The end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
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You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
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You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
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You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
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A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
If you have moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
-
If you are between the ages of 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021.
-
You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
-
Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
-
Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
-
Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting.
Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.).
If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if:
a) at least $2,000 has already been contributed to the RESP and
b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Retirees
Are you turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a Registered Retirement Income Fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices.
65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits.
Do you not currently have any pension income? Then, you may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.
2022 Financial Calendar
/in 2022, Blog, Financial Planning /by Zdyb Financials Ltd.2022 Financial Calendar
Welcome to our 2022 financial calendar! This “at a glance” document lists important dates, including when government benefits are distributed and tax filing deadlines.
Be sure to bookmark this or add the dates listed to your personal calendar so you’re always in the loop!
Use our calendar to make sure you keep on track with your financial goals and avoid missing any critical tax or investment deadlines.
If you’re looking for help with your taxes, tax packages will be available in February 2022, so reach out to your accountant or us to book an appointment and get started on your taxes!
Important Dates
Dates to know:
January 1 is when the contribution room for your TFSA opens again. The maximum contribution for 2022 is $6,000.
The government will issue GST/HST credit payments on January 5, April 5, July 5, and October 5.
Canada Child Benefit payments (CCB) will be issued on the following dates: January 20, February 18, March 18, April 20, May 20, June 20, July 20, August 19, September 20, October 20, November 18, and December 13.
The government will issue CPP and OAS payments on the following dates: January 27, February 24, March 29, April 27, May 27, June 28, July 27, August 29, September 27, October 27, November 28, and December 21.
The final date for your RRSP contributions to be eligible for the 2021 tax year is March 1, 2022.
Bank of Canada’s interest rate announcements will be on January 26, March 2, April 13, June 1, July 13, September 7, October 26, and December 7.
May 2, 2022, is the last day to file personal income taxes, and tax payments are also due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2021.
May 3 to June 30 – The filing deadline for final tax returns if death occurred between November 1 and December 31. The due date for the final return is six months after the date of death.
The tax deadline for all self-employment returns is June 15, 2022. Any balance owing, however, is due May 2, 2022.
The deadline for final RESP, RDSP, and TFSA contributions is December 31.
December 31 is also the deadline for 2022 charitable contributions.
December 31 is also the deadline for individuals who turned 71 in 2022 to finish contributing to their RRSPs and convert them into RRIFs.
2021 Personal Year-End Tax Tips
/in Blog, individuals /by Zdyb Financials Ltd.The end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
Investment Considerations
Families
Retirees
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
If you have moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
If you are between the ages of 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021.
You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting.
Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.).
If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if:
a) at least $2,000 has already been contributed to the RESP and
b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Retirees
Are you turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a Registered Retirement Income Fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices.
65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits.
Do you not currently have any pension income? Then, you may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.
2021 Year-End Tax Tips for Business Owners
/in 2021, Blog, Business Owners, corporate /by Zdyb Financials Ltd.2021 Year-End Tax Tips for Business Owners
Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary and Dividend Mix
As a business owner, one essential part of tax planning is determining the right mix of salary and dividends for both yourself and your family members.
The following are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket – This enables them to declare an income so that they can contribute to the Canada Pension Plan (CPP) and a Registered Retirement Savings Plan (RRSP). You must be able to prove the family members have provided services in line with the amount of compensation provided.
Pay dividends to family members who are shareholders in your company – The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling – This is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to Tax On Split Income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash – Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your personal tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes.
How much RRSP contribution room do you have.
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
An important part of year-end tax planning is determining appropriate ways to handle compensation. The following are the main things to consider:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose. The interest from the loan may be deductible if the proceeds of the shareholder loan were used to produce income from business or property.
Do you need to repay a shareholder loan to avoid paying personal income tax on the amount you borrowed?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying out a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Think about setting up a Retirement Compensation Arrangement (RCA) to help fund you or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-Controlled Private Corporations (CCPC) is the Small Business Deduction (SBD).
For qualifying businesses, the SBD reduces your corporate tax rate. Keep in mind that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any of the SBD is to make sure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could choose to hold more equity investments than fixed-income investments. Only 50% of the gains realized on shares sold is taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Another tactic you should consider for year-end tax planning is to hasten your purchase of any depreciable assets. A depreciable asset is a type of capital property that you can claim the Capital Cost Allowance (CCA) on.
These are two of the best ways to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. With this incentive, some depreciable assets are eligible for an enhanced first-year allowance.
Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.
Donations
Another essential part of tax planning is to make all of your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate securities.
Give a direct cash gift to a registered charity.
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of each of these types of charitable donations.
Make the Most of Covid-19 Relief Programs
While some COVID-19 relief programs, such as the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) have ended, others are still available. See if your business can benefit from any of the following relief programs:
Canada Recovery Hiring Program (CRHP). This program will continue to run until May 2022. If your business is eligible and continues to experience a decline in revenues as compared to pre-pandemic levels. In that case, the CRHP will provide support to assist in hiring new staff or increasing the wages of your existing staff.
Tourism and Hospitality Recovery Program. This new program provides wage and rent support to eligible businesses such as hotels and restaurants with an average monthly revenue reduction of at least 40% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 40%.
Hardest Hit Business Recovery Program. This provides rent and wage support of up to 50% for eligible entities. Eligible entities must meet two conditions – an average monthly revenue reduction of at least 50% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 50%.
General support in the event of a public health lockdown. If there is a public health lockdown and your business loses sufficient revenue, your business would be eligible for support at the same subsidy rates as the Tourism and Hospitality Recovery Program.
Know what’s included as taxable income. If you received assistance from the government assistance programs, including the CEWS, CERS, and CRHP, this assistance is taxable as income.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. Book some time with us today to learn how you can benefit from these tax tips and strategies.
Why Should I Review My Life Insurance?
/in Blog, life insurance /by Zdyb Financials Ltd.Why Should I Review My Life Insurance?
It’s great that you’ve taken the critical step of buying life insurance. But have you reviewed it recently to make sure that your policy is still suitable for you? It’s important to review your life insurance policy annually to check that your policy is up-to-date and see if you require any additional coverage.
There are several reasons you may need to change your life insurance policy. We’ve listed them below.
You’ve gone through a significant life event
You may have gone through a significant life event – such as getting married or divorced or having a child – in the past year. In this case, it’s important to consider changing your beneficiaries to make sure that your life insurance proceeds are distributed appropriately.
If you don’t update your beneficiaries, a previously named beneficiary could still be legally entitled to the money you want other people to receive.
You’ve changed jobs
Congratulations – you’ve got a new job or even started your own business! If you’ve started a new job, you may need more life insurance to account for extra income your family will be accustomed to or to account for a change in your employer-based life insurance policy.
If you’ve started a new business, you’ll likely need additional life insurance to help cover debts you may have taken on to start your new business. Plus, since you’re self-employed, you won’t have any employer-based life insurance anymore.
You’ve taken on some debt
If you’ve recently taken on some debt – such as a credit consolidation loan or a home equity loan – more life insurance may be a good idea. Additional life insurance can provide your loved ones with some much-needed extra income to help pay off debt or even pay for basic living expenses if you die.
You’re supporting family members
If your parents have moved in with you or have moved into assisted living, they may require financial support. Additional life insurance can help pay for this increased financial load.
If you have children ready for college or university, they’ll still need financial support from you. You can help secure their financial future with a life insurance policy that will help cover tuition costs.
You’ve bought a new home
You don’t want to leave your spouse or partner the burden of paying off a mortgage alone. Additional life insurance coverage can ensure they’ll have the funds they need after you pass and won’t be forced to sell at a stressful time.
A loved one has a change in health
If a loved one has recently had a change in their health or a significant medical diagnosis, then it’s essential to review your life insurance coverage. Your loved one may need expensive medical treatment or in-home support – which life insurance can help cover if you die.
If you have any questions about your life insurance coverage or want to make any changes, give us a call!
“Final Pivot” – COVID-19 Emergency Benefits expire October 23rd, replaced by targeted supports
/in Blog, Coronavirus /by Zdyb Financials Ltd.On Thursday, October 22nd, 2021 Deputy Prime Minister and Finance Minister Chrystia Freeland announced the “final pivot in delivering the support needed to deliver a robust recovery.” This “Final Pivot” means several existing pandemic support programs for individuals and businesses will expire on October 23rd, 2021:
Canada Recovery Benefit (CRB)
Canada Emergency Rent Subsidy (CERS)
Canada Emergency Wage Subsidy (CEWS)
In their place, the Federal Government announced:
The Tourism and Hospitality Recovery Program – provides support through the wage and rent subsidy programs, to hotels, tour operators, travel agencies, and restaurants, with a subsidy rate of up to 75%.
The Hardest-Hit Recovery Program – provides support through the wage and rent subsidy programs, would support other businesses that have faced deep losses, with a subsidy rate of up to 50%.
Canada Worker Lockdown Benefit – provides $300 a week to workers facing local lockdowns, including those not eligible for Employment Insurance. Anyone whose loss of income is due to their refusal to follow vaccination mandates will be excluded from accessing the aid.
Full details are in the links below:
When should I buy life insurance?
/in Blog, life insurance /by Zdyb Financials Ltd.When should I buy life insurance?
Life insurance can benefit you no matter what stage of life you’re at. It’s never too soon or too late to buy life insurance. Not only will it give you peace of mind, but it will also provide your loved ones with financial support after you die.
Types of life insurance
There are two main types of life insurance:
Term life provides temporary coverage for a set amount of time (for example, 10, 15, or 20 years).
Permanent coverage is life insurance that never expires.
Term life is generally cheaper as it is only good for a set amount of time. Permanent insurance will cost you more in the short run but may work out less expensive in the long run as your premiums do not tend to increase as you age.
Life insurance in your 20s
In your 20s, you may feel like you’re immortal and have lots of other things you want to spend your money on. But you also likely have responsibilities – such as student loans your parents may have co-signed for or a mortgage with your partner. If something happened to you, your loved ones would be left alone to pay for that debt. Life insurance could help fill this financial gap.
Also, another great reason to get life insurance in your 20s is that it’s very affordable! You will have a low insurance premium because you are considered low risk.
Life insurance in your 30s
By the time you’re in your 30s, you may have several financial responsibilities – including a mortgage and children. If you’ve only had term insurance up to this point, you may want to consider converting it to permanent to help give yourself lifelong protection.
Even if you have life insurance through your workplace, you may want to buy additional life insurance. Separate life insurance can help cover you if you lose your job or lock-in rates while you are relatively young and healthy.
Life insurance in your 40s, 50s, 60s and beyond
At this stage in your life, you may still have a mortgage or dependent children. You may have even bought a cottage or a vacation property. No matter your financial responsibilities, if your estate doesn’t have enough cash to cover them, it’s essential to have life insurance still.
Now is an excellent time to lock in permanent insurance. However, if you find the premiums too high or know you only need life insurance for a set amount of time, term life may still work for you.
Your next steps
Now you know about the two main types of life insurance and why it’s crucial to have it, no matter what age you are. If you’re not sure where to go from here, contact your insurance advisor or us – we can help you figure out your next steps!
Paying for Education
/in Blog, Debt, Family, life insurance /by Zdyb Financials Ltd.Post-secondary education can be expensive, however having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easier to make financial decisions that align with your goals and provide peace of mind. In the infographic, we outline 7 sources of funds for paying for post-secondary education:
Registered Education Savings Plan
Tax Free Savings Account
Life Insurance
Scholarships, grants, bursaries
Personal Loans, Lines of Credit
Government Student Loan
Personal Savings
If you need help planning to save for your child’s post-secondary education, contact us!
Estate Planning for Business Owners
/in Blog, Business Owners, Estate Planning, Family, life insurance /by Zdyb Financials Ltd.Estate Planning for Business Owners
What happens when the children grow up and they are no longer dependent on their parents? What happens to your other “baby”- the business? Estate planning for business owners deals with the personal and business assets. Business succession planning is different because it deals with your business assets only and can also take place while you’re alive. You need to have an estate plan regardless if you have a succession plan or not. Estate planning for business owners is typically more complicated because the estate plan needs to deal with:
Complex business and personal relationships
Bigger and more intricate estates
Tax issues
Business Succession
When putting an estate plan for a business owner together, one of the most difficult conversations is around fair or equal distribution of assets. What if one of the children are working in the business how do you treat them? Before you begin putting a plan in place, we always encourage open conversation and a family meeting between the parents and children to provide context behind decisions and therefore it minimizes the surprises and provides an opportunity for children to express their concerns.
We’ve put together an infographic checklist that can help you get started on this. We know this can be a difficult conversation so we’re here to help and provide guidance.
Adult Children
Fair vs Equal (also known as Equitable vs Equal) – like what’s considered to be fair may not necessarily be equal. ex. Should the daughter that’s been working in the family business for 10 years receive the same shares as the son who hasn’t worked in the family business at all?
Are the adult children responsible enough to handle the inheritance? Or would they spend it all?
Who works in the family business? Is it all the kids or just one of them?
Family Meeting
Encourage open conversation with parents and kids so context can be provided behind the decisions, there are no surprises and allows the kids to express their interests and concerns.
Facilitate a family meeting with both generations, this will help promote ongoing family unity after death and decrease the chances of resentment later.
Start looking at considerations for a succession plan for the business. (This needs to be documented separately.)
Assets/Liabilities
What are your assets? Create a detailed list of your assets such as:
Home, Real Estate, Investments- Non registered, TFSA, RRSP, RDSP, RESP, Company Pension Plan, Insurance Policy, Property, Additional revenue sources, etc..
What about shares in your business? How does this need to be addressed?
What are your liabilities? Create a detailed list of your liabilities such as:
Mortgage, Loans (personal, student, car), Line of Credit, Credit card, Other loans (payday, store credit card, utility etc.)
Did you personally guarantee any business loans and how does this need to be addressed?
Understand your assets-the ownership type (joint, tenants in common, sole etc.), list who are the beneficiaries are for your assets
Understand your liabilities- are there any co-signors?
Make sure you have a will that:
Assigns an executor.
Provide specific instructions for distribution of all assets.
Consider a power of attorney for use when you’re incapacitated or otherwise unable to handle your affairs.
Always choose 2 qualified people for each position and communicate with them.
Taxes and Probate
How much are probate and taxes? (Income tax earned from Jan 1 to date of death + Taxes on Non Registered Assets + Taxes on Registered Assets, Taxes on Business Shares)
Are there any outstanding debts to be paid?
You’ve worked your whole life- how much of your hard earned money do you want to give to CRA?
How much money do you want to to give to your kids while you’re living?
Consider the following:
The use of trusts.
The use of an estate freeze if you wish to gift while you’re living.
The use of a holdco for effective tax planning.
Once you determine the amount of taxes, probate, debt, final expenses and gifts required, review your life insurance coverage to see if it meets your needs or if there’s a shortfall.
Execution:It’s good to go through this but you need to do this. Besides doing it yourself, here’s a list of the individuals that can help:
Financial Planner/Advisor (CFP)
Estate Planning Specialist
Insurance Specialist
Lawyer
Accountant/Tax Specialist
Chartered Life Underwriter (CLU)
Certified Executor Advisor (CEA)
Next steps…
Contact us about helping you get your estate planning in order so you can gain peace of mind that your family is taken care of.
Estate Freeze
/in Blog, Estate Planning, tax /by Zdyb Financials Ltd.In 2015, CIBC conducted a poll to see how many Canadian business owners had a business transition plan. Almost half of them didn’t have one.
No business owner likes to think about handing over their business they’ve built from the ground up. But the fact of the matter is, you will have to do it eventually. Even more concerning, what if you were to become ill or incapacitated? Making a decision of this magnitude during trying times would not be ideal.
Your two main choices for passing on your business are:
Selling it
Transferring ownership to a successor of your choice (this can either be a family member or a non-family member such as a key employee)
When you die, all your capital property is deemed to have been sold immediately before your death. This includes your business. This means that capital gains taxes will be charged on whatever the fair market value (FMV) of your business is considered to be at the time of your death.
The higher the FMV of your business, the higher the capital gains taxes that will be charged. Your successors may not have the funds to pay these taxes which may force them to sell the business in order to fund the tax liability; thus, not to reaping the benefits of all your hard work as intended.
The good news is that there’s a way to protect your business; an estate freeze.
What is an estate freeze?
For the business owner, an estate freeze can be an integral part of your estate planning strategy. The purpose of an estate freeze is to lock-in (freeze) the value of the business, freeing the successor from the tax liability that may arise should the business’ value increase.
This is how an estate freeze works:
As a business owner, you can lock in or “freeze” the value of an asset as it stands today. Your successors will still have to pay taxes on your business when they inherit it – but not as much as if you hadn’t “frozen” your business and your company had increased in FMV.
You continue to maintain control of your business. As well, you can receive income from your business while it is frozen.
Your successor now benefits from the business’ future growth, but they won’t have to pay for any tax increases that occur before they inherit the business.
Freezing the value of your business can help you plan your tax spending properly. Selecting to “freeze” your business can help give you peace of mind that your successors won’t have to spend a considerable part of their inheritance on excessive taxes.
What happens when you freeze your estate?
When you execute an estate freeze, the first thing you need to do is exchange your common shares for preferred shares. Your new preferred shares will have a fixed (a.k.a. “frozen”) value equal to the company’s present fair market value. Make sure you have everything in place to properly determine the fair market value before you exchanging your shares.
Your company will then issue common shares, which your successors subscribe to for a nominal price (for example, 1 dollar). Note that your successors don’t own the stock yet – subscribing to the stocks means they will take ownership of the stocks at a future date.
As part of your estate freeze, you must have a shareholders’ agreement ready to bring in new shareholders. This agreement should list any terms and conditions related to the purchase, redemption, or transfer of your company’s common shares.
1. You can choose to receive some retirement income from your preferred shares by cashing in a fixed amount gradually. This action will reduce your preferred shares’ total value, reducing income tax liability upon death. For example:
Your shares are worth $10,000,000, and you need $100,000 annually. You can then redeem $100,000 worth of shares.
If you live for 30 more after you freeze your estate, you will have withdrawn $3,000,000 of your shares. This reduces the value of your shares to $7,000,000.
At your death, your tax liability is lower than it would have been had your shares remained at the original value of $10,000,000.
2. You can opt to maintain voting control in your company. This can be complicated (so you should consult a licensed professional), but you can set up your estate freeze so that you still have voting control in your business with your preferred stock.
How you can benefit from an estate freeze
You get peace of mind. The most important benefit to a tax freeze is that you know, whoever your successors are, they will receive what they are entitled to and not have to deal with any unpredictable tax burdens. Since an estate freeze fixes the maximum amount of taxes to be paid, you can properly plan how much money to set aside for this tax liability. One option is to have a life insurance policy equal to the amount of the tax liability, with your successor as the beneficiary, so you know they will have enough money to pay for these taxes.
You encourage participation in growing your business. Your chosen successors will be motivated to help the company grow, as they know they will benefit in the future.
Further tax reductions. If your shares qualify for lifetime capital gains exemption, then an estate freeze also helps further reduce your successor’s tax liability.
Is an estate freeze the right strategy for you?
There are a few things you need to consider when deciding if an estate freeze is right for you or not.
Retirement funding. What kind of retirement savings, if any, do you have? If you have money put aside in RRSPs, TFSAs, or even have a pension from a previous job, then an estate freeze may be the right choice for you. If you were planning to sell your company and live off the proceeds in retirement, then it likely is not the right choice for you.
Succession plans. Do you have someone in mind who would be a suitable successor? Just because you think your child, spouse, or best employee may want to take over your business doesn’t mean they do. Talk to anyone you are considering making a successor and see if they are both interested in and able to keep your business going.
Family relationships. Trying to figure out how to select a successor if you have several children may be challenging. It can cause a lot of strain amongst your children if they are all named successors if only some of them are actively interested in running the business. You may want to consider only making one child a successor and providing for your other children in different ways, such as making them a life insurance beneficiary.
If you decide to pursue an estate freeze for your business, you are helping plan for your heirs’ future and cutting down on the amount of taxes that will eventually have to be paid. That being said – an estate freeze can be complicated, and all the steps must be performed correctly. Be sure to consult an experienced professional be taking any steps to freeze your estate.
Group Insurance vs Individual Life Insurance
/in Blog, Group Benefits, life insurance /by Zdyb Financials Ltd.Group Insurance vs Individual Life Insurance
“I already have life insurance from work, so why do I need to get it personally?” or “Work has got me covered, I don’t need it.”
While it’s great to have group coverage from your employer or association, in most cases, people don’t understand that there are important differences when it comes to group life insurance vs. self owned life insurance.
Before counting on insurance from your group benefits plan, please take the time to understand the difference between group owned life insurance and personally owned life insurance. The key differences are ownership, premium, coverage, beneficiary and portability.
Ownership:
Self: You own and control the policy.
Group: The group owns and controls the policy.
Premium:
Self: Your premiums are guaranteed at policy issue and discounts are available based on your health.
Group: Premiums are not guaranteed and there are no discounts available based on your health. The rates provided are blended depending on your group.
Coverage:
Self: You choose based on your needs.
Group: In a group plan, the coverage is typically a multiple of your salary. If your coverage is through an association, then it’s usually a flat basic amount.
Beneficiary:
Self: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Group: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Portability:
Self: Your policy stays with you.
Group: Your policy is tied to your group and if you leave your employer or your association, you may need to reapply for insurance.
Talk to us, we can help you figure out what’s best for your situation.