All posts by Financial Independence Hub

Canadians miss out on $1,000 a year from Credit Card rewards, RateHub says

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By Alyssa Furtado, RateHub.ca

Special to the Financial Independence Hub

A whopping 86 per cent of Canadians say one of their top reasons when choosing a new credit card is earning rewards points or cash back, this according to a recent survey done by Ratehub.ca. 42% of those surveyed said they’ve never searched or compared credit cards to ensure they’re getting the maximum return.

Based on spending averages from Statistics Canada, that means Canadians could be giving up almost $1,000 rewards by not using one of the best credit cards available.

How is that possible? Well, when you look at some of the best credit cards in Canada, they offer up to 5% in cash back or rewards for certain categories. In addition, many cards offer a big sign-up bonus that could be worth anywhere from $250 to $500, so it’s not hard to see how some people are missing out.

Choosing a new credit card

With 29 per cent of those surveyed saying that the card they use most has been in their wallet for more than 10 years and another 50 per cent saying they would never pay an annual fee, perhaps it’s psychology that’s holding them back from making a change?

Continue Reading…

Budget 2018: Pixie Dust

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By Trevor Parry

Special to the Financial Independence Hub

While Bill Morneau’ s second federal budget can be described as a punt, this third foray can best be described as a “fart in the wind;” however,  given that this is a Justin Trudeau government, the term “pixie dust” seems far more appropriate.

The Budget included two major tax measures, one relatively substantial and the other curative.  The latter was a tweaking of the rules surrounding Refundable Dividend Tax on Hand (RDTOH) , dividing the pools into eligible and ineligible pools, thus corresponding with their according dividend. The more substantive measure was to introduce a measure that reduces the ability of a corporation (or its related entities) to claim the Small Business Deduction where “substantial” income has been earned of invested after tax profits.

The new rule would see a company’s SBD eroded by 5 dollars for each 1 dollar of passive income earned in excess of $50,000 each year.  If the company earns $150,000 per year in passive income it loses the entire SBD and is subject to General Rate taxation, effectively 26%.  The government claims that this will affect about 3% of businesses.  In the cases where the full SBD is lost the company will end up paying about $55,000 in additional corporate tax.  The same company would also be paying out eligible dividends, which will be taxed at lower personal rates by the shareholder.

Finance’s pragmatic policy wonks prevailed with the Small Business Deduction

I actually think that the more pragmatic policy wonks in the Department of Finance prevailed with regard to this measure.  The SBD was introduced to provide a tax incentive for small businesses to save and invest and by this process graduate to a medium sized or growing business.  The problem of course is that tax planners have for decades sought to freeze the status of a small business in place.  This can still be achieved by paying out shareholder bonuses, but given confiscatory personal rates in most of the provinces it is likely that trusted advisors will still the ability of a corporation to defer taxation and recommend that earnings continue to be retained.   The approach the government has taken is a more comprehensive approach to total corporate earnings.  It explicitly says to business owners and incorporated professionals that you can use your corporation as a retirement vehicle, or rainy day fund but you will be taxed as a more mature business.

There are of course planning measures that can be taken to avoid this new measure.  Permanent life insurance remains the last game in town with regard to significant tax deferral possibilities.  Given that the Department of Finance engaged in meaningful consultation in fashioning the substantive update of the “exempt test” rules in 2016 that no wholesale assault on life insurance is in the offing.

Instead, I think the Department will continue to observe the golden rule — “Pigs get fat and hogs get slaughtered” — in deciding what action is necessary.  Like the 10/8 strategy before, there are strategies being implemented today that clearly drift into the aggressive category.   The diversion of loan proceeds to a shareholder in an Immediate Finance Arrangement, or the rebating of commissions without their appropriate declaration of status as taxable income come to mind.

Individual Pension Plans only temporary remedy for new rules

Some might also trumpet the use of Individual Pension Plans.  IPP’s in the right instance are wonderful planning tools.  They are particularly useful for incorporated physicians who cannot plan retirement on the basis of an eventual sale of their professional corporations and who too often suffer from a lack of savings discipline.  Continue Reading…

Aman Raina’s 3-year review of his Robo Advisor portfolio

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By Aman Raina, Sage Investors

Special to the Financial Independence Hub

PLEASE NOTE: This review was written in early February before the big correction started in the market.

I can’t believe it has been three years since I opened up my Robo Advisor account. For those new to investing, a Robo Advisor is a new wave of wealth management companies that invest on behalf of others using an online platform and a combination of algorithms and computer coding to identify and manage portfolios. About three years ago these firms were in their early days, but since then they have mushroomed and even traditional investment companies are now offering some flavor of online investment  management services. It seemed quite appealing; however, there was one thing that many marketing materials, blogs, and mainstream media were avoiding (and still are I might add) … do these types of services make money for investors?

Three years ago I decided to try an experiment and find out for myself. I set up an account with one of the big Robo Adviser firms and invested $5,000 of my own money into it. My goal was to go through the process and blog about my experience and more importantly, the results. I said that we need a good five years to really get a handle on how effective these services are compared to traditional wealth management services. Well, we’ve now crossed the 3-year anniversary of my ROBO account, so let’s take a look at how it’s doing now. Continue Reading…

In wealth transfer, communication is as important as inheritance

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By Jim Greenwood, CFP

Special to the Financial Independence Hub

What’s the most difficult thing to talk about with your children? For many of us, discussing plans for our estate is pretty high on the list. Talking about your will and your own passing can be uncomfortable. According to a recent IPC Private Wealth survey of Canadians with at least $500,000 in investable assets, 58 per cent have not talked to their heirs about instructions for their estate, both financial and personal.

Having the inheritance discussion is very important, largely because of the consequences after your passing if you don’t have the talk. Perhaps one child wants to keep the vacation property while the other wants to sell, creating financial discord among siblings. Or there is a dispute about one’s final wishes upon death. The consequences are many and varied, and can be different for each family but equally devastating.

Holding the family meeting

As a financial planner myself, I can tell you that I am very happy to host or attend a family meeting, which should include the executor. It takes the pressure off you. Just let your children know that your advisor recommends having beneficiaries present during part of your estate planning process.

Or say you want to hold a meeting on your own. Beforehand, ask your advisor for coaching on approach and content. You’ll feel a lot more comfortable during the family meeting.

At my firm, we believe there are two main themes to a wealth transfer meeting. The first is about values. Share your views of money and wealth, ask your children what money means to them, and have a discussion. Tell your children what it took to create your wealth. Talk about the idea of a legacy – helping out your children and grandchildren with the hope that your children will do the same. Why discuss these ideas? You want to guide your children to a place where they feel appreciative, not entitled. Where they are trustworthy, not irresponsible.

The second theme is all about your will. Talk about how you’d like your legacy to be managed, and go through the distribution of assets, explaining the reasons for your decisions. This is where you discover if any of your bequests could unintentionally lead to conflicts between children, delays in estate administration, or your will being contested. If any problems arise, you’ll have the opportunity to resolve them — and you’ll be thankful you uncovered the issues now.

Wealth transfer for blended families

If you’re in a blended family, you have an additional layer of estate planning. Take the case of an individual in a second marriage who has children from the first marriage, and needs to provide for both the spouse and children. Continue Reading…

Buying a condo in the GTA on one income? Here’s where It’s possible

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Looking to purchase a home in the Greater Toronto Area on your own? According to new data, the real estate reality for solo buyers is pretty heartbreaking, with most options out of financial reach for those earning the median single-household income in the region.

In fact, owning a condo within a GTA municipality will set a single homeowner back more than double the recommended shelter cost, even in the most affordable markets. With two incomes getting far more home for their buck than one, it’s no wonder buyers are increasingly partnering with family, friends, or even strangers to improve their real estate affordability.

Tough affordability throughout GTA

Check out this infographic to see how affordable condos are for both single and multi-income buyers throughout the GTA.

To find out the extent of housing affordability for single buyers, Zoocasa calculated what’s called the home-price-to-income ratio in 17 of the markets tracked by the Toronto Real Estate Board. Crunching the average January 2018 condo price and median income earned in each municipality determines how many years of total income (as in, one’s entire annual salary) it would take to pay off a condo in that region. The higher the ratio, the tougher the home will be to carry financially.

The ratio recommended by most financial experts for shelter costs is three, but that’s well below what’s possible in the GTA market, the numbers reveal. The data finds that the minimum ratio for a single condo buyer is seven, available in only two markets: Milton and Clarington.

That’s not to say dual-income households have it much easier; coupled-up buyers have only three regions that satisfy the recommended affordability ratio (Milton, Clarington, and Whitby), while another 10 regions hover just above the four-point mark.

City Centre most challenging for all buyers

The toughest place to purchase for all Toronto condo buyers is Toronto central, which sets single buyers back a whopping 16 times their income, and seven times for multi-income buyers. And, while affordability varies throughout the region, it’s steep across the GTA; Mississauga condos command 10 times a single buyers’ income, while Vaughn costs 11 times the median household income.

Penelope Graham is the Managing Editor of Zoocasa.com, a leading real estate resource that uses full brokerage service and online tools to empower Canadians to buy or sell their home faster, easier, and more successfully.