Monthly Archives: March 2016

FWB TV: The pro and cons of robo-advisers

Screen Shot 2016-03-22 at 2.14.19 PMThe latest FWB TV video is now available here at Findependence.TV and at FWB If you’re not a Robo client then perhaps a Robo-Advisor is not for you.

Robo-Advice is automated portfolio management with minimal human interaction.  As the video points out, the growing popularity of robo advisors have made them one of the biggest developments in investing in recent years: they’re easy, simple and cost effective, which makes them especially appealing to younger investors.

In the 4-minute video, host Robin Powell interviews a robo-skeptic: Neil Bage of UK-based Suitable Strategies. He says investing involves a lot more than just filling out questionnaires and doing math and is concerned that if the human advice element is not present, investors may suffer if they miss out on the “seeing the whites of the eyes” type of face-to-face conversations about risk and risk tolerance.

(Mind you, American robo services are more likely NOT to have a human advice component; most robo services in Canada tend to offer at least some human interaction to complement the automated online component.) Continue Reading…

Wealthy investors dodge capital gains bullet but little else to cheer about in Budget

motley-fool-logoHere’s my latest blog for Motley Fool Canada: Investors dodge bullet on capital gains but little else to cheer about in Budget 2016.

Note the paragraph about the the roadblocks put in the way of two strategies involving life insurance, often used by business owners. You can find more detail about this in yesterday’s Hub guest blog by Robert Kepes: Budget closes two life insurance planning strategies.

Jamie Golombek

Little good news for the wealthy

In today’s Financial Post, CIBC Wealth’s Jamie Golombek also provides a fine overview of the Budget’s impact on the wealthy.

Continue Reading…

Budget closes two Life Insurance Tax Planning strategies

Photo.Robert Kepes
Robert Kepes

By Robert G. Kepes, Morris Kepes Winters

Special to the Financial Independence Hub

The March 22, 2016 federal budget closed two tax-planning strategies that involved the use of life insurance and private companies. Here is the first one:

Capital Dividend Account (CDA) Planning

The death benefit from an exempt life insurance policy is tax-free, and the same principle holds true if a private company is the beneficiary of the policy. The life insurance proceeds are added to the CDA of the private company when they can later be paid as a tax-free capital dividend to the shareholder. However, if the company is both the owner and beneficiary of the policy, then the amount that goes into the CDA is only the amount in excess of the adjusted cost base (ACB) of the policy.

For example, if the death benefit is $1 million and the ACB is $100,000, then only $900,000 is available for the CDA. Only $900,000 can be paid out tax-free, while the other $100,000 would be paid as a taxable dividend to the shareholder.

It follows that if the policy owner is not also the corporate beneficiary, then there is no reduction to the beneficiary’s CDA. A common planning strategy was to have ownership of the life policy in a parent holding company with the subsidiary company the beneficiary. This was done especially if the subsidiary was operating an active business and the owner did not want the policy to be an asset of the business that could be attacked by creditors.

Upon the death of the insured, the full death benefit of $1 million would go into the subsidiary’s CDA and be available to be paid out tax-free. Continue Reading…

Why retire if you still have mortgage or other debt?

An image representing crushing mortgage debt.

My latest Financial Post article is available in the Wednesday paper and online under the headline Retiring with a mortgage? Why you might want to think twice about that.

As I confess at the outset, my bias is to what I often state in my book, Findependence Day: the foundation of financial independence is a paid-for home. Since Findependence is also a prerequisite to Retirement, to me it follows that seniors still weighed down by credit-card debt or even mortgage debt would be better off working at least part-time and use the proceeds to take down their debt to zero. After that, they can live rent-free and the pressure will be off to make the monthly nut (although of course property taxes and condo maintenance fees may remain for some.)

Payday loans an ominous sign for seniors

Check the reader comments at the end of the FP piece and it appears at least some seniors agree with me. Continue Reading…

The Big Red “Soak the Rich” Budget

Depositphotos_1830058_s-2015My low expectations for Budget2016 apparently weren’t low enough, with a sea of red ink projected as far as the eye can see. Spending, spending everywhere. Not that we should be surprised: the die was cast with the election, this is merely the other shoe dropping.

In this article by Garry Marr, the Financial Post aptly describes it as a “Soak the Rich” Budget. It quotes CIBC Wealth’s Jamie Golombek to the effect “the government is taking away some key tax planning vehicles that allow the wealthy to rebalance their portfolios without incurring a deemed disposition, meaning they will face immediate tax consequences.” As of October 1st, there will no longer be tax-free switches for those in corporate class mutual funds.

And the return of a 15% federal tax credit for Labor-Sponsored Investment Funds is hardly any consolation!

As expected, income splitting for couples with kids under 18 will be eliminated but fortunately, pension splitting remains intact. (sigh of relief!)

Capital gains tax inclusion rate still at 50%

As for the rumoured  sweeping changes to capital gains taxes, you’ll need to dig into the supplementary budget documents that are aimed at measures for those in the new 33% tax bracket. We will update this paragraph as it becomes more clear but based on this report today by, the capital gains inclusion rate remains at 50% and won’t rise to the feared 67 or even 75%.

GIS sweetened for low-income seniors and couples living apart

Continue Reading…