Monthly Archives: February 2018

On February 27, 2018, the Liberal federal government presented its annual budget.

There are minimal impactful changes for personal tax issues, however, please see attached budget highlights for additional information.

The small business community was most concerned about the very contentious changes to taxation of passive income and income sprinkling. The budget was less punitive on passive income but the government maintained their stance on taxing income paid to family members as dividends (income sprinkling).

  • Small Business tax rate: lowering the small-business tax rate from 10.5% to 10%, effective January 1, 2018, and to 9% effective January 1, 2019. However, this will be accompanied by a corresponding increase in the non-eligible dividend tax rate.
  • Passive Investment Income (effect on the Small Business Deduction limit): the small business deduction limit will be reduced by $5. Thus, the small business limit will be reduced gradually as the level of investment income increases above $50,000, and will be reduced to zero when a CCPC earns $150,000 of investment income.
  • Income Sprinkling: The government will maintain its stance on dividends being paid to family members, who don’t make a meaningful contribution to the business. This income will be taxed at their top marginal tax rate in effect.

Speak with your advisor to see if any of these changes will affect you.

Well, 2018 is already rolling along at a rapid rate. Can you say the same about your New Year’s resolutions?

What’s that, you didn’t make any? That’s okay! You don’t have to set New Year’s resolutions, but my 25-plus years of experience has taught me that you stand the best odds for achieving your goals if: (1) you’re mindful about setting them at some point, (2) you write them down and assign a desired deadline, and (3) you regularly review how you’re doing.

Financial goals are no different from any others: Write them down, assign timelines and revisit them regularly. That hasn’t changed. I’ve noticed that key financial goals themselves haven’t changed much either over the years. Long before blogs were a thing, I read a great article about 10 important financial goals most people should set. Decades have passed, but those 10 topics remain as relevant as ever. Let’s revisit them, for the sake of auld lang syne.

  1. Retirement. Probably the #1 one goal if you’re not yet retired is to prepare for when and how you’d like to retire, or at least be financially independent. Write down a target year and an income level (in today’s dollars, after-tax indexed to inflation). This doesn’t mean you can’t change your mind, but it gives you a starting point to revisit regularly.
  2. Debt reduction. Whether it’s a mortgage, credit or investment loans, most of us incur debt, but you’re usually best served if you can pay it off before you retire. My experience has shown me that those who retire with debt are more likely to struggle financially.
  3. Saving and investing. While it’s nice if you inherit wealth or your business pays off for you, most people have to accumulate wealth the old-fashioned way: setting aside savings and investing it for the long run. In case that lucky break never happens, pick a percent of your pretax income (typically north of 10%) and have it auto-deposited into a savings or investment account before it even hits your discretionary checking account.
  4. Education. After you’ve set up retirement, debt reduction and saving/investing plans, there’s your children’s or grandchildren’s education. The math is relatively straightforward: Your savings goal is determined by how many years and what percentage of expenses you are willing and able to cover. Set clear, realistic expectations so everyone can plan accordingly, and take care to avoid sacrificing your own financial stability.
  5. Charity. What are your charitable goals? Establish an annual amount you’d like to give, and try to remain within that range.
  6. Discretionary spending. What big purchases would you like to make? Whether it’s renovating your home, buying a new car, or acquiring vacation property, put down some dollar figures and desired dates, lest your greatest goals remain elusive dreams.
  7. Leisure time. How much after-tax money will you spend on travel or other favorite activities? As with your charitable intent, assign an annual budget for fun. Be sure to spend it – and savor it as money well spent! But also be careful not to blow past your annual goal.
  8. Emergencies. Emergencies happen too. Instead of having to take on debt to cover them, it can be an enormous relief to have rainy-day funds in reserve. Depending on your personal comfort levels, consider setting aside enough to cover one to six months of expenses for when (not if!) an emergency expense arises.
  9. Insurance. It’s great to have plans, goals, budgets and emergency funds, but what if you become debilitated or worse, and your family needs ongoing financial help?  Do you have a plan in place? If you already have insurance, when’s the last time you reviewed it? A periodic insurance check-up ensures your coverage remains relevant over time.
  10. Estate planning. Bottom line, you can deliberately plan for how much you would like to leave your family, charity or other beneficiaries (perhaps as a percentage), or you can leave it to the government to take care of that for you, after taxes. Guess which approach is more likely to reflect your personal intents?

So there you have it. Ten timeless financial goals that remain top of mind today. Fortunately, with mobile devices, it’s easier than ever to track your goals and stick to plan. For my own planning, I keep a list on my iPhone. Then, whenever I have any down time – waiting at the doctor’s office, getting my tires changed, etc. – I revisit my list to see where I’m on track and where I may need to step up my game. With this sort of ongoing, ad hoc planning, you might be amazed by how many resolutions you manage to achieve, this and every year.

Rob McClelland
Founder | Senior Financial Planner
The McClelland Financial Group of Assante Capital Management Ltd.

You should have already received your Assante 2017 year-end statement. These statements will provide calendar year and annualized rates of return for each of your individual accounts and a weighted-average considering all accounts as a total portfolio.

What you may notice, is a discrepancy between individual account rates of return. Why is that?

As you know, we attempt to provide the most tax efficient investment experience as possible, while still staying true to your individual risk tolerance, investment objective and time horizon.

Most of our clients have a combination of registered and non-registered accounts. This provides the opportunity to direct specific investments into different types of accounts.

Let’s take for instance a client who has a 40 year life expectancy and can tolerate a medium degree of risk in their investment portfolio. A 70% equity and 30% fixed income portfolio is suitable and appropriate for this client. As you may be aware, the type of investment income earned on equity investments (stocks) is typically capital gains or dividends. These types of investment income are taxed more favourably in Canada. Whereas the investment income earned on fixed income investments (bonds) is typically interest income. This type of investment income is taxed more harshly.

With this in mind, we can take advantage of a tax saving opportunity by moving more equity investments into the non-registered accounts and fixed income investments into the registered accounts. Why would we do this?

The investment income earned in a non-registered account is taxable and must be reported on your tax return. If we can, we would like the investment income that is taxed more favourably in these accounts.

Conversely, the investment income earned in a registered account is either tax free or tax deferred and does not have to be reported on your tax return in the year it is earned. If we can, we would like the investment income that is taxed more harshly in these accounts.

Therefore, we move as much of your equity investments into the non-registered accounts and move more of your fixed income investments into the registered accounts. All the while still staying within the original 70% equity and 30% fixed income asset allocation. This would mean that your non-registered accounts would have a different asset allocation than the registered accounts.

We know that risk and return is related. More risk equals potential for more gains or losses. Less risk equals less gains or losses. Equity investments are higher risk and fixed income provide the safety (less risk). Therefore, in an increasing market, the non-registered accounts would have a higher rate of return than the registered accounts because it has the investments that will provide a higher return. The opposite would be true in a decreasing market.

When you look at the portfolio as a whole (all accounts), your rate of return will be different than the individual accounts (weighted according to the size of each of the accounts in the overall portfolio).

If each individual account maintained the same asset allocation (percentage of equities and bonds), then each account would have the same rate of return, and would match the overall portfolio weighted return. In this scenario, the total portfolio weighted rate of return would end up being less due to the increased tax implication of having interest income in a non-registered, taxable account.

Therefore, by directing certain types of investments to certain types of accounts (asset location), you can decrease the income tax impact on your investment income earned on your overall portfolio (asset allocation).

Contact our office (905) 771-5200 for further clarification or for more details.