For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.
Only half of Canadian couples discuss finances in detail, an IG Wealth Management study conducted by Pollard found. This week may be a good time to examine your joint lifestyle and retirement goals.
Image by Deposit Photos
By Blair Evans
Special to Financial Independence Hub
Valentine’s Day is here and while love may be in the air, there’s an often-overlooked gift that can strengthen your relationship: a meaningful conversation about finances.
Unsurprisingly, many Canadian couples shy away from discussing money with their partners. According to a recent study by IG Wealth Management, in partnership with Pollara Strategic Insights, only half of married or common law Canadians discuss finances with their partner in detail, with roughly a third talking about it only briefly.
Yet, when thinking about your future together, especially retirement, these conversations are crucial. You and your partner should be aligned on your retirement goals and lifestyle to ensure you plan appropriately and are fiscally prepared to enjoy those golden years.
Transparency on Finances can pay off in multiple ways
Image by Pexels
Transparency around your finances and having proactive conversations with your partner can also pay off come tax season.
Working together to file each of your tax returns can unlock opportunities to maximize deductions and credits.
You may be able to transfer unused credits, like tuition and disability amounts, to your partner to help alleviate their tax bill.
Couples can also combine their medical expenses and charitable donations together to minimize their overall tax obligation.
If your relationship is built for the long haul, it’s important to plan for life’s uncertainties. Building an emergency fund, as well as having an updated will and power of attorney, along with proper life and disability insurance plans are essential to prepare for any emergencies or untimely circumstances. Continue Reading…
Estate planning is like going to the dentist. Everyone knows they should do it. But whether it’s getting your teeth drilled or contemplating your mortality, we’d all rather fill our time with just about anything else.
For entrepreneurs, this problem is even more acute. Your business depends on you, and high-priority items constantly appear at the top of your to-do list.
What I’ve found as an estate planning attorney is that my clients can get more done when we approach estate planning in a systematic way. This post contains an actionable plan for entrepreneurs like you to design and implement an estate plan.
I’ve organized the list by priority, with the most critical items first:
Obtain Term Life Insurance
If you have minor children, life insurance is the most important component of your estate plan. Most parents of young children simply haven’t had enough time to accumulate sufficient wealth to sustain a family without any additional income.
I like term insurance for this baseline protection because it’s cheaper than a permanent policy.
I also recommend that both parents have policies. Irrespective of who earns the income, both parents contribute to the household.
For the benefit amount, err on the side of more coverage and consider purchasing separate policies (e.g., two $1 million policies rather than one $2 million policy). This allows you to scale back the coverage amount without dropping coverage entirely.
If you don’t have children yet but are planning to, I still suggest getting coverage now. Life insurance premiums increase with age and pregnancy-related health issues may make it difficult to secure coverage later.
Create a Revocable Living Trust
A basic revocable living trust is the foundational legal document for an estate plan. Its purpose is to keep you and your property out of conservatorship and probate proceedings.
Included in this step is creating the other estate planning legal documents:
A pour-over will ensures that all property is distributed in accordance with the terms of your living trust, even if it’s inadvertently left out of the trust;
A durable power-of-attorney authorizes a financial agent to conduct transactions on your behalf if you’re incapacitated;
A medical directive authorizes a healthcare agent to make medical decision for you if you are unable to and specified your healthcare and end-of-life wishes (in some states, two separate documents are prepared for this purpose);
A guardian nomination appoints a guardian to raise your minor children if you are unable to.
Be sure to actually fund the trust! This is one of the biggest mistakes people make. This involves transferring title to real property, opening new financial accounts (bank, brokerage, etc.), and updating beneficiary designations.
Establish and Implement a Written Financial Plan
Estate planning is more than just creating a set of legal documents. It’s a multifaceted plan to achieve positive outcomes for you and your loved ones. So, while the first two items on this list are about limiting your downside, this item concerns your upside. Continue Reading…
To Hedge FX Risk, or Not to Hedge: Currency markets are notoriously difficult to call but can meaningfully impact portfolio returns. ETF Strategist Bipan Rai provides a detailed framework for investing outside the Canadian market.
Image Getty Images courtesy BMO ETFs
By Bipan Rai, BMO Global Asset Management
(Sponsor Blog)
Admittedly, using a spin on a famous Shakespeare quote to start a note on currency hedging1 is verging on trite. Nevertheless, if Hamlet were running a portfolio of overseas assets, his primary concern would have to be the “slings and arrows” of currency markets — which are notoriously difficult to call but can meaningfully impact portfolio returns.
For Canadian investors, looking abroad provides several benefits. The most important is diversification, whether it’s through access to other regions that are less correlated with Canadian markets or to other products that aren’t available domestically.
However, investing abroad also means taking on foreign exchange risk given that international assets are priced in currencies other than the Canadian dollar (CAD).
For illustrative purposes, consider Chart 1, which shows the total return for the S&P 500 in U.S. dollars (USD) and in CAD terms for Q1 of this year. In USD terms, the index was up 10.6% over that time frame, but since that period also corresponded to weakness in the CAD relative to the USD (or USD/CAD moved higher) the index outperformed in CAD terms (up 13.3%). That means that Canadian investors would have fared much better leaving their USD exposure unhedged ex ante.
Chart 1 – S&P 500 Total Return for Q1 2024
Source: BMO Global Asset Management
Now let’s look at an alternative period in which the CAD strengthened against the USD. Chart 2 shows a comparison of the total return for the S&P 500 from April 2020 to April 2021 (in which USD/CAD was lower by over 11%). During that period, the total return index outperformed in USD terms by close to 20%. In this scenario, an investor who had hedged their FX risk would have been in the optimal position.
Chart 2 – S&P 500 Total Return Between April 2020 – April 2021
Source: BMO Global Asset Management
As these examples show, currency risk is a key consideration for any investor who wants to look beyond Canada for diversification. That risk can cut both ways, which amplifies the importance of hedging decisions. In our minds, the decision to hedge foreign exchange (FX )risk (including the degree to which foreign exposure is hedged) comes down to the following:
An investor’s view of the underlying currency pair
Whether the currency pair is positively or negatively correlated2 with the underlying asset
In this note, we’ll make a brief comment on the first point but focus largely on the second one. as we feel that should be given more weight for hedging decisions.
FX Markets are Tough to Call
Taking a view on the underlying currency pair is easy to do — but difficult to capitalize on.
Indeed, foreign exchange markets are notoriously fickle. One reason why is the relationship between predictive factors and currency pairs is rarely stationary. For instance, a lot of market participants tend to use front-end (2-year) yield spreads as a proxy for central bank divergence in the spot FX market. Chart 3 shows the current correlation between those spreads and the different CAD crosses, and as expected, the relationship isn’t consistent from a cross-sectional perspective.
Chart 3 – Correlation Between Two-Year Spreads and the CAD Crosses
* * Correlation window is 2 years. The CAD is used as a base currency for this analysis. The spread is tabulated by subtracting the foreign 2-year yield from the CAD 2-year yield. Source: Bloomberg, BMO Global Asset Management.
We can also see this by looking closer at the relationship between a factor and a currency pair over time. Chart 4 shows the rolling 100-day correlation between USD/CAD and the price of oil (proxied by the prompt WTI contract3) going back ten years. Note how frequently the strength of the correlation (as well as the sign) changes over time. Continue Reading…
The following is an edited transcript of an interview conducted by financial advisor Darren Coleman of the Two Way Traffic podcast with tax lawyer Anna Malazhavaya of Advotax Law.
It appeared on September 6th under the title ‘What you need to know about recent tax changes in Canada.’ Advotax is a team of lawyers and tax professionals that serves individuals, businesses and real property owners with tax planning and tax-dispute resolutions involving the Canada Revenue Agency. The discussion explored everything from the capital gains inclusion rate to expanded powers of the CRA to clients asking about moving to the US.
“It’s emotional but for some the increase in the capital gains inclusion rate was the last straw as they choose to leave Canada,” said Anna who added that over four million Canadians hold more than one property which means the government’s claim that this affects only 0.13% of the population isn’t true. “People are calling me every week. The wealthiest, the most talented entrepreneurs, are leaving Canada. It’s very sad to see.”
Anna and Darren talked about this phenomenon and how the June 25th deadline made it more expensive to leave the country with what can be a hefty departure tax. They also got into RRSPs, RIFs, and bare trusts which involve putting your property in someone else’s name. Anna said while the bare trust may have been designed to catch those who are less than scrupulous, it also captures honest people and gave examples.
I want your perspective and what your clients are thinking about the capital gains change we saw recently, and the deadline for people making changes. Now we’re in the new environment where the inclusion rate, or the amount of money you have to pay tax on, has gone up. And the government told us this was only going to affect 0.13% of taxpayers. Do you think their math was right?
Anna Malazhavaya
I have doubts. I’m not an economist and don’t have access to all the government stats, but I can share some stats. Capital gain may apply on the sale of your property that is not your principal residence. This includes your cottage, and your investment in rental properties.
4 million Canadians hold more than one property
Darren Coleman
More than four million Canadians hold more than one property. So four million Canadians, potentially, may be subject to that new increase capital gain rate. So that’s not 0.13%. That’s more.
Anna Malazhavaya
It’s way more. Of course, if I argued for the other side, I would say, Well, you don’t know how much money these people made on the property, and the first $250,000 of capital gain is still subject to the old rate, and that’s true. But at the same time, something tells me if these people held the property for more than 10 years that gain will be substantial. Look at how the real estate market performed in the last 20 years.
Darren Coleman
A lot of these people will be subject to the new rules. And not only that, think about people who only have one property, and let’s say, live on a farm property, and they have their house. When they sell their property, not the entire sale price will be sheltered by the principal residence exemption, but only the portion that’s required for the maintenance of their farm property. Everything in excess will be subject to capital gain and can potentially be subject to these new higher rates. Do you know how the government arrived at their number? A reasonable solution would have been to look at past taxpayer data and say, if we look at the last five or 10 years, how many taxpayers had a capital gain over $250,000? Let’s average it out over a bunch of years. But that’s not what they did. They looked at one year, 2022, and said only 0.13% of taxpayers had a capital gain of over $250,000. But that was also a negative year for stock markets globally, and a bit of a negative year for real estate equity markets everywhere. Tell me a little more about how your clients are experiencing this change.
Anna Malazhavaya
Until 2022 I probably had five people consulting me about leaving Canada. Normally, it was the other way around. We had all those talented people who wanted to bring their money, settle their life in Canada, educate their children here, build their future, build businesses, hire people. Pay taxes at 54% mind you. But this year alone, I have over a dozen new clients who plan to leave Canada and for my practice it’s a big change. People calling me practically every week, saying, I’m done. You know what? This capital gain game change. It did not affect me today. It probably won’t affect me tomorrow, but it’s the straw that broke the camel’s back.
More Canadians want to leave the country
Darren Coleman
The people who used to hire people, who used to come up with brilliant solutions, making everyone’s life better, they’re leaving Canada. Very sad to see and you’re not alone in experiencing that. I had a conversation this morning with a cross-border tax accountant and he said he’s had a surge of people looking to leave Canada, and he blames it on the tax policies which are making it less attractive for them to be here. Is it easy to just pack up and go to places like Florida?
Anna Malazhavaya
Leaving Canada became a lot more expensive. If you want to leave Canada, you are treated by Canadian law as if you sold all of your assets, even though you’re not selling anything. You keep all your assets. But the government says, Okay, fine, you want to leave Canada, but we want all the tax on the gain that you accrued to date. Some call it a departure tax, although this isn’t an official name, but it can hit you hard if you decide to leave Canada. So you have to declare all the gain you had from all your assets. Continue Reading…
Discover essential strategies and insights into succession planning to ensure a smooth transition and ongoing financial success for your small business.
Adobe Stock: Prostock-studio
By Dan Coconate
Special to Financial Independence Hub
As small business owners approach early retirement, ensuring the continued financial success of their business becomes a top priority. The journey of building a business is filled with hard work, passion, and dedication.
To ensure that successors are prepared to carry on the legacy and achieve ongoing financial success, delve into these essential strategies.
Succession Planning
Succession planning is a critical part of preparing for retirement. Identifying potential leaders within the team early on and providing them with opportunities to grow is key. This includes offering challenging projects, exposing them to various aspects of the business, and involving them in key decision-making processes. An effective succession plan ensures a smooth transition and continuity when the time comes for new leadership to take the reins.
Financial Literacy Training
Financial literacy is indispensable for any leader aiming to drive business success. Investing in comprehensive financial training programs that cover budgeting, financial analysis, risk management, and strategic financial planning is crucial. Developing a strong grasp of financial principles equips future leaders to make informed decisions that positively impact the business’s bottom line.
Executive Coaching
Executive coaching plays a significant role in developing leadership skills and ensuring alignment with business goals. There are several benefits to offering personalized executive coaching sessions, whether led by you or a third party. It’s an easy way to help potential leaders enhance their decision-making abilities, improve their emotional intelligence, and refine their leadership style. Continue Reading…
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