All posts by Financial Independence Hub

What will the Post-Covid world look like?

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By Amit Ummat

Special to the Financial Independence Hub

We’re all talking about how the world will change because of COVID-19 and are already seeing things like more cooking and less takeout, lower profits for more stability, and electronic voting. But what about taxes and tax policy? The global economy is undergoing drastic change, but what will be the repercussions of these changes for tax authorities? We can expect three things: more state involvement, reduced globalization, and universal basic income. Let’s have a look at each of them.

1.) More State Involvement

Governments will be more involved in the economies of their nations and this is where new approaches to tax policy come into play. National governments will no longer tolerate tax minimization by large corporations (including airlines) and then acquiesce to requests for taxpayer-funded bailouts.

Denmark and Poland recently made it policy to exclude tax-haven companies from COVID-19 relief schemes. So, if a corporation fails to pay its fair share of tax and thereby fails to finance public goods and services, it cannot expect state-sponsored loans or wage-subsidy programs. The government of Denmark said companies which pay out dividends, buy back their own shares, or register in offshore tax jurisdictions, will not be eligible for aid programs from the state.

Expect more of this. It means income inequality will be tolerated much less by governments and society, prompting action by tax authorities to ensure that all taxpayers pay their fair share. This is already happening.

We hear echoes from every corner of the world that the share of revenues going to labour and producers are grossly out of whack. In 1960 labour expenses were roughly equal to profits, but now there is incredible disparity with the lion’s share of revenues going to capital owners and only a small fraction going to labour, and that fraction hasn’t even kept pace with inflation.

Don’t expect a Marxist-type revolution where the means of production are usurped by the working class, but there will be an expectation for income allocation to be more equalized between capital and labour.

2.) Reduced Globalization and Stronger Domestic Supply Chains

With this pandemic we have seen what happens when nations aren’t able to control supply chains for essential goods (i.e., ventilators and other PPE). The United States is a perfect example. Globally, we will see supply chains repatriated by nations, and technology allowing for this through AI (Artificial Intelligence), portable manufacturing equipment, and more accessible communications. This will make it easier to impose tax on corporations since much of the activity will take place in a single geographic jurisdiction.

While globalization has produced a myriad of benefits, including a huge reduction of poverty in the world, it’s no coincidence that the growth of the globalized economy has spawned incredible growth to the middle class, such as in China and India. But this has also led to the loss of manufacturing jobs in Western countries. One can argue that globalization is why Western nations have become almost entirely service-based. Continue Reading…

5 tips for finding a Real Estate Agent online

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By Curtis Brown

Special to the Financial Independence Hub

For many of us, the decision to buy or sell property has far reaching financial implications, which is why among other things, we need advice from an experienced real estate agent to help make the process smoother. But how does one go about finding a good agent?

Once you get your mortgage pre-approved, you can start getting serious about hiring a real estate agent. You will find them on the internet, on local papers, yard signs, maybe even through email marketing. Real estate agents are sales professionals whose job is to connect you to a buyer or seller – and they can access a Multiple Listing Service (MLS), which tells them which properties are on the market, and which ones have already sold.

How Do I Find the Best Agent?

Most people hire them online, but to make sure that you find the most qualified person for the job, follow these five expert tips:

1.) Contract somebody you can trust

You’re probably not looking at personality differences when hiring a real estate agent, but keeping in mind that home selling takes weeks, you’re going to spend a lot of time with your new agent. Make sure that you are comfortable with each other, and that you get along. Having knowledge of the market is one thing, but it won’t help things if you end up fighting with your real estate agent.

To help with this, you should conduct interviews with your top candidates to ensure you get the best person to work with.

2.) Get referrals from your own networks

Speak to family and friends about finding a good agent, and maybe get this information from someone who has recently bought or sold a property. Find out what experiences they had and if they liked their real estate agent.

Remember, you want to work with an agent who has experience with clients that are similar to you. So if this is a first time purchase, then your agent must have a lot of experience with first time buyers.

Ideally, your real estate agent should tick the following relevant boxes:

  • Be a Realtor with a capital: This makes them a member of the National Association of Realtors and bides them to their ethics and code of conduct.
  • Certified Residential Specialist (CRS): It shows the agent has undergone additional training in residential real estate.
  • Accredited Buyer’s Representative (ABR): Indicates that the agent has had additional training to help represent buyers in transactions.
  • Seniors Real Estate Specialist (SRES): Has had training for handling transactions for clients aged over 50.

If you decide to contact the agent, ask them as many questions as you need to, about your own transaction.

3.) Search your preferred candidates online

You can learn a lot about them by checking their online presence. Examine their social media accounts and websites as well. If they don’t have a strong digital presence, that might not be a good indication of their skills.  Reviews are another source of information, and this you can get from third party websites. One or two bad reviews is fine in most cases; but if they constantly get bad reviews from every independent reviewer online, move on to another agent.

Also check with your state licensing board to see if an agent you want to hire is licensed or has had disciplinary action taken against them in the past. You can get this information from your local Better Business Bureau.

4.) Meet at least three real estate agents

This is your chance to get a sense of the person you’re trying to hire. Continue Reading…

11 ways Millennials can eliminate Credit-card debt

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Many people find themselves struggling with credit card debt. If you happen to be one of them, replace your stress with an action plan. Becoming debt-free is a liberating experience, but it takes discipline to get there. 

Below, 11 business executives share their take on the best way to rid yourself of credit card debt. Plus, they reveal their own practices when it comes to credit cards.

Treat Credit Cards like Debit Cards

I have no credit card debt at 27! I haven’t used a debit card in over 8 years. I currently have 5 credit cards – Discover IT, Alaska, Delta, Costco, and Target. Each card provides a different benefit and allows me to maximize the rewards and discounts I receive. I have always treated credit cards like a debit account, ensuring I don’t spend more than I have. I don’t make large purchases on credit cards that cannot be paid off at each billing cycle. — Megan Chiamos, Cannabis ERP Software 

Pay off the smallest balance first

Intentionally paying it off with the smallest balance first.  Now with the current situation things are a little different as I need to be mindful to keep some of that money I would have used to double up payments. — Leeanne Gardner, Unbridle It

Understand where every Dollar is going

We have lines of credit that have credit cards attached to them. The balances vary depending on the situation. Cash flow is one of the most challenging aspects of being a small business and I believe it is wise to leverage good credit to cover those gaps. It is extremely important to be aggressive about paying down that debt and knowing where every dollar is going. — Lukas Ruebbelke, BrieBug

It doesn’t matter how broke you are

Before we were married, my wife worked for Sears credit central. Her job was to turn down people with bad credit. As a result of her experience, we have never carried credit card debt during our entire marriage, no matter how broke we were. Makes for both great finances and a happy marriage! — Rick DeBruhl, RickDeBruhl.com

Think of the benefits of being Debt-Free

I don’t have any credit card debt, and to the best of my ability I never will. The interest rates on credit cards are fairly high, so I do my best to pay down my balance every month. If you do this, you’ll rack up all kinds of free points and have a great credit score on top of it. Win-win. — Michael Norris, Youtech

Try Debt Consolidation products

debt consolidation products have been helpful to me in reducing that debt. You have to be very careful though & diligent. That is a solution that only works if you change your habits too. — Emily Beattie, Recruiting Manager Continue Reading…

Playing with the Box: Re-reading Nick Murray

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Author and Advisor’s advisor Nick Murray. NickMurray.com

By John De Goey, CFP, CIM

Special to the Financial Independence Hub

I was on a cross country flight recently and I re-read a book called “Simple Wealth, Inevitable Wealth” by Nick Murray, a former rock star speaker who was beloved by the financial advice industry – mostly because he constantly told his advisor audiences that they are great, do important work and are worth every penny they make.  The book was written 20 years ago and, unlike the other books by Murray, was written expressly for investors.  Reading it again provided both a nostalgic stroll down memory lane and an enlightening insight into how much the financial services industry has changed in the past generation.  Some parts of the book have held up well.  Others… not so much.

The risk of outgrowing your capital

I’ll begin with the positive.  The good news is that I still find it refreshing to read Murray’s perspective on the perverse way the media defines risk.  He simply, compellingly and eloquently walks readers through the very real risk of outliving your capital as a result of a reliance on the quaint notion that bonds are “safe”.  Safety, according to Murray, is having a pool of capital that you cannot outlive – and putting a significant portion of your life’s savings can significantly impede that outcome becoming a reality.  I was also heartened by his acknowledgement that there are false dichotomies and that the real decision in the ongoing ‘debate’ between active and passive approaches is really a choice between the more relevant considerations of product cost.  Murray also writes persuasively about the need for specific, measurable, time-bound goals that help to focus the mind and guide in principled decision-making.  Best of all, Murray names and blames what I believe to be the biggest culprit in most peoples’ failure to meet their financial goals: themselves.  More specifically, their own behaviour.

There are also a few things that cause me to shake my head in disbelief, however.  The most obvious of these are the return assumptions that he puts forward as being reasonable.  Granted, the numbers he uses are based on historical data, but he does relatively little to explain that real returns are fairly constant and that a portion of all nominal returns is inflation.  While he doesn’t expressly tell people what inflation rate to expect, he does note that there is historically about a 5% premium for stocks over bonds.  He uses 11% as a proxy for expected stock returns and 6% for bond returns.  To put that in perspective, I currently assume inflation to be 2% with a 5% real return for equities (7% nominal) and a 0% real return (2% nominal) for income.  How times have changed, now that everyone has re-calibrated their expectations toward a low-growth, low-inflation environment for the foreseeable future.

Sustainable withdrawal rates

Then there’s the related question of a sustainable retirement withdrawal rate.  Murray uses 6%.  Many years ago, I remember people talking about the real rate being 5%.  For the past number of years, I’ve been using 4%.  Note that my current withdrawal rates are actually more aggressive/ less forgiving than Murray’s.  You’re much more likely to not run out of money withdrawing 6% from something that’s earning 11% than to withdraw 4% from something earning 7%.  Financial planning is easy when your assumptions are based on a rose-coloured past rather than a murky future.

The thing that struck me the most, however, was his admonition to readers (remember, Murray is writing to ordinary investors here) to focus on first principles.  Everyone knows the old ‘life’s like that’ story about getting a young child an expensive present for Christmas or a birthday only to have that child spend more time playing with the box that the gift came in than with the gift itself.  Continue Reading…

Hub Q&A: What is the tax impact of Covid-19 on investors?

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By Darren Coleman and Elena Hanson

Special to the Financial Independence Hub

The following Q&A is between the Financial Independence Hub and the two hosts of the new Two-Way Traffic podcast, financial advisor Darren Coleman and cross-border tax expert Elena Hanson.

Their bios are at the end of this blog. 

 

FINANCIAL INDEPENDENCE HUB:

While April 30th is usually Canada’s tax filing deadline, this has been extended this year because of the Covid-19 crisis. Our first question is whether there are other tax impacts for investors because of the Coronavirus?

DARREN COLEMAN: The stock market sell-off was broadly based and the decline  indiscriminate as both good and bad quality investments dropped about the same amount. When this happens, investors should upgrade the quality of their portfolios by moving into better quality securities. In some cases, this may mean triggering a capital loss you can carry backwards to reduce capital gains paid in the past (up to three tax years) or “bank” those losses to offset future capital gains. It’s a good idea now to review your investment portfolio and financial plan with a qualified Certified Financial Planner and investment professional. Business owners should also be tracking their losses, if they have any, as a result of closures or reduced operations.

ELENA HANSON: Most types of returns and payments have been extended, but Internal Revenue Service (IRS) and Canada Revenue Agency (CRA) operations have been curtailed and are operating at minimum capacity. This inconveniences practitioners and taxpayers as we are in tax season and continue doing business.

Both the Canadian and US governments have also introduced new, large legislative packages to address the current economic reality, stabilize the economy, and prevent a recession. US provisions have been enacted in three phases and we await phase four. The Canadian government has been modifying its economic response plan daily and only a small portion has been enacted. This requires us to stay on top of the situation, communicate with our clients in a timely manner, and advise them on their inquiries.

Are there Tax strategies we should be putting in place in lieu of Coronavirus? 

DARREN COLEMAN: First, you should harvest capital losses in investment portfolios. And second, consider moving from investments that earn interest – rates are at historic lows – to those that pay dividends. Not only will you generate a higher income, you will pay a lower rate of tax on dividends over interest.

ELENA HANSON: It depends. Are you a business owner, and if so, are you US-based or Canadian-based? Are you an employee or are you a Canadian resident or a Canadian resident who is also a US citizen? Right now, it’s about injecting cash into the hands of the business or individuals. The US CARES Act is robust and offers real economic stimulus in the form of large loans. A portion of this is forgivable with eligibility to carry losses back as far as 2013, and you can accelerate depreciation on certain capital assets, which in the past, did not have preferential treatment. The Act also provides non-taxable rebates to individuals and access to their pensions on a tax-deferred or loan basis.

On the other hand, Canadian benefits are all taxable, whether it’s the Canada Emergency Response Benefit (CERB), the 10% employment subsidy of the Temporary Wage Subsidy (TWS), or the 75% subsidy of the Canada Emergency Wage Subsidy (CEWS). This means  individuals and employers who receive these benefits will be taxed on them next year. They will also be taxed on the US benefits on the Canadian return (if they are subject to Canadian taxation) but not on the US return.

As for other strategies, consider filing early if you expect a refund. With the significant loss in marketable securities, it may be a good time to make a gift, replace assets in trusts, do estate freezing or refreezing. In addition, it’s wise to carryback losses to prior years, and on the US side you can now carryback corporate losses for both 2019 and 2018 taxation years for up to five years back. But watch out for scammers and fraudsters during the rebate season.

What are the best short-term things we should be doing?

DARREN COLEMAN: The first priority of every financial plan is to have cash, or immediate access to cash, so you can fund up to three months of expenses. That primary rule is being tested right now for many individuals, professionals and businesses. If you don’t have sufficient cash, you may need to adjust your holdings to free some up.

ELENA HANSON: The immediate need of our clients is to assist them with any tax benefits available from the stimulus packages, especially if they were laid off or terminated. For businesses, owner-managers want to better understand how they can preserve cash to maintain their operations. They want to know which of the newly introduced laws are best suited for their business – Economic Injury Disaster Loan (EID) or Paycheck Protection Program Loan (PPP) on the US side, or which of the two wage subsidies on the Canadian side. We’ve also been dealing with some loss tax planning, including bad debt, related to business operations or individual marketable securities for individuals.

What are the best long-term things we should be doing?

DARREN COLEMAN: The global equity markets had a historic decline in February and March. This has impacted the investment and retirement portfolios of millions of investors. What does this mean for your financial plan? It’s time to review that. For some, it may mean you need to keep working longer. For others, it may be a rare opportunity to improve your portfolios by buying great long-term securities that are on sale.

ELENA HANSON: If you’re a business owner it’s a great time to review and optimize your business strategy, revisit your supply chain, and look at disaster-response measures. This will better prepare you for the next time you face a challenging economic environment. Also, we will likely end up living in a different reality after the pandemic, so start thinking now about how to ensure your business can be more competitive and innovative.

If you’re an individual who is seeing a large portion of your portfolio disappear, perhaps it’s time to have an honest conversation with your money manager, update your risk tolerance in your portfolio, and do estate planning. As people reflect more on their mortality, you should also schedule a meeting with your lawyer (once businesses are open) to draft or update your will. We all want to hope for the best, but need to plan for the worst and this experience proves it.

What is the overall impact of Covid-19 on the market and on your investments?

DARREN COLEMAN: Most diversified portfolios are down between 15-25% in 2020. This has likely concerned most investors and has certainly changed their financial plans. It has also tested the risk tolerance of many, especially after a ten-year bull market. Continue Reading…