5 FINANCIAL BOXES FOR WEALTH ACCUMULATORS TO CHECK BEFORE THE YEAR ENDS

5 FINANCIAL BOXES FOR WEALTH ACCUMULATORS TO CHECK BEFORE THE YEAR ENDS

As 2022 comes to a close, it is an excellent time to review your finances and plan for the year ahead. Here are 5 financial boxes you should check off before the year ends.

 

1 – Take advantage of your company benefits.

Most employer sponsored health plans turn over at the calendar year end. If you have benefits remaining, be sure to schedule some time to get that massage, see your physiotherapist or arrange the dental cleaning you’ve been putting off. Now is a great time to review your coverage overall, and start planning for next year especially if you’re not quite sure what your coverage provides. Bonus: Pull out your life, disability, and any other insurance coverage you hold. Review your beneficiaries, the amounts of the coverage, and when/how it would pay out. Contact your financial planner to help you determine if you have what you need.

 

2 – Review your registered contributions and your income for the year.

You have until the end of February of the following calendar year to contribute to your RRSP or a spousal RRSP to reduce your taxable income for the current calendar year. Talk to your financial planner who can help you optimize this.

 

3 – Review your fixed expenses, recurring expenses and your borrowing costs.

Sitting down at least once/year to look at your financial commitments can help put your finances into perspective. Borrowing costs have increased dramatically for some in 2022, and now is a great time to make sure you’re compensating for these increases in your variable spend or elsewhere if necessary. Bonus: set a calendar reminder to review your cash flow quarterly.

 

4 – Consider your goals for next year plus the next few.

Determine how much those goals might cost. Sit down with your financial planner to help you find the best source of money to tap into to achieve these goals.

 

5 – Make a plan for charitable contributions.

Review who you’ve donated to and if you want to make further donations for the calendar year. Donations should be complete by the end of December to use for the current calendar year income or saved for future years. If you have securities that have appreciated, consider a donation of securities in-kind. Bonus: Review the profiles of the organizations you donate to at charityintelligence.ca.

 

 

If you need assistance with any of these financial planning items before year-end, please reach out to us.

QUESTIONS FROM CLIENTS: WHAT ARE CAPITAL GAINS AND LOSSES?

QUESTIONS FROM CLIENTS: WHAT ARE CAPITAL GAINS AND LOSSES?

As we approach the end of the year, some clients may have questions about capital gains and losses that have occurred in their portfolio.

Watch this video to understand what capital gains and losses are and how they may impact your taxes.

Today we are discussing capital gains and losses.

Capital gains and losses are in reference to a taxable account and today we are discussing them as they relate to stocks, although capital property is another variety of property that they can apply to.

Capital gains and losses occur when you dispose of a stock at higher or lower than your adjusted cost base (ACB).

Your adjusted cost base (ACB) is the total price that you have paid for your stock. In addition, you can add some of the cost that you had to acquire the stock, such as commissions, to the adjusted cost base.

A capital gain occurs when you sell your stock for more than your adjusted cost base. A capital loss occurs when you sell your stock for less than the adjusted cost base.

 

Capital Gain

Let’s say you paid $100 for your stock and you sell it for $150. You would have a capital gain of $50 – the difference between your sale price, and in this example, your adjusted cost base.

Half of the $50 is taxable, so $25 would be taxable for you in the year that you dispose of the security.

 

Capital Loss

Conversely a capital loss would happen if you sold your security for $75.

You’ve incurred a loss of $25 and half of that – $12.50, can be used to reduce any capital gains that you’ve experienced in the year that you’ve sold your security, three years prior, or essentially indefinitely going forward.

 

Capital gains and losses are in reference to a taxable account (Non-Registered Accounts). They do not apply to Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs).

Capital gains and losses can be used for tax planning, so please reach out to our team if you have a tax planning situation that you need assistance with. Learn more about the tax planning services we provide here. If you have any further questions about capital gains and losses, contact us here.

HOW ARE MY ASSETS TAXED UPON DEATH?

HOW ARE MY ASSETS TAXED UPON DEATH?

One of the objectives of estate planning is to review and minimize potential taxes on your remaining assets.

Lets review how some common assets (RRSP/RIFs, TFSAs, Non-Registered Accounts, and Principal Residences) are taxed upon death.

RRSP (Registered Retirement Savings Plan) / RIF (Retirement Income Fund)

The accounts can be left to a spouse as a named beneficiary. This transaction will generate a tax slip, but this is not a taxable event. The spouse can receive the proceeds of the RRSP/RIF.

In some circumstances, the RRSP/RIF could also pass to a dependent child without triggering tax.

 

TFSA (Tax-Free Savings Account)

No tax and no reporting is necessary.

If a spouse is named as the successor owner, the full value of the TFSA can become the spouse’s with no tax impact (even if the successor owner spouse may have no TFSA room available).

You can name beneficiaries such as children, and the assets would be provided once appropriate legal requirements are met after death.

 

Non-Registered Account

Death is a taxable disposition and all assets are deemed disposed on the date of death (meaning they are considered sold). The applicable gain or loss must be considered and tax paid.

 

Principal Residence

No tax is owing on the sale of a principal residence, however it must be noted when filing taxes that the property was deemed disposed.

 

If you have a question pertaining to your specific financial situation or need some assistance with estate planning, please reach out and our financial advisors would be happy to assist you. You can learn more about the estate planning services we provide here.

 

WHAT IS THE DIFFERENCE BETWEEN A TFSA & RRSP?

WHAT IS THE DIFFERENCE BETWEEN A TFSA & RRSP?

We often get asked what the differences are between a TFSA (Tax-Free Savings Account) and RRSP (Registered Retirement Savings Plan) account.

We’ve put together this summary to review the primary differences and rules pertaining to each account. If you have any questions, please reach out to us here.

TFSA vs. RRSP Accounts

 

TFSA (Tax-Free Savings Account):

  • There is no deduction available, but no tax on withdrawals
  • TFSA contribution limit is cumulative, less contributions; withdrawals provide room back (including growth) in the new calendar year
  • Can be used for short-term savings, mid-long term, and estate planning
  • Can name spouse as successor owner, and beneficiaries for estate planning
  • Withdrawals do not generate a tax slips; drawing money out does not impact income-tested benefits
  • You must be 18 years old in order to open a TFSA, and can contribute and withdraw based on the plan rules for your lifetime
  • Can invest using many of the same types of investments as within an RRSP or Non-Registered account
  • You might be required to pay non-resident withholding tax on US situated investments
  • There is no need at any time to convert your TFSA to an income plan, it can be held as-is until your death if desired

 

RRSP (Registered Retirement Savings Plan):

  • Deduction provided against T4 earnings; suitable if you are earning employment income, not dividends
  • Contribution room is limited to 18% of previous years’ earned income, less adjustments for pension contributions, up to a maximum specified by CRA each year. Accumulates if you don’t use it
  • Access available through the Home Buyers Plan or Lifelong Learning Plan without immediate tax consequences
  • Naming beneficiaries on an RRSP other than your spouse can have unintended tax consequences and it’s important to speak with your Financial Planner, Accountant, and Lawyer to determine your best course of action
  • Withdrawals are taxed as ordinary income
  • On death, an RRSP may be eligible for a “spousal rollover”, shifting taxation of the RRSP to the death of the recipient spouse
  • When withdrawing from RRSP assets once retired, most individuals are in a lower tax-bracket than during their working years which could result in favourable tax outcomes
  • Depending on your situation, a spousal RRSP could be used to accomplish long-term income splitting
  • You must convert your RRSP to a RRIF (Registered Retirement Income Fund) by age 71, and you must begin to withdraw a CRA mandated minimum at age 72

 

Both TFSA & RRSP Accounts:

  • You can’t deduct interest costs related to borrowing to invest in either a TFSA or RRSP
  • You can’t deduct investment management fees in either a TFSA or RRSP
  • You can’t claim a capital loss in either a TFSA or RRSP

 

Please reach out to us for further information regarding these accounts, or if you have a specific question pertaining to your individual situation.

BLACKBURN DAVIS FINANCIAL REBRANDING LAUNCH

BLACKBURN DAVIS FINANCIAL REBRANDING LAUNCH

You may have noticed we have adopted a new look. Some changes in Securities Regulations have made it necessary for us to hold ourselves out differently when discussing investment related activity as opposed to financial planning and insurance. As such, we have registered the names Blackburn Davis Wealth for investments and maintain Blackburn Davis Financial for our insurance and financial planning activity.

Because of this change we decided after almost 15 years, it was also time for a refreshed logo and brand. This new look has come with a new website and videos. We encourage you to browse our new website and would love to hear your feedback.

Please note that this is all that has changed. We remain the same people committed to your retirement and financial planning needs.

The Blackburn Davis Financial Team