit

A refundable training tax credit to provide up to half eligible tuition and fees associated with training. Eligible individuals will accumulate $250 per year in a notional account to a maximum of $5,000 over a lifetime.

Canadian Drug Agency

National Pharmacare program to help provinces and territories on bulk drug purchases and negotiate better prices for prescription medicine. According to the budget, the goal is to make “prescription drugs affordable for all Canadians.”

Registered Disability Savings Plan (RDSP)

The budget proposes to remove the limitation on the period that a RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit. (DTC) and the requirement for medical certification for the DTC in the future in order for the plan to remain open.

This is a positive change for individuals in the disability community and the proposed measures will apply after 2020.

Business Owners and Executives

Intergenerational Business Transfer

The government will continue consultations with farmers, fishes and other business owners throughout 2019 to develop new proposals to facilitate the intergenerational transfers of businesses.

Employee Stock Options

The introduction of a $200,000 annual cap on employee stock option grants (based on Fair market value) that may receive preferential tax treatment for employees of “large, long-established, mature firms.” More details will be released before this summer.

Retirement and Retirees

Additional types of Annuities under Registered Plans

For certain registered plans, two new types of annuities will be introduced to address longevity risk and providing flexibility: Advanced Life Deferred Annuity and Variable Payment Life Annuity.

This will allow retirees to keep more savings tax-free until later in retirement.

Advanced Life Deferred Annuity (ALDA): An annuity whose commencement can be deferred until age 85. It limits the amount that would be subject to the RRIF minimum, and it also pushes off the time period to just short of age 85.

Variable Payment Life Annuity (VPLA): Permit Pooled Retirement Pension Plans (PRPP) and defined contribution Registered Retirement Plans (RPP) to provide a VPLA to members directly from the plan. A VPLA will provide payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of VPLA annuitants.

Farmers and Fishers

Small Business Deduction

Farming/Fishing will be entitled to claim a small business deduction on income from sales to any arm’s length purchaser. Producers will be able to market their grain and livestock to the purchaser that makes the most business sense without worrying about potential income tax issues. This measure will apply retroactive to any taxation years that began after March 21, 2016.

To learn how the budget affects you, please don’t hesitate to contact us.

Tax Lines to Look Out for 2018 Income Tax Year

Tax Lines to Look Out for:

2018 Income Tax Year

It’s that time of year again, when many of us sit down to complete our income tax return and hope that we have done enough preparation to ensure a smooth tax return. We’ve outlined the key lines to look out for in the 2018 Income Tax Year:

Expenses relating to medical expenses have been expanded to include service animals and can be claimed for non-refundable tax credit. You should also be aware that you can claim for yourself, your spouse or common law partner and any dependent children under the age of 18.

Tax on Split Income (TOSI) (Line 424)

As of January 1, 2018, in addition to applying to certain types of income of a child born in 2001 or later, TOSI may now also apply to amounts received by adult individuals from a related business.

Interest Expense & Carrying Charges (Line 221)

Any fees paid for specific advice about your investments or for tracking your income from investments.

Any fees paid for management of your investments, except administration fees paid for your registered retirement savings plan or registered retirement income fund.

Interest you paid to borrow when borrowing to invest for investment income only except if investment income is considered capital gains.

Insurance policy loan interest you paid in 2018 to make income. To claim this amount, the insurance company must complete Form T2210 before your tax return deadline.

Carry forward information (Line 208 and 253)

If you are not deducting all your RRSP contributions you made in 2018 and the beginning of 2019, your unused contributions can be carried forward.

Generally, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gains for that year. If you still have a loss, it becomes part of the computation of your current year net capital loss. You can use a current year net capital loss to reduce your taxable capital gains in any of the 3 preceding years or in any future year. Capital losses can be carried forward indefinitely and are only deductible against capital gains.

Charitable Donations

As of January 1, 2018, the first-time donor’s super credit has been eliminated.

If you owe money when your income tax return is complete, the only way to delay payment is to delay the filing until the April 30th deadline. Alternatively, if CRA owes you money, then file as early as possible.

This article and infographic are for illustrative purposes only. You should always seek independent legal, tax, financial and accounting advice with regard to your situation.