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Planning Right to Left.

We need to start at the end and work back to today.
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Turning advice inside out.

Our team specializes in creating conversations, ideas & strategies for high net worth clients, growth minded business owners, professionals, entrepreneurs and those seeking advice on retirement & income planning. We are committed to providing you genuine, bias-free, investment and financial planning advice through all life stages. By having a robust, forward thinking, advice centric model, we deliver advice where its most needed. Utilizing a hybrid of technology, clever ideas, and old world values, advice is delivered with integrity, teamwork, and care.

Turning advice inside out.

Our team specializes in creating conversations, ideas & strategies for high net worth clients, growth minded business owners, professionals, entrepreneurs and those seeking advice on retirement & income planning. We are committed to providing you genuine, bias-free, investment and financial planning advice through all life stages. By having a robust, forward thinking, advice centric model, we deliver advice where its most needed. Utilizing a hybrid of technology, clever ideas, and old world values, advice is delivered with integrity, teamwork, and care.

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Pay Only Your Fair Share to Canada Revenue Agency

Executive Summary

Tax season is hardly anyone’s favourite time of year.  What can make it even worse is seeing a negative balance on your tax account and having to pay extra income tax to the CRA.  Simply being aware of a few tax planning strategies can help ensure that you don’t get hit hard when tax season rolls around.

What You Need to Know

  1. RRSP Contributions – Contributions to an RRSP are deductible against your income tax, which can result in either a deduction in your taxes or even a refund.   RRSP contributions are reported on line 208 of your T1 General Tax Return. The financial institution that holds your investment will issue your tax receipts.  Contributions from March-December 2023 will be taxed on your 2023 return, but any contributions made between Jan 1, 2024- Feb 29, 2024 can be taxed on either your 2023 or 2024 return.  Taxpayers can contribute up to 18% of their income every year to their RRSP.
  1. Capital Gains/Losses – Many people are aware that any capital gains on their investments must be reported on their tax return; however, you can also report your capital losses.  Capital losses can offset capital gains on your tax return, therefore lowering your tax bill.   While there are a few exceptions, capital losses can generally be carried forward indefinitely and carried back three years.
  1. Carrying Charges – If you earned investment income last year, the CRA would allow you to claim carrying charges against certain types of income.  There can be some gray areas with carrying charges, it is always best to check with a tax professional regarding what can and cannot be claimed. Types of charges can include:
    • Investment fees and fees for looking after your investments.
    • You may be able to claim fees involved with obtaining financial advice.
    • Fees paid to an accountant.
    • Any interest paid for a policy loan that was used to earn income.
    • Legal fees involved in getting support payments that your current or ex-spouse will have to pay to you.
  1. Changing Tax Rules – Last but not least, the best way to make the most of your taxes is to keep up with the ever-changing tax rules.  New deductions and credits are being added all the time though they may not be widely advertised.  Taking some time to find out what’s new this year might present you with a tax-saving opportunity you may not have otherwise known about.

Pay-down your Mortgage or Top-up your TFSA

Executive Summary

The question of reducing debt or contributing to savings will continue to be debated for as long as people plan to retire in Canada.

Of course opting for both: reducing debt and increasing savings is the ideal. As for which is better, however, really depends on the individuals involved, their goals and feelings and their unique financial situations.

If you find you just can’t decide whether to save or pay off, start by contributing to a TFSA; those deposits can easily be withdrawn and applied to your mortgage.

What you need to know

Tax implications are not a consideration.  Mortgages and TFSAs both deal with after-tax dollars.  Any additional payments against your mortgage or sent to your TFSA will be after you have paid income tax, and there is no reduction in taxable income for making contributions to a TFSA.  Also, when the capital gain from the home (assuming it’s your principal residence) and any growth and withdrawals from your TFSA will not be subject to income tax.

To simplify the matter, the question becomes ‘can I earn more inside my TFSA than I pay in mortgage interest?”  If your mortgage interest is 4% per annum, paying down your mortgage by $10,000 will save you $400 in interest charges each year.  Placing the same $10,000 in your TFSA earning 4% per annum will earn you $400 each year.

One difference is that next year the original $10,000 will be $10,400 and at the end of year two at 4% become $10,816 with compound interest.

For some people becoming debt-free as soon as possible buys peace of mind and freedom, for others a nest-egg and the security and flexibility it provides is more important.

Bottom Line

If you find yourself torn between building a nest-egg and paying off your mortgage, we encourage you to get in touch to set up a short conversation where we discuss your goals, crunch some numbers and find the perfect solution for you.

Tax Free Savings Accounts… The Basics

A Tax-Free Savings Account, more commonly known as a TFSA, is a savings that can hold cash as well as investments.  The TFSA was introduced to Canadians in 2009 as a tax-free account that could. Any Canadian over the age of 18 who has a SIN number can open a TFSA.

How a TFSA Works

The TFSA is easy to understand since it works similarly to a “regular” savings account, and like an RRSP, but with a few important differences.

Firstly, there are deposit limits. The allowable, annual TFSA contribution is determined by CRA.  Canadians begin building contribution room at age 18 and “room” accumulates until it is used.  That is, if you have never contributed to a TFSA, you can catch-up by contributing the total “room” that you have accumulated since age 18.  The lifetime limit as of 2024 is $95,000.

Secondly, the TFSA can hold investments such as stocks, bonds, mutual funds, and GICs, like an RRSP.  Many TFSAs hold only cash, because many investors opened these accounts without understanding all of their potential benefits.

Thirdly, income inside a TFSA is exempt from income tax.  A TFSA can earn interest, dividends, or capital gains without limitation, and without a tax bill.  TFSA withdrawals are not subject withholding or income tax to the account owner.

Lastly, in the year following a withdrawal the contribution room is recouped.  For example, if a withdrawal of $14,000 is made on February 3, 2024, on January 1, 2025, an additional $14,000 of contribution room is available to the account owner in addition to CRA’s annual limit for 2025.

TFSAs are as easy to open as a bank account and require no additional effort when filing annual income taxes and can deliver significant financial benefits.  A married couple with $190,000 in their TFSAs, collectively, earning 5% annually with a marginal tax rate of 50% would save $4,750 each and every year in income tax.  In this example, each year they earn $9,500 tax free.

Advantages

TFSAs are suitable for both short- and long-term investing goals due to the ease of withdrawals. The main advantage of a TFSA is that it allows investors to benefit from tax-free growth of their investment.  This is an invaluable tool that investors have available to them to grow their wealth.  While there are no immediate tax breaks to contribute to the TFSA, investors will benefit over time from tax free growth and withdrawals from the account and recouping of “contribution room”.

Limitations

Annual contribution amounts are the same for everyone age 18 and above.  Over-contributing earns a penalty of 1% per month on the amount in excess of your lifetime limit until it is resolved.  More than one TFSA can be owned, and they can be owned at different financial institutions.  It is simplest to track your lifetime contributions when you own only one TFSA or confine them to one institution.

Understanding Contribution Limits

The contribution limit for 2024 has been raised to $7,000 from $6,500 in 2023, and the lifetime contribution limit has reached $95,000.

Time Frame (# of years) x Annual Contribution Limit = Total

2009 – 2012 (4) x $5,000 = $20,000

2013 – 2014 (2) x $5,500 = $11,000

2015 (1) x $10,000 = $10,000

2016 – 2018 (3) x $5,500 = $16,500

2019 – 2022 (4) x $6,000 = $24,000

2023 (1) x $6,500 = $6,500

2024 (1) x $7,000 = $ 7,000

Lifetime Contribution Limit $95,000

The annual limits are set in increments of $500 by the CRA based on the rate of inflation.  It is not uncommon for the limit to stay the same from year to year as it did from 2009 to 2012.   Each person over the age of 18 in Canada is subject to the same contribution limits, regardless of income.

An individual gains the full amount for the year that they turn 18, and contribution room is not pro-rated.  The owner must be a resident of Canada for the entire year, and contributions must be made under a valid Social Insurance Number.

Contribution room can be carried forward indefinitely from years when it is not used.  Also, the withdrawal amount from your TFSA is added back to your TFSA contribution limit in the following calendar year, so you can recontribute the amount you withdrew once a new year begins, or if you have available contribution room.

The Bottom Line

Tax Free Savings Accounts are one of the most effective financial tools available to Canadians and should be viewed as much more than just a simple savings account.  TFSAs provide significant investing opportunities and tax advantages that can help you reach your financial goals faster.

Additional details can be found HERE.

Embracing Change: My Exciting Move from Ottawa to Victoria

By:  William Henriksen, CFP®

I’m writing to share with you some wonderful news that fills me with both excitement and gratitude. After much reflection and anticipation, I have moved to the beautiful city of Victoria, British Columbia! I’m excited to be here and thrilled to expand ECIVDA’s presence on the West Coast. The West Coast is growing, and it aligns with our vision of growth and providing clients with an even more enriching financial planning experience.

To all my clients living in Ontario and Quebec, I’m continuing to expand my practice in the east as well. Your financial success is at the heart of everything I do, and you will continue to receive the personalized and high-quality financial planning you deserve. I will remain just as accessible as I have been. In fact, I’m now available for evening meetings thanks to the 3-hour time difference.

The year of the lockdown was a year of adjustments, and it was a difficult one for many. I met with clients virtually and was surprised when I eventually found that not only was it easier than I expected to host meetings this way, but it was also simpler to walk through various concepts using the tools on my computer and present my recommendations by sharing my screen. Throughout the year I realised there were other benefits of having virtual meetings such as saving the travel time between meetings and lowering overall paper consumption. Clients could fit in meetings more easily because there was no physical meeting location to get to and back from, and both the client’s and my use of time was more efficient.

It had become the norm in my practice to meet virtually, and I started thinking about what other opportunities could come from this. Last year, I was in California visiting my cousin for the holidays and I scheduled a few meetings with clients living in Ottawa. The meetings went seamlessly, and the idea to move across country sprouted from there.

I’m now living in Victoria, as the first out of province ECIVDA advisor. Before we dive into this new adventure, I want to express my deepest gratitude to my clients for your unwavering support. Your trust has been the backbone of my success, and I am genuinely excited about continuing this incredible journey with you in the years and decades to come.

I also want to express my gratitude to my Ecivda Family. I’m very fortunate to have such an amazing team supporting me. Their dedication and hard work behind the scenes have been instrumental in making this move as smooth as possible.

If you have any questions, thoughts, or just want to chat about this exciting move, please feel free to reach out to me.

Here’s to new beginnings and continued success together.

Warm regards,
William Henriksen CFP

 

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