By Aaron Hector, B.Comm, RFP
Special to the Financial Independence Hub
COVID-19 has brought wide-sweeping change. The silver lining with any change is that it opens the door to new opportunities. Here are 15 thoughts on how a financial planner views moments in a time like this:
1. You now have more time to get your taxes prepared. You also have more time to pay your taxes for 2019 and your instalments for 2020.
2. Those of you with RRIF or LIF accounts are familiar with your requirement to take a minimum withdrawal each year, which is fully taxable as income. This year, the minimum payment will be adjusted downward by 25%, which will allow you to report less income on your tax return. Given the situation, this may also preserve some of your OAS if you’re currently being fully or partially clawed back. Cash flow could potentially be replaced by withdrawing the additional 25% from your non-registered account this year.
3. Somewhat surprisingly, the Government of Canada has recently confirmed that if you had previously withdrawn your original RRIF minimum payment earlier in 2020, that you will not be permitted to re-contribute the 25% excess withdrawal back into your RRIF.
4. Let’s recognize that stock markets are down. Let’s also recognize that they’ll go back up. How can we turn this moment into an opportunity?
5. If you make more money than your spouse, spousal loans are a great way to shift income. Now might be a great time to initiate new spousal loans because portfolio values are lower than they used to be and the eventual recovery could be captured by your lower income spouse.
Pension Splitting
6. In other circumstances (typically in retirement after age 65+ when RRIF, LIF, and pension income can be split between spouses), previous spousal loans can lose their merit. In some cases, it’s too costly from a capital gains perspective to repatriate funds back to the original spouse, so these loans remain in place for longer than they need to. If your portfolio has fallen in value then the capital gains cost to unwind a spousal loan may no longer be a detriment. You could look at this time as an opportunity to repatriate the loan and tidy up your overall affairs.
7. If you reported taxable capital gains on your previous three tax returns, you may look to trigger a capital loss today, which you could carry back against those gains. The losses could also be carried forward and applied against gains in the future.
8. If you have a plan to unwind your RRIF, LIF, or investment holding company over the next several years, then you could look at this as an opportunity to extract some money out of those accounts now at their lower values (pay the tax on the dividend or RRIF/LIF income) and then shift your money into a personal non-registered account or TFSA to be better positioned for recovering equity values as we move forward. Continue Reading…