Insights

By iA Private Wealth, April 26^th, 2024

Tune in weekly for insight and perspective on the macro and market landscape with iA Investment Management chief strategist and senior economist Sébastien Mc Mahon.

Watch Sébastien’s previous weekly updates on YouTube.

While many people want to purchase a home, it’s become a greater challenge in today’s economic environment. Consumers are financially stretched by high inflation that’s lifted the price of food, fuel and just about everything else. On top of that, central banks have raised interest rates to help control inflation, leading to soaring mortgage rates. Never mind that real estate valuations – while largely off their           peak – remain high, especially in large urban centres. What’s a prospective homebuyer to do?

In addition to sensible actions like watching your spending and trying to put away more of your earnings, the federal government also helps Canadians pursue home ownership via two targeted programs: the Home Buyers’ Plan (HBP) and Tax-Free First Home Savings Account (FHSA).

How the HBP works

This plan lets you withdraw, on a tax-free basis, up to $60,000 from your Registered Retirement Savings Plan (RRSP) to purchase your first home. Essentially, it’s an interest-free loan from your own RRSP to help you buy a home. You’re allowed to withdraw funds from more than one RRSP, to a cumulative total of $60,000, provided you’re the owner of each account. The institution(s) that issued your RRSP(s) won’t withhold tax on the money you withdraw. You should also note that certain RRSPs, such as locked-in or group RRSPs, may not qualify for the HBP.

HBP withdrawals must be paid back to your RRSP account in annual minimum amounts over a 15-year period, beginning the second calendar year after the withdrawal. In April 2024, the government extended this two-year grace period to five years for withdrawals made between January 1, 2022 and December 31, 2025. Note, you may repay more than the minimum in a given year, or repay the entire amount at any time prior to the end of the 15-year period. If you fail to repay the full amount within the allotted time, your outstanding balance is considered taxable income.

How the FHSA works

This plan was introduced in the 2022 Federal Budget, and now that the legal and administrative details have been addressed, financial institutions are rolling it out. The FHSA is a registered account for Canadians aged 18+ who haven’t owned a home ever or, at a minimum, in the past four calendar years. It allows eligible Canadians to contribute up to $8,000 annually on a tax-deductible basis, to a lifetime limit of $40,000. If you contribute less than the maximum in a given year, the unused contribution room (up to $8,000) may be carried forward to the following year.

When you withdraw funds to buy a home, this amount is not taxable (including any income earned in the account). If you don’t withdraw all your FHSA funds to buy a home within 15 years, you must close the account. You can transfer the remaining assets, tax free, to an RRSP or RRIF; otherwise, withdrawal of residual FHSA funds will be taxable. As with many registered accounts, you may invest in various types of securities in your FHSA, such as stocks, bonds, mutual funds and ETFs. Your Investment Advisor can help determine which securities best suit your time horizon, risk tolerance and financial objectives.

How do you decide?

While the HBP and FHSA may have their own features and distinct rules, both plans can help accelerate the home ownership process. An HBP is valuable if you don’t have much cash available, since you’re withdrawing from your established and funded RRSP. An FHSA is valuable if you can contribute a significant amount of cash, since it’ll lower your taxable income and withdrawals are tax free. The good news is, you don’t need to decide. If you wish (and have money readily available), you may use both the HBP and FHSA to assist with funding the purchase of a first home.

Consult with your Investment Advisor to decide how best to use the HBP and/or FHSA to help buy your home, based on your tax situation and overall financial circumstances.

By iA Private Wealth, April 11, 2024

James Gauthier and his research team walk through the highlights of last month’s market and economic data.

Read the report (PDF)

It’s tax season, and no matter how many times you’ve gone through the ritual of preparing your income tax return, our refresher will help get you organized and on track for what will hopefully be a smooth and painless experience.

Reference materials

It may help to have last year’s return handy as a guide to figuring out which slips and forms you may require for this year’s return, and which lines must be completed on those forms. Of course, circumstances can change but knowing what you needed last time is a good starting point for gathering info.

Similarly, last year’s CRA Notice of Assessment could help. Each notice contains valuable info, such as your RRSP deduction limit for the next tax year, the amount of unused net capital losses that can be applied to reduce future taxable capital gains, and the correction of mistakes you might have made on your return. Finally, note any tax installments you paid over the year as well as any relevant correspondence you received from the CRA.

Here’s a checklist to help gather your tax slips, forms and other required info that’ll be used when completing your income tax return.

Federal tax slips

• T3: Investment income (allocations, distributions) received during the tax year
• T4: Employment income (also includes CPP/EI premiums paid, income tax deducted, pension adjustment amount, charitable donations made through payroll, etc.)
• T4A: Pension, retirement, annuity and other income received
• T4A(OAS): Old Age Security pension benefits
• T4A(P): Canada Pension Plan benefits
• T4E: Employment Insurance benefits
• T4RIF: Income received from a RRIF
• T4RSP: Income received from an RRSP
• T5: Investment income (e.g., interest earned from bank accounts and GICs; corporate-class mutual fund distributions)
• T2202: Tuition and related fees (or a TL11 form if you studied outside of Canada)
• T5013: Statement of Partnership Income

Receipts/documentation

• RRSP receipts for contributions made in previous calendar year, up to first 60 days of current year
• Investment-related expenses, including loans used for investing purposes
• Child care and/or adoption expenses
• Child support, alimony/spousal support payments
• Medical expenses
• Moving expenses
• Charitable donations, political contributions
• Professional or union dues not on your T4 slip
• Digital news subscription fees
• Business income and related expenses
• Rental income and related expenses
• Investment counsel fees and carrying charges
• Documents pertaining to the sale of real estate 

Work-from-home expenses

Regarding the deduction for home office expenses that was introduced during COVID-19, some rules and conditions have changed. According to the CRA, eligible employees working from home in 2023 must use the detailed method to claim home office expenses. The temporary flat rate method no longer applies. Visit the Government of Canada website to learn more about eligible expenses and other important information concerning work-from-home expenses.

Our checklist is a basic compilation of common slips, receipts and other documents you may need while completing your income tax return, but it isn’t exhaustive. Not all items will apply to you, and you might need additional info to file your return. We recommend consulting a qualified professional to help ensure you complete your return accurately and fully, claiming all deductions and credits for which you’re eligible.

By iA Private Wealth, February 14, 2024

For most Canadians, the Registered Retirement Savings Plan (RRSP) is foundational to long-term financial security. In this article we’ll look at the key features of RRSPs and the many benefits that make them so popular.

How RRSPs work

You can contribute to an RRSP from the first time you have qualifying earned income until December 31 of the year you turn 71. For any given tax year, you can make contributions during the calendar year or up to 60 days after that. As an example, for the 2024 tax year you can make contributions throughout 2024 or in the first 60 days of 2025.

The maximum annual RRSP contribution is 18% of your earned income for the previous tax year, up to the allowable limit. For instance, the RRSP contribution limit for 2024 is $31,560, an increase from the 2023 tax year limit of $30,780. You’ll find the annual limits posted on the Government of Canada website.

Also note the following:

• If you don’t make the maximum contribution in a particular year, the unused room is carried forward indefinitely.
• If you belong to a workplace pension plan, your pension adjustment (PA) will reduce the amount you’re allowed to contribute. The PA amount appears on your T4 tax slip.
• Some employers offer full or partial contribution matching (e.g., if you contribute 4% of your salary to your pension, your employer might match with a 2% contribution). Check with your employer for details.
• If you overcontribute to an RRSP by more than $2,000 (based on your CRA Notice of Assessment), you’ll face a penalty of 1% per month for as long as the excess amount remains in your account.
• You can make a tax-free withdrawal from your RRSP for a down payment on your first home. The Home Buyers’ Plan (HBP) has specific rules and repayment terms, so speak with your advisor to see if it’s suitable for you.
• If you’re going back to school full time, the Lifelong Learning Plan (LLP) lets you borrow up to $10,000 a year from your RRSP, to a plan maximum of $20,000. As with the HBP, you must adhere to the Government of Canada’s LLP rules and repayment terms.
• You may contribute to your spouse’s or common-law partner’s RRSP if you’re the higher income earner. You’ll receive a tax deduction that may lower your tax bill. Consult with your advisor so you’re aware of the various rules related to spousal RRSPs.

Key RRSP benefits

RRSPs offer an immediate tax break, as your contribution amount is deducted from the year’s gross income, which means less income tax to pay. Many people take the tax savings and invest it or use it to reduce their debt. Either way, you’ll strengthen your financial position.

Also, any growth in your RRSP from capital gains, dividends or interest will remain tax deferred until you begin making withdrawals in retirement. This feature lets you compound growth in your RRSP without immediate tax consequences, so your money works harder for you and helps build wealth faster for retirement.

RRSPs are flexible as well. You can invest in stocks, bonds, mutual funds, ETFs, GICs and more. For added convenience, consider a pre-authorized contribution (PAC) plan. Once you decide how much to invest, at what interval and in which financial products, the money will be automatically invested according to your instructions. For example, your PAC might allocate $250 per month to a certain mutual fund.

An iA Private Wealth Investment Advisor can help create and maintain an RRSP strategy that’s right for you. Get in touch with one today.

By iA Private Wealth, January 11, 2024

While some people love their job so much they never want to retire, for a lot of us the only thing better than saying goodbye to the rat race is doing it sooner than expected. But before clocking out early, there are a few boxes to check to ensure you’re making the right choice.

Figure out your finances

The first thing to consider is whether retiring early is financially feasible. Working with an advisor to assess your wealth plan may identify issues affecting your long-term finances, and allow you to amend your plan to ensure you have the money needed in retirement.

An advisor can calculate your sources of income after you stop working, and project what benefits you’ll likely receive from the Canada Pension Plan (CPP) and Old Age Security. Keep in mind that if you draw from CPP before the typical age of 65, your benefits are reduced accordingly. If you hold personal RRSP/TFSA assets and a workplace pension, those will be accounted for as income sources, as will investment accounts, a business or property you might own, plus other savings and assets. Whatever your income streams, factor in tax implications because a good portion of your cash flow could be taxable income.

After totalling your financial resources, consider likely expenses, including the cost of everyday life. Where do you plan on residing and will you rent or own? Do you have health concerns or family history to be mindful of? What lifestyle do you anticipate? Will you travel regularly? What are your hobbies? Do you have dependents to look after? Once you answer these questions, you can arrive at a rough estimate of your expenses.

If there’s a shortfall between income and expenses, you’ll need to address it. Proven ways to close the gap include modifying your expected lifestyle to reduce costs, possibly working part time, saving more aggressively and generating higher investment returns (e.g., maintaining enough exposure to equities and other securities with growth potential).

Benefits of retiring early

There are two major benefits to taking an early retirement:

1. Mental/physical health. Over the course of many years, work takes its toll. Even if you enjoy your job and colleagues, working is often stressful and can drain you mentally and physically. Maybe long work hours compel you to sacrifice valuable activities like regular exercise, socializing and eating sensibly. If you have a serious illness, it might make sense to retire early and tend to your health care needs.
2. Meaningful use of time. While all work has value, being retired lets you focus on things you like doing. Perhaps certain volunteer opportunities and other philanthropic pursuits are appealing, or you want to devote more energy to favourite hobbies. You’ll also have abundant quality time to spend with friends and loved ones, or to begin working on that “side job” or project you always wanted to try.

On the fence?

Maybe you need a change of pace but don’t want to retire completely. In this case, consider a phased retirement, which means scaling back on work (e.g., taking a part-time job or putting in fewer hours at your current job). This phased approach allows you to continue earning money for the future, provides the social benefit of interacting with colleagues, promotes mental fitness so your mind stays sharp, and offers flexibility to spend more time doing things you enjoy.

Whatever you choose, ensure your decision takes into account all your unique personal and financial circumstances.

By iA Private Wealth, November 23, 2023

As we approach year-end, it’s a great time to assess your expenses with the goal of setting yourself up to be financially stronger. New year, fresh start. When expenses are under control and you’re in a position to build wealth instead of spiralling deeper into debt, it helps you work toward reaching your short-term and longer-term financial goals.

So, how can you resolve to manage expenses at year-end? Here are a few tips to get you on your way.

1. Create a wealth plan. If you don’t already have an advisor, here’s the first New Year’s resolution to make. Everybody has specific objectives to achieve, and a comprehensive plan can give you a head start on next year’s finances. A professionally developed wealth plan will account for your unique circumstances, objectives, time horizon and risk tolerance. It helps you save and invest wisely, manage debt obligations and be more tax efficient. Also, it can adapt to changing circumstances so your plan stays relevant at any life stage. Since it requires significant training, skill and experience to create and maintain a personalized wealth plan, it’s best to work with a qualified advisor.

2. Maintain a budget. A key aspect of wealth planning is setting a budget. Basically, a budget tracks your sources of income and expenses over a given time period (e.g., monthly). It provides an ongoing snapshot of how well you’re managing money and where improvements might be possible. With holiday season in full swing, an increase in social outings and gift buying can quickly send your expenses into overdrive. This year-end, be mindful of expenses and mounting debt by setting a reasonable holiday budget and sticking to it.

3. Consolidate debt. The amount you spend over the holidays is largely discretionary, but sometimes carrying debt is unavoidable. Many people have mortgage payments, car loans, home-related expenses, etc. An advisor can review your various debt obligations, working with you and your financial institution(s) to see if it’s advantageous to consolidate debt into one relatively lower-rate loan or line of credit. Consolidating debt is often a practical way to lower your overall expenses.

4. Commit to saving. While reducing debt is important, the flipside is to increase your savings. A proven strategy is to “pay yourself first” by putting a set amount (e.g., 10%) of each paycheque into a savings and/or investment account. It’ll build long-term wealth while helping you avoid the temptation to overspend. Also, year-end is a great time to devote money to registered plans for the following calendar year. For instance, on January 1 you can begin making that year’s contributions to your RRSP and TFSA. Not only will it help curb expenses by “forcing” you to save, but you’ll also begin enjoying tax benefits sooner in the year. Another aspect of saving is putting away money for emergencies like job loss, major home/vehicle repairs, serious illness, etc. You never know when you’ll need immediate access to cash, so an emergency fund – many experts recommend a minimum three months of household expenses – is essential for financial preparedness and peace of mind.

Although any time is a good time to get a handle on your expenses, the year-end period often sparks motivation for people to focus on their finances and make improvements for the year to come.

By iA Private Wealth, October 11, 2023

When thinking about family gatherings, you might focus on special occasions like holiday meals, birthday parties and anniversary celebrations. These are all good reasons to bring generations together, but there’s another gathering that’s equally important: the family financial meeting.

Granted, discussing your health care needs and estate plans can be difficult and uncomfortable, but it benefits the entire family when everyone’s on the same page regarding your intentions. Financial matters can be emotional and contentious, so a transparent discussion may reduce misunderstandings, disagreements and conflict. In turn, you’ll gain peace of mind knowing your legacy wishes have been fully and effectively shared.

Topics to discuss

You know best how your family dynamics tend to play out, so take them into consideration when deciding who should attend the meeting. It makes sense to include all the children, but whether their spouses/partners and children are invited is your decision based on best judgement. The frequency of financial meetings depends on the circumstances, but it’s often valuable to hold one whenever there’s a significant change, such as retirement, death in the family or a notable monetary event like a business sale or recent inheritance.

Below are seven topics commonly broached at family financial meetings – they might not all apply to your situation, and you may have others not listed here:

1. Living arrangements (e.g., aging in place; downsizing; staying with family; moving to another city, province or country; residing in a seniors community/nursing home)
2. What to do with the family cottage or other properties
3. Your choices for executor and power of attorney, along with the reasons why
4. Intention and directions for potential incapacitation, end-of-life care and funeral proceedings
5. Wealth distribution as part of your estate plan (e.g., how you want to divide your assets and special possessions, whether grandchildren are included, your philanthropic goals); provide a rationale for these decisions so your loved ones understand the “why”
6. If you own a business, what’s your succession plan? Will family members be involved? Will you sell?
7. If you have insurance coverage, inform your loved ones about policy details

The family meeting is also an opportunity to discuss the “softer side” of finances, such as your views on money, the struggles you may have faced when building wealth, and how you envision loved ones managing their own finances. Imparting wisdom you’ve gained over the years is a great way for family to learn from you and engage in meaningful dialogue about money and financial responsibility.

What makes a successful family meeting?

Emphasize that this isn’t a typical gathering, although a social component could be added once the formalities conclude. Try to strike a balanced tone: it’s a serious financial meeting with weighty or emotional topics, but it doesn’t need to be sombre. Investment Advisors, lawyers and accountants usually don’t attend, but they can be involved in meeting preparation, especially helping to explain technical terms or complex concepts you may need to address. Give people enough time to digest all the information. Since you might not resolve everything in one go, book a follow-up meeting if needed.

In-person conversations are ideal because it’s easier to “read the room” and communicate effectively, but if some people can’t attend, a virtual or hybrid meeting may work. You could hold the meeting at your home for familiarity’s sake, but anywhere that’s comfortable, reasonably free of distractions and conducive to open discussion will suffice. Create and distribute an agenda in advance so participants are aware of the subject matter and can prepare questions or comments.

Also adhere to basic “rules of engagement,” such as not interrupting speakers and not making personal attacks, so the meeting proceeds smoothly and the conversation stays respectful – even when objections are being voiced. When your meeting ends, summarize the discussion, share next steps and assign required roles and responsibilities. Be sure to keep your advisor and related professionals abreast of decisions emanating from your family meeting, so they may continue advising you in the best way possible.

By iA Private Wealth, August 23, 2023

Higher education provides many benefits to students, such as building a career foundation, expanding social skills and learning responsibility. However, this education can come at a steep cost. The price tag will depend largely on whether or not your child attends a nearby school. If your child is still years away from post-secondary education, you’ll need to budget for inflation as well.

Major expenses

With proper planning and budgeting, many families can manage an investment in the child’s future. Before exploring different ways to pay for education, let’s consider the three primary expenses.

Tuition: Factors that impact tuition include the school and program, whether your child attends full-time or part-time, and your child’s citizenship status. Also plan for the cost of school supplies, books and other course materials.

Accommodations: The cost is mostly dictated by living arrangements on or off campus (e.g., if your child rents solo or has housemates/roommates). Food expenses may involve a campus meal plan and/or groceries, dining out or eating at home. Other costs to consider include hydro and utilities, phone, internet/cable, insurance, clothing, personal care and entertainment.

Transportation: These expenses will vary. Students staying at home might rely on public transit, ride sharing, walking or cycling. Some may need (or choose) to drive, which means using a family vehicle or buying their own, and paying for maintenance, parking, insurance and fuel. If your child moves away, plan for transportation costs while at school, plus costs for roundtrip travel (car, bus, train or plane) whenever they return home.

Making ends meet

Once you gain a sense of the costs involved, the other part of your budget pertains to covering these costs. A budget organizes your expenses and income, and helps determine if your finances are on track. Here are five common sources of money to help pay for post-secondary education:

1. RESPs. The Registered Education Savings Plan (RESP) is a proven way to save for school. Not only is investment growth within the plan tax deferred until withdrawal, but if the student is in a low tax bracket when they use the funds for schooling – which is often the case – the tax impact will be minimal. As well, they may qualify for benefits like the Canada Education Savings Grant and Canada Learning Bond, which provide additional funds for education.

2. Personal savings. The student may opt to use some of their accumulated savings for school, plus parents and grandparents are often able and willing to help out.
3. Borrowing. The federal government offers financial assistance to students in need. Your child may be eligible for a government grant or loan; if approved, they can use the money for school-related expenses and won’t begin repaying until after they graduate, according to a specific schedule. Provincial governments may also offer funding, so check with your province for information.
4. Scholarships. Students with strong academic standing could be eligible for a range of scholarships. Scholarships Canada and the Government of Canada’s scholarships website are great places to start. High school guidance counsellors also have current information on scholarships and bursaries, plus they can offer direction on the application process.
5. Employment earnings. Many students build savings by working in the summer and part-time during the school year. You can guide your child on what employment opportunities may suit their experience, skills and interests. Remind them that earning money for school is great, but education should be prioritized and their work schedule must allow enough time for classes, study, assignments, etc.