Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Death and Taxes, Cross-border Style

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Dollar Printing: Global Macro Shifts; Franklin Templeton Investments Licensed from Gettyimages

By David Cieslowski, CPA, CA, CFP, CIMA

(Sponsor Content)

As Benjamin Franklin famously wrote, “… in this world, nothing is certain except death and taxes.”  For US citizens, as well as some Canadians who own US assets, the first may be swiftly followed by the second.

In the United States, an estate tax is applied to the transfer of the taxable estate of every deceased  American citizen, resident or non-resident, including green card holders or others with dual US-Canadian citizenship. Even Canadian citizens who have never stepped foot in the United States, but hold US securities or other US assets, could find their estates subject to a tax on situs assets, which are defined as assets with a tangible or intangible direct US connection or location.

The low-down on US estate tax

Estate tax falls into the category of transfer taxes, as opposed to income tax. It can be substantial; those in the top marginal tax bracket may pay up to 40% on estates with assets of more than US$1 million. Moreover, for US citizens and residents this tax applies to assets held worldwide. Real estate ownership alone can easily exceed those limits.

Fortunately, the reality is somewhat more encouraging. Only around 2% of the US population actually pays estate tax, largely because of exclusions that effectively spare all but the largest estates.

The two most common exclusions are:

  • Annual exclusion of US$15,000 per person
  • Lifetime credit of US$11.7 million for 2021 and indexed annually. Something of a political football, this credit can rise or fall along with changes in government[1]. The current credit limit is set to expire at the end of January, 2025.

These annual exclusions are portable, meaning they can be used by any descendant of the deceased.

The gift that keeps on giving: to the IRS

In the battle of wills between those determined to transfer all of their wealth to succeeding generations and those determined to “tax to the max,” many strategies have been tried and failed. Gifting assets to relatives while the owner is still alive has been one of the more popular tactics. Not surprisingly, the IRS employs two additional taxes to thwart such attempts at tax-free wealth transfer.

The first is a garden-variety gift tax. For non-spouses, annual exclusions are the same as for estate taxes. For spouses they are more generous: unlimited for spouses who are US citizens and $159,000 for 2021 (indexed annually) for spouses who are not. Continue Reading…

The best Cryptocurrency Payment Apps and Wallets in 2021

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Different coins of crypto currency, including ethereum, litecoin, bitcoin, monero, ripple, and dash.

By Hristina Nikolovska

Special to the Financial Independence Hub

The latest Bitcoin bull run made many people want to jump on the train and use or store cryptocurrencies. There are many digital assets to choose from, and while wallets support most of them, the traditional payment apps have just started to experiment. PayPal was the latest company to show interest in allowing users to purchase cryptocurrencies with its app. 

Even though it covers 26 currencies in various countries, PayPal currently allows Bitcoin purchases to US citizens only. Still, that’s a great start. If you’re curious to know how to use crypto or invest in it and hold it, these are some of the best payment apps and crypto wallets to explore. 

Cryptocurrency Payment Apps

Both merchants and private individuals can use these payment apps to send and receive various coins. Fees are minimal, and payments are fast. 

Coinbase Commerce

Coinbase Commerce is one of the most famous cryptocurrency apps to help merchants accept payments. Coinbase Commerce doesn’t charge fees, and it also supports price-stable cryptocurrencies. Payments are irreversible, and merchants can immediately sell earned crypto for cash or USD coin. This app integrates with WooCommerce and Shopify. 

BitPay

BitPay is available for both personal and business users. This app can store and manage BTC, Bitcoin Cash, Ethereum, and other coins. Also, it comes with a BitPay Prepaid Mastercard. Merchants can use this app to accept crypto payments with just a 1% fee. 

Electroneum

Electroneum (ETN) is helping people across the globe pay for goods and services in-store and online. It’s accepted in more than 190 countries and brings benefits to people, merchants, and corporations. It removes the need for a bank account and provides new payment opportunities for all. 

GoCoin

GoCoin is one of the longest-running blockchain invoicing platforms. It supports Bitcoin, Bitcoin Cash, Litecoin, Ethereum, and EOS. The fee is only 1%, and the GoCoin gateway provides ultimate flexibility and security of payments for merchants. Merchants of all sizes, as well as startups, are using GoCoin all over the world.

BTCPay

BTCPay Server is an open-source crypto payment processor. It’s secure, private, and free to use. There’s no usage fee, and merchants can connect their e-commerce store or use other apps to receive payments. BTCPay is excellent for invoicing and supports WordPress, Tor, WooCommerce, Magento, and other platforms. 

The Best Wallets to Store Digital Currencies 

Even though payment apps can also serve as wallets, some cryptocurrency owners prefer to download separate software to store their investments.  Continue Reading…

Where to invest 2021 RRSP contributions

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By Graham Priest

Special to the Financial Independence Hub

In today’s low interest rates environment, investors are looking beyond GICs and equities to generate greater returns over the long term. The economic recovery has surpassed expectations, and individuals are looking beyond COVID-19 and a return to some normalcy by the end of the year. With this in mind, there are several different kinds of investments that Canadians could consider making from their RRSP contributions in 2021.

For example, technology stocks and other “work from home” related stocks that performed well in 2020 might take a breather in 2021 if more of us start heading back to the office.  Areas of the market that underperformed in 2020 may exceed expectations this year. For example, recently energy stocks have started to display strength. Emerging markets is another area that will likely perform well in the next year. If the USD declines in value, it will be an added benefit for emerging markets, as a large portion of their debt is denominated in USD.

Additionally, after a rough 2020, Real Estate Investment Trusts (REITs) are gaining a leadership role within the market. Many REITs have strong yields that provide income that exceeds the interest paid on government and corporate bonds. However, REITs are a good investment inside a TFSA. The income distribution from a REIT is generally taxable income, and in a TFSA, there is no tax on that income.

Put high-growth investments outside RRSP

Investments that have the potential for exponential growth may be better suited outside of an RRSP, as withdrawals from an RRSP are taxed as income. Withdrawing large capital gains tax-free from a TFSA is a better option for investors who have RRSP and TFSA accounts. Continue Reading…

The case for caution with cryptocurrencies

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Vanguard Group

Special to the Financial Independence Hub

Republished with permission of Vanguard Canada

The tremendous surge in the price of cryptocurrencies has attracted the attention of many investors, who may be considering the digital currency as a potential substitute for traditional asset classes in diversified portfolios. But Roger Aliaga-Díaz, chief economist for the Americas and head of portfolio construction at Vanguard, cautioned against speculating in cryptocurrencies, which are largely unregulated and accompanied by considerable risks.

“Cryptocurrency prices depend mostly on speculation about their adoption and use,” Mr. Aliaga-Díaz said. “And that speculation creates volatility that, ironically, undermines their potential use as either a currency or asset class in an investment strategy.”

What is a cryptocurrency?

A cryptocurrency is a digital or virtual means of exchange. There are more than 6,700 cryptocurrencies today; among the better known are Bitcoin, Dogecoin, Ethereum, XRP, Tether, and Litecoin.

Unlike traditional currencies, virtual currencies currently operate without central authorities or banks, and they are not backed by any government. Cryptocurrencies are stored in “digital wallets” on a holder’s computer or phone, or in the cloud. The wallet serves as a virtual bank account that enables holders to pay for goods and services or simply store the currency in hopes of an increase in value.

Cryptocurrencies defy neat categorization. They are not a traditional currency, commodity, or asset class, though they share characteristics of each.

There are several reasons why cryptocurrencies are not a traditional currency. Although some merchants have begun to allow cryptocurrency payments, they are generally not accepted as a medium of payment. Cryptocurrencies also are not used as a unit of account because prices, trade invoicing, and contracts are not quoted in digital currency units. Finally, cryptocurrencies’ ability to serve as a store of value—a safe instrument to preserve the value of people’s financial wealth—is severely limited by their notorious volatility.

“The fact that cryptocurrencies are not issued by a central bank is actually the very reason why they can’t achieve the quality of other well-accepted currencies,” Mr. Aliaga-Díaz explained. “The role of a central bank is precisely to preserve the value of the currency by keeping inflation under control. That’s why prices are more predictable under Federal Reserve management of the U.S. dollar money supply.”

Cryptocurrencies share some characteristics of commodities. For example, they can be bought and sold in cash markets or via derivatives. But Mr. Aliaga-Díaz said they are not commodities because they are not physical raw materials.

No substitute for stock and bonds

Some wonder whether cryptocurrencies can be used in strategic portfolios as substitutes for stocks and bonds. “But unlike traditional asset classes, cryptocurrencies lack intrinsic economic value and generate no cash flows, such as interest payments or dividends, which can explain their prices,” Mr. Aliaga-Díaz said.

Mr. Aliaga-Díaz pointed out that as with currencies and spot commodities, such as gold, there is no risk premium expected with cryptocurrencies as compensation for bearing the risk of their price movements. “Because cryptos represent uncompensated risk to the portfolio, they are not a good substitute for stocks and bonds in a long-term portfolio,” he said.

Some investors may be willing to bet on sustained crypto price increases based on the belief that crypto demand will always outpace its supply. And though there might be some valid reasons around projected demand and usage to make a compelling case for a persistent supply shortage that can sustain increasing prices, Mr. Aliaga-Díaz noted, the supply of cryptos has exploded over time, and there is no reason to believe that supply can’t keep up with demand.

“The biggest risk for all investors would be to assume that demand growth will continue just because their prices have recently gone up,” he said. “That’s speculation, not investment.”

Other risks to keep in mind

Despite all the recent attention devoted to cryptocurrencies, Mr. Aliaga-Diaz cautioned that there are a number of additional risks associated with digital currencies, including: Continue Reading…

Purpose cleared to launch world’s first Ether ETF

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