Monthly Archives: March 2017

Duking it out: The RRSP vs TFSA

Posted By Financial Independence Hub | March 22, 2017

By Brandon Hill, CFP

Special to the Financial Independence Hub

I’ll never forget when I was growing up hearing my parents talking about “buying RSPs” (I got excited about saving money. I know… I’m a weirdo).

In my mind, they were this magical investment that people bought so they could multiply their money to one day retire. This term, “buying RSPs” is still used today; however, I think it adds to the confusion of what a RRSP really is.

I’m here to explain in plain English the difference between the RRSP (Registered Retirement Savings Plan) and the TFSA (Tax Free Savings Account).

What are they?

The best way to think of an RRSP or a TFSA is simply as an account that has special tax benefits. Just like your chequing account, you are able to deposit and withdraw money into a RRSP or TFSA; however, the special tax benefits make it slightly more complicated.

RRSP: When you deposit money into an RRSP, you’re allowed to deduct this amount on your tax return, saving you tax and increasing your refund. However, when you withdraw money from your RRSP, you have to pay tax on this amount.

TFSA: When you deposit money into a TFSA you do not get a tax deduction, although when you withdraw from your TFSA, you do not have to pay any tax.

All growth within an RRSP and TFSA is tax free.

You can invest in many different ways inside the RRSP or TFSA, including: stocks, bonds, GIC’s, Mutual Funds, ETFs, and other more advanced options.

5 tax tips for the Family Business: Keep more money in your wallet

Posted By Financial Independence Hub | March 21, 2017

By Mahyar K. Hansotia

Special to the Financial Independence Hub

In Canada, as many as 80 per cent of small businesses are family enterprises. Whether it’s a start-up or a third-generation company, there’s often plenty of hard work that’s been invested, not to mention financial risk. So it goes without saying that business owners are keen to utilize any tax-saving strategies available to help them maximize take-home profits. Here are five ways family business owners can keep more of their hard-earned dollars.

1.) Pay your family a salary

Don’t miss an opportunity to pay your spouse, common-law partner or children for any work done to help the business. This commonly known income splitting technique allows you to shift some of the income to family members who may be in a lower tax bracket. This can significantly reduce the overall tax bill by moving some of your income out of a higher tax bracket. Examples of work can include filing, answering phones, making deliveries and creative or technical assistance with the business website. Canada Revenue Agency (CRA) allows you to pay family members, as long as you meet two key conditions:

You must be able to prove that your family members actually did the work
The wages must be “reasonable under the circumstances”

In addition, this strategy allows family members to increase their CPP contribution, as well as create RRSP contribution room. Both items can benefit the family member in future years; CPP contributions will result in a higher retirement income, and the increased RRSP contribution room can be used in the future to bring down the family member’s taxable income should they be in a higher tax bracket.

2.) Pay a bonus directly to RRSP

There are some tax benefits for the family members as well. As an employee, they can consider contributing a bonus directly into their RRSPs. You’ll avoid tax withholding and the full amount can be used as a deduction, provided the family member has reached the CPP/EI threshold. Continue Reading…

Latest crop of fixed-income ETFs keeps pressure up on fees

Posted By Jonathan Chevreau | March 20, 2017

My latest MoneySense blog on ETFs looks in more depth at the four new fixed-income ETFs Vanguard Canada debuted in February, and how they sit versus existing funds in the category. Click on the highlighted text to retrieve the full article: Latest crop of Vanguard ETFs keeps up pressure on fees.

The Hub noted the arrival of these new fixed-income ETFs when they were announced — here — but since then the 2017 edition of the MoneySense ETF All-stars has come out. For this article, we were interested in what some of the six panelists responsible for selecting the All-Star ETFs had to say about the new Vanguard funds.

The chart below, prepared by Forstrong Global Asset Management Inc. from industry sources, shows the four fixed-income categories the new products cover: Canadian Broad Government bonds; Canadian Broad Corporate; Canadian Short Government; and Canadian Long Aggregate. As the chart shows, before these new arrivals, there was one iShares fixed-income ETF in three of those categories, except for the well-served Canadian Short Government bond segment, which had one iShares offering, two BMO products and one from First Asset. Actual product names and tickers are shown below, along with data on Duration, MERs, credit quality and the mix of government and corporate issues:

Canadian Broad Government
Ticker	Name	MER¹	Duration¹	AAA²	AA²	A²	BBB²	Federal/ Agencies²	Provincial/Municipal²	Corporate²
VGV	Vanguard Canadian Government Bond Index ETF	0.25%³	8.0	54%	42%	G4%	0%	51%	49%	0%
XGB	iShares Canadian Government Bond Index ETF	0.39%	7.9	55%	28%	16%	0%	51%	49%	0%

Canadian Broad Corporate
Ticker	Name	MER¹	Duration¹	AAA²	AA²	A²	BBB²	Federal/ Agencies²	Provincial/Municipal²	Corporate²
VCB	Vanguard Canadian Corporate Bond Index ETF	0.23%³	5.5	7%	30%	24%	40%	0%	0%	100%
XCB	iShares Canadian Corporate Bond Index ETF	0.44%	6.1	4%	25%	34%	38%	0%	0%	100%

Canadian Short Government
Ticker	Name	MER¹	Duration¹	AAA²	AA²	A²	BBB²	Federal/ Agencies²	Provincial/Municipal²	Corporate²
VSG	Vanguard Canadian Short-Term Government Bond Index ETF	0.18%³	2.7	77%	18%	4%	0%	74%	26%	0%
FGB	First Asset Short Term Government Bond Index Class ETF	0.25%³	2.9	72%	17%	12%	0%	71%	29%	0%
ZFS/L⁴	BMO Short Federal Bond Index ETF	0.23%	2.6	100%	0%	0%	0%	100%	0%	0%
ZPS/L⁴	BMO Short Provincial Bond Index ETF	0.28%	3.0	9%	55%	36%	0%	0%	100%	0%
CLF	iShares 1-5 Year Laddered Government Bond Index ETF	0.17%	2.5	61%	21%	18%	0%	49%	51%	0%

Canadian Long Aggregate
Ticker	Name	MER¹	Duration¹	AAA²	AA²	A²	BBB²	Federal/ Agencies²	Provincial/Municipal²	Corporate²
VLB	Vanguard Canadian Long-Term Bond Index ETF	0.17%	14.8	32%	54%	8%	6%	26%	64%	10%
XLB	iShares Core Canadian Long Term Bond Index ETF	0.18%	14.4	29%	30%	33%	9%	24%	54%	22%

1. MER and duration data as of February 28, 2017
2. Credit quality and issuer breakdowns are approximate and based on the most recent publicly available data from the ETF issuers
3. Represents management fee only, as an audited MER is not yet available.
4. ETF offered in both distributing units and accumulating units (L)

Sources: BMO Capital Markets, National Bank Financial, ETF Issuer Websites

Banks behaving badly

Posted By Marie Engen | March 18, 2017

The media has been all abuzz lately about the Big-5 Banks and the shady practices they are using to dupe unsuspecting customers. I was approached twice by CBC for an interview which I declined both times. The reason? First of all, the mere thought of appearing on live national TV gives me a full-blown panic attack. And, secondly, I don’t really agree with the media’s strong irascible outrage the GoPublic admissions have provoked.

This is my opinion based on being a former bank employee and a current customer.

A little bit of history

When I first started working in the banking industry, the business was only transactional. Customers came into the bank to cash their cheques, withdraw cash, pay some bills. Maybe they wanted to buy a GIC or take out a loan. There was limited choice available at the time. Customers went into the bank for a reason and came back out with what they wanted – not unlike going to Wal-Mart for a pack of socks or Safeway for a loaf of bread.

Top secret tax saving tips for shrewd investors

Posted By Financial Independence Hub | March 17, 2017

By David J. Rotfleisch

Special to the Financial Independence Hub

While the most common tax savings tips such as contributing to an RRSP are well publicized, there are tricks that are not well known except by tax professionals.

So, here are obscure ways that we, as long-time Canadian tax lawyers, recommend for you, or people you know, to save on your taxes. After all, you have to make it to spend it.

Reduce Source Deduction Amounts

If you have income tax deductions that result in a large tax refund when you file your 2016 income tax return, then you can submit a form TD-1 form early in 2017 to reduce the amount of source deductions withheld by your employer from each subsequent paycheque.

This will mean money in your pocket every week instead of in 2018 when you file your 2017 tax return.

First Time Donor Tax Credit

2017 is the last year that you can benefit from an additional 25% tax credit for charitable donations made by a Canadian taxpayer who has never claimed a charitable donation in the past. So, if you’ve never made a charitable donation this is your chance to top it off at CRA’s expense.

Medical Expense claims for Spouse or Dependent

You can claim all medical expenses paid not only for yourself but also for your spouse and dependents, even if they have their own income and file their own tax returns.

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