Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Budget 2022: as feared, an NDP-influenced Spendathon

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CTV News

Ottawa has just released its federal Budget 2022, which seems to validate the pre-release fears that a de facto Liberal NDP coalition would be a high-spending, high-taxing affair. You can find the full budget documents at the Department of Finance web site here. It is as expected “a typical NDP tax-and-spend budget,” as interim Conservative Leader Candice Bergen told the CBC.

Budget 2022 is unmemorably titled A Plan to Grow Our Economy and Make Life More Affordable, weighing in relatively slim by federal budget standards: just shy of 300 pages.  Of course, the NDP is all over this document, which is why I call the de facto coalition the LibDP.

Naturally, the NDP’s pet priority is included, with $5.3 billion over 5 years for national dental care. As CTV reported, the program will offer dental care to families with annual incomes below $90,000, with no co-pays for those under $70,000 annually in income. The first phase in 2022 will offer dental care to children under 12.

Big focus on affordable housing

Of the $56 billion in projected new spending over six years, $10 billion is going to housing over five years, with a one-time $500 payment to those struggling with housing affordability. And as expected,  foreign buyers will be shut out of the market for condos, apartments, and single residential units for the next two years.

They are also cracking down on home flippers, introducing new rules as of January 2023, such that if anyone sells a property held for less than 12 months it would be considered to a flip and be subject to full tax on their profits as business income (with some exceptions in certain special cases).

National Defence will get $8 billion over 5 years, There’s $500 million for military aid to Ukraine and $1 billion in loans.

Perhaps we should use CTV News’ phrase and describe the spending as “targeted”:

The budget proposes $9.5 billion in new spending for the 2022-23 fiscal year — with the biggest ticket items focused on housing supply, Indigenous reconciliation, addressing climate change, and national defence — while also set to take in more than $2 billion in revenue-generating efforts.

New “Minimum Tax Regime”

CTV reports that Budget 2022 “puts high earners on notice that the government thinks some high-income Canadians aren’t paying enough in personal income tax.”  The Liberals say they will be examining “a new minimum tax regime, which will go further towards ensuring that all wealthy Canadians pay their fair share.”

Here is the Globe & Mail’s initial overview (paywall.) Or click this headline:

Federal budget unveils plans for $56-billion in new spending, higher taxes, but short on growth plans

According to the Globe,  the planned bank tax is different from the initial proposal from the Liberal’s 2021 election platform: rather than a three percentage point surtax on earnings over $1-billion, the budget announces a 1.5 percentage point increase on taxable income over $100 million. That brings the tax rate on those earnings from 15% to 16.5%.

In addition to $4-billion for cities to build 100,000 new homes, Ottawa will provide tax-free home savings accounts of up to $40,000. Future first time homebuyers will get an RRSP-style tax rebate when they contribute and the money can grow tax free. First-time homebuyers will also get a tax credit of $1,500 and a home renovation tax credit of up to $7,500 to help families add second suites for family members. Continue Reading…

Gen Z is Canada’s most engaged generation for tracking Financial Goals

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Move aside, Boomers: Gen Z is coming through!

According to BMO’s annual Investment Survey, Gen Z is now Canada’s most engaged generation for tracking financial goals.

Younger Canadians are flexing their financial savvy by evaluating their financial goals and plan more frequently than any other cohort: including Boomers!

According to the survey, 62% of Gen Z (aged 18-25) and 54% of Millennials (age 26-41) review their financial goals at least quarterly, with 41% of Gen Z and 29% of Millennials doing so monthly. In comparison, only a third (36%) of Boomers (aged 58-67) review their financial plans at least once a quarter and only 15% of them do so monthly.

“It’s exciting to see the next generation of Canadians building solid financial habits and establishing a foundation early” said Nicole Ow, Head, Retail Investments at BMO, in a  press release, “Real financial progress is a lifelong pursuit as our goals and circumstances change throughout our lifetime. We encourage Canadians of all ages to consider ways not only to grow their wealth and work towards immediate financial goals, but also to ask their advisor how they can align their investments with their values, define their longer-term goals, and protect and share their wealth with their loved ones and the causes that mean the most to them.”

Social media a big influence

While the survey found the majority of young Canadians rely on advice from a professional when making financial decisions, what’s more interesting is the additional sources they are seeking out for guidance. Many are currently working with a financial advisor, and 47% of Gen Z and 32% of Millennials say they were referred to their advisors on the advice of a trusted friend or family member. The impact of social media on the financial habits of young Canadians also mustn’t be overstated. A third of Gen Z and 22% of Millennials refer to financial influencers and social media for their investment decisions. In comparison, only 7% of Canadians over 55 utilize these sources.

Barriers to Entry

Among younger Canadians with savings primarily held in cash, half of Gen Z and close to two fifths of Millennials say the primary reason for this is that they do not know how to invest. Whether it’s not knowing where to begin, or being unsure who to trust with their finances, a lack of basic financial literacy skills being taught in schools may be partly to blame for this. Thankfully, the previously mentioned alternate sources that young Canadians seek out can help to educate those feeling overwhelmed. Continue Reading…

6 Expenses that First-time Homeowners should plan for

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Image Source: Unsplash (https://unsplash.com/photos/cqAX2wlK-Yw)

By Beau Peters

Special to the Financial Independence Hub

Becoming a first-time homeowner is an exciting prospect. It’s a chance to have a place you can call your own, where you can make memories for years to come.

With that said, proper planning is necessary, or your dream can become a financial nightmare. The fact is that there are many unavoidable and potential expenses that could occur over time, and if you don’t understand the realities or you don’t save appropriately, then you could be in for some hard times.

To help you out, we have compiled a list of common expenses that most first-time homeowners will experience and how to prepare accordingly.

1. Closing Costs

As you are looking at potential homes and comparing your financial situation, you will want to keep in mind that there are some upfront expenses that you will want to consider, especially closing costs, which may amount to 3-6% of the total loan value. It is important that you have those funds fluid and ready to go when you sign your new mortgage.

If you are short on funds, then consider creating an agreement with the seller to share these costs or look into government programs if you are short.

2. HVAC Issues

No matter where you live, yyour HVAC (Heating, Ventilation, and Air Conditioning) units will likely need to be repaired either soon or down the road. While most units can last 10 to 15 years, if you run your heat or AC all day, every day, then you could be looking at a repair sooner than later, especially if you bought a home with an existing unit.

When preparing for the expenses associated with a damaged air conditioner, you will need to decide if you can have your unit repaired or if it will need to be completely replaced. The first thing you should do is get a quote from a professional to see if the cost to repair is almost as much as the cost to replace. If it is, consider getting a brand new unit because you know it will last a long time and work at high efficiency. Also, consider the fact that if your AC had to be repaired once, it will probably require maintenance again. Include these considerations in your final decision.

3. Appliance Lifetimes

Whether you are moving into a home with existing appliances or you are buying them brand new, you must realize that all appliances have their expiration date. For instance, refrigerators often last about 10 years, and even if they are still usable after that time, their efficiency will begin to dwindle. As far as other appliances:

  • Washers and dryers typically last about 10-13 years.
  • Dishwashers have about 10 years.
  • Microwaves typically last around seven years.

Knowing these dates is important so you can begin to budget accordingly to pay for a replacement.

As a new homeowner, an expense that you may want to incur is the cost of a home warranty. Many of these programs cover a portion of the price of the service calls necessary to fix your appliances, and your annual fee will also help with the cost of a new unit. As soon as you move into your home, look for home warranty programs and find one that suits your needs and financial situation.

4. Roof Damage

The roof is arguably one of the most important aspects of your home, and if it is damaged by weather or general wear and tear, then you will want to have it inspected and repaired immediately. Typical roofs built with asphalt shingles will last about 20 years, so if you have a new home, you may be good for a while, but if you bought a used home, then you will want to see how much time is left. Continue Reading…

When did Retirement Income Planning get so complicated?

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Photo by Gustavo Fring from Pexels

By Ian Moyer

(Sponsor Content)

Retirement planning used to be easy: you simply applied for your government benefits and your company pension at age 65. So, when did it get so complicated?

Things started to change in 2007 when pension splitting came into effect. While we did have Canada Pension Plan (CPP) sharing before that, not too many people took advantage of it. Then Tax Free Savings Accounts (TFSA) came along in 2009. At first you could only deposit small amounts into your TFSA, but in 2015 the contribution limit went to $10,000 (it’s since been reduced to $6,000 per year). Accounts that had been opened in 2009 were building in value, and the market was rebounding from the 2008 downturn. Registered Retirement Savings Plan (RRSP) dollars were now competing with TFSA dollars and people had to choose where they were going to put their retirement money.

In 2015 or 2016 financial planners suddenly started paying attention to how all of these assets (including income properties) were interconnected. There were articles about downsizing, succession planning, and selling the family cottage. This information got people thinking about their different sources of retirement income and which funds they should draw down first.

Of course, there is more to consider, such as the Old Age Security (OAS) clawback. When, where, and how much could this affect your retirement planning? People selling their business are often surprised that their OAS is clawed back in the year they sell the business, even if they’re eligible for the capital gains exemption. Not to mention what you need to do to leave some money behind for your loved ones. Even with all this planning, the fact that we pay so much tax when we die is never discussed, although the final tax bill always seems to be the elephant in the room. We just ignore it, and hope it’ll go away.

Income Tax doesn’t disappear at 65

Unfortunately, income tax doesn’t disappear at age 65, and you need time to plan ahead so you can reduce the amount of tax you pay in retirement. A good way to do this is to use a specialized software that takes all your sources of income and figures out the best strategy to get the most out of your retirement funds. Continue Reading…

MoneySense Retired Money: CDRs reduce currency risk of US stocks for Canadian investors

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https://www.neo.inc/

My latest MoneySense Retired Money column looks at the newish CDRs, or Canadian Depositary Receipts. You can find the full column by clicking on the highlighted text: CDRs versus U.S. Blue-chip stocks: which makes more sense for Canadian investors?

CDRs resemble the much more established American Depositary Receipts (ADRs), which I’d wager most seasoned investors have used. See also this article on CDRs republished on the Hub early in 2022: Should you invest in CDRs? 

ADRs were launched by J.P. Morgan in 1927 for the British retailer Selfridges and are a way to gain easy access to global stocks in US dollars trading on US stock exchanges. According to Seeking Alpha, among the ten most actively traded ADRs are China’s Baidu [Bidu/Nasdaq], the UK’s BP [BP/NYSE], Brazil’s Vale [Vale/NYSE], and Switzerland’s Novartis. Here’s Wikipedia’s entry on ADRs.

Dividends paid by ADRs are in US dollars. Canadians are of course free to buy ADRs just as they buy US stocks or US ETFs trading on American stock exchanges. But they will have to convert their C$ to US$ to do so, and ultimately if they plan to retire here, they will have to pay again to repatriate that money.

By contrast, CDRs give Canadian investors a way to buy popular US stocks (particularly the FAANG stocks) in Canadian dollars and trading on the Canadian NEO exchange. As you can see in the above image, there are also such popular stocks as Pfizer, Berkshire Hathaway, IBM and MasterCard. You can find more information at CIBC, which developed CDRs. As you might expect, CIBC puts a positive spin on CDRs, saying they provide the “same stocks, lower risks,” with a “built-in currency hedge,” while also offering “fractional ownership, easier diversification.”

They even went so far as to trademark the slogan “Own the company, not the currency.” A video found here says that while Canadian stocks only account for 3.1% of the world’s stock market capitalization, most Canadians have 59% of their investments in Canadian stocks. To the extent foreign [and especially American] stocks have generated stronger returns, arguably Canadians are missing out. It suggests that one reason for this is Foreign Exchange.

CDRs may be of particular advantage to younger investors with limited wealth, since they are a way of accessing high-priced stocks that may have prohibitive minimum investments. For example, Amazon (AMZN) currently costs a whopping US $3,200 for a single share. Compare that to the CDR version, AMZN.NE, which costs just C$20 a share. Generally, the CDR version has the same ticker as the underlying US stock, so be careful when you are buying to specify which version you wish to acquire.

If the US company pays a dividend, then so will the CDR. The two main advantages then are that you don’t get dinged on currency conversions between the US and Canadian dollar, and those with modest amounts to invest have the equivalent of buying fractional shares in some of their favorite stocks. Since most retirees will spend their golden years in Canada, you can diversify beyond Canada’s resource and financial-concentrated market, but still have your assets and dividends in Canadian dollars.

CDRs still count as Foreign Content

When I first heard about CDRs, I had a faint hope that perhaps they would not be considered foreign content by the Canada Revenue Agency. However, that is not the case. So investors with large foreign taxable portfolios will be disappointed to learn that even though they trade in Toronto, CDRs are still considered foreign content, so must be included in the CRA’s requirement that portfolios with more than C$100,000 (book value) must complete its T1135 Foreign Income Verification Statement.  The MoneySense column goes into this aspect in more depth.