Inheritance enhances retirement and estate plan

Over the years we have helped new clients and existing clients deal with inheritances. In the majority of cases the inheritances are coming from parents. These can be done upon the parent’s passing away but are also done while they are alive in more and more cases. In other cases we have clients receiving inheritances from uncles/aunts, siblings, friends, and other individuals.

The greater the inheritance the more critical it is to get some professional advice. One positive part of receiving an inheritance in Canada is the money is not taxed. Following are some topics we would discuss when a client receives an inheritance.

Paying off debt

We like the idea of paying off debt, especially personal mortgages, credit cards, and lines of credit that are not tax deductible.

To begin with, we obtain a summary of all loans, current rates, and repayment penalties, if any.

If only some debt is repaid, then the highest non-deductible interest rate debt should be paid off first. If fees or penalties apply, it is important to obtain an understanding of these and your wealth adviser should be able to map out the best options.

If you still would like to invest some, or all, of your cash then you’re best to take a new loan out for the specific purpose of investing.

The interest expense incurred from the money borrowed is generally tax deductible if the purpose of the use of the borrowed funds is to earn income in non-registered accounts.

Increased income

One of the results of receiving an inheritance is that your annual taxable income is likely to increase. If you purchase GICs and bonds, you will have to factor in the interest income received. If you purchase equities, you will have tax efficient dividend income to report and some deferral options.

We provide an estimate of what the income will be once the investments are selected and calculate an estimated income tax liability if the funds are invested in a non-registered account.

Type of non-registered account

If you feel a non-registered account is your best option you should determine the type of account.

If you are single the choice is easy; an individual account. If you are married or in a common-law relationship, you may consider to open an individual account and keep the funds only in your name. Alternatively, you may open a joint-with-right-of-survivorship (JTWROS) account with your spouse or common-law partner.

The person who received the inheritance would be primary on the account. If a non-registered account is already opened then we have a discussion regarding the risk of commingling funds in the event of a marriage breakdown.

This discussion has many other components to talk about including tax, income splitting, and estate wishes. Consulting a family law attorney may be required in cases of marital breakdowns.

Topping up RRSPs

One way to defer some of the above income is to deposit funds into a tax sheltered Registered Retirement Savings Plan, if contribution room exists.

The greater your income, the better this option is. If your income is at or below the lowest tax bracket then there may be other options you would want to consider.

The determining factor is your future income expectations. As an example: John received $250,000 as an inheritance. He is using $150,000 to pay off all debt and would like to invest the remaining $100,000. John has accumulated a $140,000 RRSP deduction limit, as he has never contributed the maximum each year. John plans to work for the next five years and earns approximately $80,000 in T4 income.

One option we may suggest to John is to contribute the $100,000 into his RRSP and claim $20,000 a year as a deduction over the next five years assuming that there is no extra cash flow for additional contributions. One of the main benefits of putting funds in the RRSP (and not claiming the full deduction right away) is that all income is tax sheltered.

Tax Free Savings Account

Any income earned within the TFSA is tax free, if you have never set up a TFSA, the cumulated TFSA contribution limit for 2019 is $63,500. It may be worthwhile to understand the advantage of this type of account and top up to the maximum limit. Starting in 2019, the annual limit is $6,000, indexed to inflation thereafter.

If you have both non-registered account and TFSA, then we would recommend you to transfer your assets (up to the maximum limit) from the non-registered account into the TFSA, to take advantage of the tax-free feature.

Skipping a generation

Sometimes the people receiving the inheritance do not need the funds themselves. In these situations we often map out a strategy that will skip to the next generation. Sometimes this will help younger generations pay off mortgages, purchase a home, or build up retirement savings

Structure of accounts

Many Canadians only have RRSP or TFSA accounts. Often when significant funds are received (inheritance, sell of a business, life insurance proceeds), people open their first non-registered account.

One thing that we see is people buying GICs and bonds where the interest income is fully taxable in a non-registered account while leaving the equity investments which have tax-efficient dividend income within their RRSP. When this happens, the structure of investments is backwards.

There are many benefits of consolidating investments at one institution, including lower fees and more account options. It is beneficial to deposit the inheritance cash into a non-registered account at the same institution as the RRSP. If this is done then the structure can be corrected.

We are able to do a series of trades that will correct the overall structure will ensure that interest income on fixed income is tax sheltered within the RRSP. By holding Canadian equities in the non-registered account, you will receive the benefit of the dividend tax credit, and taxation of capital gains and losses.

Updated documents

Obtain the appropriate forms to update your investment accounts, Powers of Attorney, beneficiaries and ownership. We always encourage people to update their Will and other legal documents (if necessary).

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-2138.

 

Rebalancing helps manage risk

Wouldn’t you love a strategy of selling high and buying low?

Naturally we have the tendency to want to let our winners run without taking profits.

On the flip side, a good stock might be going through a rough patch and, rather than sell the stock, adding to it might be the right move.

Creating a disciplined rebalancing process begins with determining the portion of your investments in cash, fixed income and equities.

Below we have mapped out our general structure rule with respect to the equity component. A holding is common shares in a single company (for example, Canadian Pacific Railway or Apple).

Clients who have between $500,000 and under $2.5 million will typically hold a minimum of 25 holdings. An optimal number of holdings is 30, and no greater than 35 holdings.

Portfolios between $2.5 million and $5 million we recommend holding a minimum of 30 holdings, optimal number of holdings is 35, and no greater than 40 holdings. We use the term “optimal” to describe the dollar amount invested in each company in normal markets conditions.

Reba Watson has a portfolio valued at $1.4 million. She has a moderate growth portfolio where 80 per cent, or $1,120,000, are held in equities. Based on her portfolio size and being moderate growth, we can illustrate rebalancing.

Optimal positions size

$37,333 (essentially the equity portion of $1,120,000 divided by 30). Without going through this exercise, one would not know what a normal position size is. I have heard people say I purchase 100 shares of everything. That simply does not work for a host of different reasons. The most obvious reason is that some stocks trade at very low prices/share and others at much higher prices.

Half position size

$18,667 (essentially half of the optimal position size). Sometimes we wish to underweight a holding or overweight a holding from a strategic sense in the short term. If we feel that the markets are getting long in the tooth, or late in the bull market cycle, then reducing position sizes can be a strategic decision. This reduction would help if markets declined or had a correction. Another example of utilizing half position sizes may be a new client that has never invested before, to get the level of comfort up we may suggest half positions sizes to begin with. As time goes on, we would typically work toward optimal positions sizes.

Rebalance position size

$44,800 (essentially the equity portion of $1,120,000 divided by 25). If the long term goal is no fewer than 25 names this is a natural starting point to calculating your rebalancing number. Whenever we are reviewing portfolios, one of the first items we look at is position size and if any holdings need to be rebalanced. For example, we purchased $35,000 of Microsoft initially for a client. Today, we see that the position size for Microsoft has increases to $47,744. At a minimum, we would recommend to reduce the position by $2,944 (down to the rebalance positions size) or reduce the position by $10,411 (down to the optimal position size).

Excessive position size

$70,000 (this is calculated taking the total portfolio value of $1.4 million and multiplying by five per cent). If a client chooses to take an excessive holding in one company we document the extra risk incurred within the Investment Policy Statement (IPS).

Rebalancing frequency

Over the years, several studies have been done to determine the frequency of rebalancing reviews. Should investors rebalance quarterly, semi-annually or annually? As the markets vary from year to year, the frequency should be adjusted based on current conditions. Rebalancing asset mix and individual position size can normally be done at the same time. Rebalancing to your optimal asset mix should be done at least once a year. Prior to rebalancing, it is important to periodically review your Investment Policy Statement (IPS) to ensure that you are comfortable with the asset mix. Changes in market conditions and interest rate outlook are factors to discuss with your wealth adviser when revising the asset mix within your IPS. Your personal goals, need for cash, and knowledge level may result in your optimal asset mix needing to be adjusted.

Rebalancing to Investment Policy Statement

When an Investment Policy Statement is set up the optimal asset mix is outlined. To illustrate, we will use Reba, who invested in a portfolio with the following asset mix —fixed income 20 per cent and equities 80 per cent. Asset classes do not change at the same rate. Over the last year, equities grew faster than fixed income making the growth in her portfolio uneven. If after a year we meet with Reba and her portfolio is $1.6 million. Based on the optimal asset mix outlined in her IPS, 20 per cent, or $320,000, should be in fixed income. The remaining $1,280,000 should be in equities. When we looked at Reba’s portfolio, she had $283,000 in fixed income, and the remainder in equities. A disciplined approach would result in us selling $37,000 of equities and purchasing fixed income.

Although it may seem counter intuitive to sell an asset class that is doing well or buy one that is not, however that is precisely what is required if the fundamental principle of “buy low, sell high” is to be followed. By rebalancing your portfolio, you are staying the course and increasing the potential to improve returns without increasing risk. Rebalancing also helps smooth out volatility over time.

Disciplined rebalancing can provide comfort by taking the emotion out of your investment decisions. It does not seem natural to sell a portion of your investments that has done well and buy more of those that have been more sluggish. This discipline allows a reassuring way to buy when it is difficult and sell when it seems counterintuitive. When markets are down, human nature would have us get out rather than buy low, but a disciplined rebalancing process can prevail in the long run.

Although at times, the changes in the market may not be large enough for an investor to feel that there is any need to rebalance, the benefit to doing so can be significant over the long run with compounding returns.

Other forms of rebalancing

A more complicated component of the rebalancing process looks at geographic and sector exposure. Often at times, investors will have no clear benchmark at the beginning to assess the geographic and sector exposure. Without these parameters outlined at the beginning it is more challenging to have a discipline approach to rebalancing. Professional judgment and current conditions often move the benchmark of how funds are invested. Interest rates, political news, government policies and other factors can determine geographic and sector weightings.

Tax efficiency rebalancing

When a client opens up new accounts or makes significant deposits and withdrawals, this is an ideal time to look at all levels of rebalancing. Even with smaller deposits into an RRSP or TFSA account, it may be a good time to rebalance. In some situations, certain investments have better tax characteristics in different accounts. For example, we try to put interest-bearing investments and those that pay other income (such as foreign income) within an RRSP/RRIF. Investments that generate capital gains and obtain the dividend tax credit are often better situated within a non-registered account.

A spring break refresher on RESPs

Parents and grandparents, who typically set up Registered Education Savings Plans (RESPs), are referred to as the “subscriber.” The children or grandchildren are referred to as the “beneficiary” of the registered plan.

Parents are juggling many different things. Financial planning may not be the highest priority, especially if paying bills is a challenge. With all the different types of accounts, it can be a little confusing on where best to put the little bit of savings that may be available. Do you pay down the mortgage, make an RRSP contribution, open up a TFSA, or save for your child’s education?

The strategy I map out for young parents is to contribute $2,500 each year for the first fourteen years of your child’s life, and $1,000 when your child is 15. Doing the contributions early each year allows a greater amount of time for the value of the RESP to grow. If coming up with $2,500 as a lump sum is difficult, we suggest setting up a pre-authorized contribution (PAC) of $208.33 every month (assuming only one child). Automating this with your bank helps ensure you keep with the plan.

Tuition and textbooks are only part of the cost of education. Being able to have funds set aside for housing, living costs for school and transportation is important to add to the calculation. The RESP can help cover the costs of all of these expenditures.

One misconception is that the proceeds from an RESP can only be used to pay for tuition and textbooks. Withdrawals can be used to pay for all post-secondary education costs. The only reason we ask for a copy of the tuition receipt is to verify that the student is attending a qualifying education program or is enrolled in a specified education program. Most of the criteria focus on the programs having the appropriate number of hours.

Apart from the rising cost of education, the government provides the Canada Education Savings Grant (CESG) for contributions made up until the end of the calendar year in which the child turns 17. The basic CESG provides a grant of 20 per cent, up to a maximum of $500 per child. The lifetime maximum grant is $7,200. The plan noted above has annual contributions of $2,500 for 14 years ($500 CESG each year x 14 = $7,000) and a $1,000 contribution in the 15th year ($200 CESG). This contribution schedule enables the subscriber to claim and obtain the maximum $7,200 per beneficiary.

In addition to these federal grants, the British Columbia Training & Education Savings Grant (BCTESG) is also available. If you have children who were born in 2006 or later, the province will contribute $1,200 as a BCTESG. Below is a table taken from this website.

Grant application period for eligible children

Birth year 1st day of eligibility 1st day to apply Last day to apply
2006 Child’s 6th birthday in 2012 Aug. 15, 2016 Aug. 14, 2019
2007 Child’s 6th birthday in 2013 Aug. 15, 2015 Aug. 14, 2018
2008 Child’s 6th birthday in 2014 Aug.15, 2015 Aug. 14, 2018
2009 Child’s 6th birthday in 2015 Aug.15, 2015 Aug. 14, 2018, or the day before the child turns 9 (whichever is later)
2010 Child’s 6th birthday in 2016 The day the day child turns 6 The day before the child turns 9

The nice part about the BCTESG is that you just have to open an account and apply for this to receive $1,200 — no contribution is necessary. Most banks and credit unions will be able to assist you with the BCTESG; however, most full-service divisions of investment firms do not offer the BCTESG.

Now that we have mapped out the strategy of contributions the next decision is to decide how to invest the money. If you are eligible for the BCTESG, we recommend that you apply and keep these funds in a separate account. Because some firms do not offer the BCTESG, if you have included both BCESG and CESG in a single account, the entire account becomes tainted and you will not be able to be transfer the RESP to most full-service investment firms in the future.

With the BCTESG, we recommend investing this in a mutual fund at a bank or credit union. My opinion about the type of mutual funds when the beneficiaries are young, and the time horizon is greater, is to invest primarily in equity mutual funds.

With the account that is accumulating, the CESG, the funds can be invested in a number of different ways depending on the financial institution you are dealing with. If you open the account up at a bank or credit union then you are likely investing primarily in mutual funds. If you open the account up at a full-service investment firm then you could explore different options outside of mutual funds, especially once the account gets built up.

The priority, initially should be setting the savings discipline and obtaining all available grant money. As the beneficiaries get closer to needing the money, then shifting some or all of the investments into something more conservative to reduce risk generally makes sense.

Time to get educated

The time has come and the beneficiaries are going for higher education. Other than a copy of the qualifying “paid” tuition enrolment receipt (not the T2202A noted below) and a form signed by the subscriber, getting the funds out of an RESP is straight forward. The initial contributions from the subscriber are not taxed and can be paid out either to the subscriber or to the beneficiary — it is the subscriber who dictates how those funds are dispersed.

The CESG and the income earned (dividends, interest, and capital gains) are both taxed in the hands of the beneficiary as education assistance payments (EAP) when taken out. The firm you have the RESP through is referred to as the promoter and must issue a T4A to the beneficiary in the year of withdrawal. In most cases, we try to spread the EAP portion over four years (i.e. or the length of the program). The beneficiary will likely have limited other income while going to school. In the majority of cases, the end result is zero tax being paid on the CESG and the growth within the RESP.

Line 323: Your tuition, education and textbook amounts

The federal government eliminated the education and textbook tax credits in 2017. Students are still able to deduct eligible tuition fees paid for the tax year. A course typically qualifies for a tuition tax credit if it was taken at a post-secondary education institution or for individuals 16 or older who are taking a course to creating skills in an occupation and the institution meets the requirements of the Employment and Social Development Canada (ESDC).

The institution should issue a T2202A (Tuition and Enrolment Certificate) at the end of the year which lists the total paid in the calendar year that is eligible for the student to claim on his or her income tax return. The student must claim the amount paid even if mom and dad paid the tuition.

The student must first try to use the credits on their own tax return. Schedule 11 of the student’s tax return will list the total eligible tuition fees and the total tuition amount claimed by the student.

Line 324: Tuition amount

What if the student has limited or no income to utilize the tuition amount? The student has the ability to either carry the tuition amount forward to future years or transfer up to $5,000 of the tuition amount to your spouse, common law partner, parent, or grandparent. It is a little bit of a funky calculation and at first might seem a little strange.

I will illustrate with a student who has tuition costs of $9,300. During the year, the student earns $13,500 in taxable income. On Schedule 11 that we referred to up above, the student can claim some reductions of this. To keep things simple, we will assume only the basic exemption of $11,809 (2018) is available. The net amount is $1,691 ($13,500 – $11,809) and the student must first use this. The $9,300 total tuition amount is reduced by $1,691 (the amount claimed by the student. The amount remaining of the tuition amount is $7,609 ($9,300 – $1,691).

I know above I mentioned up to $5,000 can be transferred to your spouse, common law partner, parent, or grandparent. The maximum amount that can be transferred is $5,000 less the amount the student is claiming, which in this case is $1,691, equals $3,309. The student will then be able to carry forward, to future years the difference of $4,300 ($9,300 less $1,691 claimed by student and $3,309 transferred in the current year).

When I look at our client’s notices of assessments, I sometimes see unused tuition carry forward credits from previous years. Tuition amounts are non-refundable tax credits. This essentially means that in the past the client did not have any taxes to pay and was not unable to transfer the tuition amounts. Once the tuition amounts are carried forward to another year they are not able to be transferred. Although past carry forward tuition amounts did not provide an immediate tax benefit, they may have a current or future value. If you’re not sure how current tuition costs should be claimed or transferred, we recommend you speak with your accountant.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250.389.2138.

It’s tax time — will you do it yourself, or hire a professional?

In 1988, I got my first job working at an accounting firm. It was a great year to start in the accounting world as most clients were still doing everything manually. Individual tax packages could be picked up at the post office or mailed to clients for those who wanted to prepare the personal tax return (T1) themselves, small businesses often recorded transactions on manual ledgers and nearly every corporation would have to hire a local accountant to prepare the annual financial statements and file the corresponding corporate tax return (T2).

Accounting firms were largely the only ones using computers and newer technology to prepare and file tax returns. At this time there were three accounting bodies, Chartered Accountants (CA), Certified General Accountants (CGA) and Certified Management Accountants (CMA). These three organizations are now unified under one organization, and referred to as a Chartered Professional Accountant (CPA).

Corporate Tax Returns

Over time, point of sale systems, accounting systems, payroll systems and automation have been introduced directly to businesses. This made the larger volumes of transactions more manageable. In some cases, business owners learned how to do this on their own. In most other situations, accounting firms and bookkeepers helped business owners with this transition. Today, the owner of the business and bookkeepers normally compile all the daily information. This compiled information is then provided to CPA firms to do the final journal entries, financial statements, tax returns and regulatory filings. In the future with cloud computing gaining popularity, businesses will not be limited to using accountants within a limited geography.

On a daily basis, we are communicating with our client’s accountant to ensure that they are getting the information from us that they need. For example, if a holding company has a portfolio of investments, it wouldn’t be unusual to have hundreds of transactions in a year (i.e. purchases, sells, interest income, and dividend income). Annually, we will export all of the transactions during the year into an excel spreadsheet that is forwarded to both the client and the client’s CPA. This spreadsheet saves the accounting firm time by not having to enter every transaction. We also forward all the PDF copies of the statements, fee summary, realized gain (loss) statement, and T-1135 Foreign Verification statement. Nearly every one of our corporate/business clients uses a CPA firm. Proving this information to your CPA firm enables them to spend time giving you proactive big picture advice rather than spending time on data entry.

 

Personal Tax Returns

In the initial meeting with a new client, we always obtain the name of their accountant who prepares their personal income tax return. We obtain the accountants name, email, phone number, and fax number. Most accountants will have an annual tax checklist that they provide to their clients with the information they require. We also provide a letter to clients with a summary of the information that they can expect to receive from our team, firm and others. The letter outlines the timing of when they will receive the tax information. Because the information is coming from multiple sources and at different times, we encourage our clients to have a system to organize this information and pass on everything they receive to their accountant.

The timing of when you give your information to your accountant is important. We always encourage clients to wait until the beginning of April before giving their information to their accountant to ensure they have all the information needed to properly file their tax return.

We keep good analytics with respect to whether our clients use the services of a professional accountant. Ten years ago, about 85 per cent of our clients used the services of an accountant. Five years ago, the percentage using professional accountants had dropped to 75 per cent. Today, 67 per cent of our clients are using the services of an accountant.

Of the 33 per cent of our clients who do their own tax returns, nearly all use a software package, such as Turbo Tax. We still have a handful of clients who like preparing their tax return with the paper copies and mailing them in.

 

Professional Advice

Not everything is constant with tax policies and accounting rules. CPAs have to adapt to these changes quickly. In some cases there is a lot of overlap between the advice given from CPAs and financial advisers. One example is managing taxable income, especially in retirement. The decision of where cash flow is generated should give consideration to the tax consequences. This is especially important when clients have corporate investment accounts. The level and timing of wages and dividends can fluctuate and should be integrated into the timing of registered account contributions and withdrawals. With so many different types of registered accounts (RRSP, RRIF, LIRA, TFSA, RRSP, RDSP) it is important to have the correct combination based on your short and long term goals. Some of the decisions are driven by required cash flow and some are based on minimizing tax during your lifetime.

If a person is doing both their own self-directed investing and doing their own tax return, then they would not have any professional to obtain advice. Both accountants and wealth advisers are being asked financial and estate planning questions all the time. What is really valuable is when an accountant and wealth adviser provide proactive advice. The term, “you don’t know what you don’t know” certainly applies. The gap in knowledge can range from things that impact tax decisions in the shorter term like the contribution and withdrawals noted above. The decisions you make today could impact taxation for several years in areas such as income splitting rules, changes in RRIF minimums, and whether to collect CPP early. Accountants and wealth advisers have the tools to help with projections and decision making.

Quality of life and changes in your life are both good reasons to have qualified professionals that you know and trust. Even though you may be fully capable of doing your own taxes today, it will take time and you may miss something that you are not aware of. One simple proactive tip from an accountant or wealth advisor could save you thousands of dollars in taxes.

Deterioration in health has many cascading financial consequences and this becomes especially true if the spouse that does the tax returns becomes sick or passes away. It puts even more stress on the spouse during a difficult time if they have neither an accountant or wealth adviser that they know to speak with. During a meeting we may learn about a client’s health deteriorating. Depending on the severity, it can impact tax and estate planning. One example that has an income-tax impact is when we have recommended clients to talk to their doctor about completing Form T2201 for the Disability Tax Credit Certificate. Often at times people may qualify for the disability tax credit, but they did not know. We have had many clients get thousands of dollars back in taxes once they received appropriate advice. If we see years with high medical expenses then this could be an opportunity to offset with other taxable income, such as a higher RRIF withdrawal.

With accountants and wealth advisers working together, you will have two sets of proactive eyes making sure you are getting the best advice. In addition, you can spend your spare time, saved by not doing your taxes, with things that you really enjoy doing.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria.

50 questions to consider before making an RRSP contribution

An RRSP could be an important vehicle in reducing the amount of tax you pay in your lifetime.

However, an RRSP may not be for everyone.

Last week, we reviewed marginal tax brackets and took a mathematical approach to determine whether you should contribute to an RRSP. Incomes below $39,676 in 2018 could save between zero cents and as much as 20 cents on each dollar contributed. Incomes above $205,842 save 49.8 cents on each dollar contributed.

Many individuals have taxable income above $39,676 and below $205,842. We will refer to this as the grey zone. The mathematical approach has many shortfalls.

Below are fifty questions to help those in the grey zone determine if making an RRSP contribution is right for them.

1) How old are you?

Typically the younger you are the longer you have tax deferral. Tax deferral is the number one benefit of an RRSP, not the immediate tax deduction for the contribution. A 40 year old could have over 30 years of deferral. A 65 year old has six years.

2) What is your income level?

If your income is very low then it may not make any sense to contribute. If you are in higher marginal income tax brackets, then the income tax savings can be significant. Last week we outlined the math for those will regular forms of income.

3) Does your income level fluctuate year to year?

Certain professions have income levels that fluctuate year to year. With some years being so low that dipping into savings is necessary. The greater the fluctuations in income the more important it is to have some emergency funds outside of an RRSP.

4) Do you have future large income tax years?

In cases where clients have moderate levels of income today but intend on selling an asset such as a rental property for a significant capital gain in the future, building up and saving the contribution room or building an “unused” component, to offset the large income tax years can often be a good strategy.

5) Are you looking to purchase a principal residence?

If one of your goals is to purchase a principal residence then the majority of your savings should be done in either a non-registered account or a TFSA for easier access. The one exception could be the RRSP Home Buyers Plan (see below).

6) Are you eligible for the RRSP Home Buyers Plan (HBP)?

First time home buyers can participate in the RRSP Home Buyers Plan(HBP). This program allows you to withdraw up to $25,000 in a year from your RRSP towards a qualifying home. If your income is higher and you do not yet have $25,000 in an RRSP then contributing to an RRSP up to this level and then withdrawing the funds under the HBP can be a good strategy for new home owners. A RRSP can not only help you save for retirement — it can also help you save for your first home.

If you and your spouse both borrow the same amount from your RRSP accounts you can put up to $50,000 combined towards a down payment. The HBP enables you to get access to the money you saved, the investment growth, and receive the tax savings.

With the HBP you are essentially borrowing from yourself. You have to pay the amount you borrowed back within 15 years. If you took out $25,000, you must pay back into your RRSP $1,666.66 annually. If you miss these repayment amounts then you will be taxed on the missed payment.

7) Have you contributed to an RESP for any minor children?

Often I see parents not taking advantage of the Canada Education Savings Grant (CESG) linked to RESP contributions. The government matches 20 per cent on the first $2,500 contributed annually per child, up to age 18.

8) How old are your children?

If cash is limited, often at times an RESP contribution is a better use of funds, especially if the children are approaching 18 and have not yet obtained the lifetime maximum of $7,200 CESG.

9) Have you set up a Registered Disability Savings Plan (RDSP) for a minor or adult child with a disability?

The RDSP has benefits even for those who do contribute. The government also give funds under a matching program which is dependent on the beneficiary’s family income. If funds are limited then Contributing to an RDSP often is a better option.

10) Do you have a Tax Free Savings Account (TFSA)?

Individuals with lower income today are generally better off to contribute to a TFSA. If income levels rise then you can always move the funds out of the TFSA and contribute to an RRSP in the future.

11) Have you maximized contributions to your TFSA?

An RRSP contribution can assist you in reducing the current year income but will eventually be taxed when the funds are pulled out. On the other hand, the TFSA grows tax-free but does not assist you in deferring any of your earned income in the current year. By taking a longer term view, the TFSA for those with lower income, and amounts to save, should seriously consider a TFSA over an RRSP.

12) Are you, or dependents, attending post-secondary education?

Often at times these costs can help with lowering your taxes payable. Obtain an estimate of all potential deductions and factor this in when determining what amount, if any, to contribute to an RRSP.

13) Are you claiming any disability deductions and credits?

The disability tax claimed either for self, or others, can significantly lower your income tax liability. It is important to factor these credits in when making RRSP contribution decisions.

14) Did you know that your RRSP can help you get an education?

The RRSP program is called Lifetime Learning Plan (LLP). Your RRSP can help pay for the education and training you may need to build a new career or make a change.

The LLP enables you to take out up to $10,000 per year ($20,000 maximum) from your RRSP to pay for tuition for you or your spouse.

With the LLP you are essentially borrowing from yourself. You have to pay the amount you borrowed back within 15 years. If you took out $10,000 you must pay back into your RRSP $666.67 annually. If you miss these repayment amounts then you will be taxed if you miss a payment.

15) Do you have family, child care, and caregiver expenses?

If you have these types of expenditures then you may be eligible for deductions and/or credits on your income tax return. These deductions and credits should be factored in when looking at the amount of RRSP contributions to make. It is important to know that some credits are non-refundable and contributing to an RRSP in some situations may not be as worthwhile from a deduction standpoint.

16) Do you have significant medical expenses in the current year?

If you had an unusually high level of medical expenses in a current, or a 12 month period, you should advise your financial adviser. It may be that these medical expenses have already helped reduce your projected taxes payable to an acceptable level that making an RRSP contribution is not necessary in the current period.

17) Do you have excess cash in the bank?

If you have excess cash that would otherwise be invested in a non-registered account and generating T3 and T5 income then an RRSP can help reduce two forms of income. By investing these funds in an RRSP you will not be receiving a T3 or T5, or have to report the capital gains on dispositions. These savings along with the deduction can make sense if the cash in the bank can be committed to retirement.

18) How did you intend to fund the RRSP contribution?

If you do not have money to fund the RRSP then that sometimes helps with the decision-making. Clients have asked me whether it makes sense to borrow money to put into an RRSP. Interest on RRSP loans are not deductible. Historically, there have been a lot of articles that discuss how to use a short term RRSP loan in February that can be partially paid back (provided you get a refund) once your tax return is filed and assessed. If the funds can be paid back quickly, with minimal interest costs, then it can make sense.

19) Do you have a spouse to name as the beneficiary?

If your spouse is named the beneficiary of your RRSP then you have less risk of an adverse tax consequence if you were to pass away (see question 50). Contributing to an RRSP, with your spouse named as the beneficiary, has two benefits in my opinion. The first obvious benefit is that it assists both of you in retirement should you live a normal life expectancy. The second benefit is that it provides assistance to your spouse in retirement in the event that you were to pass away before retirement.

20) Where can you find out how much you can contribute?

The most common approach is to look at last year’s Income Tax Notice of Assessment (NOA). The RRSP deduction limit table will provide these numbers. If you are unable to find the NOA then you can log into CRA My Account.

21) Are you aware of the different types of investments to put into your RRSP?

An RRSP is a type of an account and not a type of investment. The options for what you can put into an RRSP can vary significantly. Putting the cash into the RRSP is only the beginning. The most important part is ensuring the capital is protected and invested appropriately to grow for the decades ahead. We encourage you to do some research. Next week we will outline investment options for your RRSP.

22) If you make an RRSP contribution, have you estimated how much tax you will have deferred in the current year?

Many online RRSP calculators can compute the tax savings for a contribution. This works great if you have regular forms of income, such as T4 employment income. If you have certain other types of income, such as dividend income from a corporation, then it is best you have your accountant do the projections for you.

23) Are you aware that you can contribute to an RRSP and save the deduction (considered “unused”) for future years?

One might ask, “why would I contribute money into my RRSP and not immediately claim all of it as a deduction in that year?” Perhaps the best way to answer this is by looking at a real scenario where a couple may have worked hard for over 20 years to pay off their mortgage and become debt free. During all those years of focusing on paying down debt they accumulated a significant RRSP deduction limit. Unexpectedly this same couple receives a significant inheritance. They decide to move $50,000 into an RRSP account. By moving some of these funds into an RRSP they have immediately tax sheltered and obtained deferral of the income and growth. They have a goal of retiring in five years and have mapped out a plan of deducting $10,000 of the unused each year for five years.

24) Are you a member of any Registered Pension Plans?

If you are a member of an RPP then you will see a Pension Adjustment (PA) calculation on your annual Income Tax Notice of Assessment. Depending on your income level, and the quality of your RPP, some or nearly all of your RRSP deduction limit will be reduced by the PA. An RRSP was primarily design for individuals without an RPP. Those without an RPP should consider an RRSP more closely. Even those with an RPP, an RRSP is definitely worth considering if you have both the deduction limit and cash flow.

25) Do you have non-deductible debt?

A mortgage on your principal residence is normally non-deductible unless you have a business component operating from your home. Credit card charges and personal lines of credit are also normally non-deductible. The more non-deductible debt you have the less attractive committing your savings to RRSP contributions. Any high interest credit card or other debt expense should be a top priority to tackle before making RRSP contributions. This is especially true if the debt is non-deductible.

26) Do you have any deductible debt?

If your interest costs are deductible then these costs also help lower your taxable income. If with your excess savings you choose to pay off deductible debt then this would result in lower interest costs for you (which is good) but also results in a lower interest expense deduction. If funds are dedicated to an RRSP then you have the benefit of both the interest expense deduction and the RRSP deduction.

27) What are the balances of all lines of credit, loans, and mortgages?

Looking at your pre-payment options and the interest rates on each form of debt is important. Also important is to focus on paying down the non-deductible debt before the deductible debt. If all the debt levels and interest rates are reasonable then considering an RRSP contribution can provide you the balance of both real estate and financial assets.

28) Have you made any significant donations?

If you have made, or are planning to make, a significant charitable donation then you should factor this into the amount to contribute to an RRSP. Both federal and provincial charitable tax credits are available which would reduce income taxes payable.

29) Were you intending to borrow funds to contribute to an RRSP?

Interest on a loan for an RRSP is not tax deductible. If the RRSP loan is at a good rate and you feel you can pay the loan off within a reasonable period of time (i.e. with tax refund) then it may make sense in higher income earning years.

30) What are the rates on your non-deductible and deductible debt?

When I meet with clients and they have questions about where to put the excess cash, TFSA, RRSP, paying down debt. One of the first items I’ll ask for is the terms of any existing debt (i.e. interest rates, prepayment privileges, and whether or not the debt is deductible.) Sometimes we are able to propose a series of transactions to make more of your interest costs tax deductible.

31) Should I set up a spousal RRSP?

A spousal RRSP contribution may make sense if there is a disparity between taxable incomes in the long term. I like to look at longer term projections and try to equalize taxable income throughout retirement to lower taxes as a household. Care has to be taken to ensure attribution rules do not kick in with withdrawals.

32) Do you and your spouse work?

One of the pitfalls to an RRSP for single people is the loss of employer or if a financial emergency comes up. Two income families can weather this risk often at times without having to dip into RRSP funds to pay the bills.

33) Are you intending to become non-resident of Canada in the future?

The strategy with respect to an RRSP can be impacted if the long term intention is to retire in a foreign country. Any withdrawals out of an RRSP if you are non-resident will be subject to a flat 25 per cent withholding tax or at a reduced rate pursuant to the tax treaty with the foreign country. If you are normally in the highest tax bracket, becoming non-resident before any withdrawals can work to your advantage. If you had planned to have retirement income within the first income federal income tax bracket then you are likely to pay close to twice the normal tax if you’re non-resident.

34) When are you planning to retire?

Providing details on your retirement to your financial advisor will also help with determining if an RRSP contribution makes sense. In some cases, your RRSP deduction limit can be used to roll in retirement allowances and offset a high income final employment year.

35) What is your ratio of non-registered funds to registered funds?

Prior to entering retirement, it is advisable to also have investments in a non-registered account and funds in the bank. If all of your investments are currently in an RRSP then you should talk with your advisor about TFSA and non-registered accounts. Ideally you should have the ability to adjust your cash flow needs without having adverse tax consequences in retirement. The non-registered account is often at times the solution to deal with these fluctuations.

36) Do you have a corporation where income can be tax sheltered?

The ability to tax shelter funds within a corporation has historically come with many benefits. In past years many accountants have advised small business owners to keep excess cash within the corporation and avoid RRSP contributions. Cash flow to the shareholder was often done in tax efficient dividends. Recent changes in tax rules has resulted in many business owners meeting with accountants to determine the best strategy going forward, including RRSP contributions.

37) Have you spent the time to invest the funds appropriately?

Investment options within an RRSP vary considerably. The choice of investments should reflect your risk tolerance, investment objectives, and time horizon. It goes without saying that if RRSP funds are invested appropriately you will achieve your retirement goal sooner. Next week we will discuss the various investment options within an RRSP.

38) Do you have the discipline to keep the funds invested through to retirement?

One of the biggest mistakes young investors make is pulling funds out of an RRSP early. RRSP withdrawals become taxable income when they are withdrawn. The RRSP room is lost indefinitely and cannot be replenished. Prior to making a contribution, you should determine if you can commit the funds for its intended purpose. If in doubt, you should consider a TFSA or non-registered account.

39) Are you aware of the pre-authorized contribution (PAC) approach to RRSP savings?

One approach to saving for an RRSP is to do forced savings every month. For a lower income client who still wishes to save within RRSP, coming up with a lump sum amount of cash can be difficult. If that client were to pay themselves $500 every month then slowly over time they would build up an RRSP nest egg. It is important with a PAC that you always keep an eye on your contribution limit and adjust the PAC accordingly. The benefit of a once a year lump sum is that you can always ensure that the amount contributed is equal, or below, your deduction limit.

40) Do you know the consequences for putting too much into an RRSP?

All over-contributions of more than $2,000 above your deduction limit will incur a penalty of one per cent per month. To avoid receiving brown envelopes from CRA, take extra care to not exceed your allowable contribution limits.

41) Does it make sense to have more than one RRSP account?

The Income Tax Act does not put a limit on the number of RRSP accounts you may have. For all intents and purposes we recommend having only one or two RRSP accounts. Having one RRSP account with an advisor will help them manage your asset mix, sector exposure, geographic exposure, and position size on each investment. If you have the option of a group RRSP that is matching then having two RRSP accounts makes sense.

42) How do I combine my RRSP accounts?

Unfortunately combining RRSP accounts comes at a cost most times. Nearly all financial institutions will charge a transfer out fee. An example of the fee may be $125 + tax. Let’s say Jack rushes to make a last minute RRSP contribution for $10,000. He is so rushed that he also agrees to put the funds into a two year GIC at two per cent. The next year Jack does the same thing but at a different financial institution. When I met Jack the first thing he said to me was he was not making a lot of money on his RRSP accounts. Jack showed me four different RRSP accounts at different financial institutions. Jack had intended on doing the right thing each year but had slowly created a bit of a mess that was not performing above inflation levels. I explained to Jack that we could diarize to consolidate the GICs once they mature. I also explained to Jack that this will come at a cost. The relinquishing institutions will each charge him $125 + tax wiping away over half of the interest amount he had made. In my opinion, having one well managed RRSP with all investment options available is the best approach.

43) When do I have to convert my RRSP to a RRIF?

The Income Tax Act states that your RRSP must be collapsed by the end of the year you turn 71. Most clients choose to convert their RRSP to a Registered Retirement Income Fund, or RRIF. Other options are to de-register the full account. This option may be okay for small accounts when your other income is low. Normally, this is not advisable as the entire value of the RRSP becomes taxable in one year. Another option, is to purchase an annuity.

44) How long can I have an RRSP?

In British Columbia, the age of majority is 19. An RRSP has to be collapsed at age 71. Mathematically, one could have deferral for 52 years within an RRSP and continue most of that deferral even further within a RRIF. The reality is that many do not start contributing as early as age 19 and many have collapsed their RRSP accounts before age 71.

45) Is it possible to contribute to an RRSP after the age of 71?

You may contribute to your own RRSP until December 31 of the year you turn 71. You can also contribute to a spousal RRSP until December 31 of the year your spouse or common-law partner turns 71. If your spouse is younger then you, and you still have RRSP contribution room, then you may contribute.

46) Should I participate in a Group RRSP plan?

The primary purpose of a group RRSP plan is to encourage you to save some of your hard earned dollars. Your employer may offer this option by enabling you to contribute through payroll deductions. Often at times the investment options are limit to those offered by the group provider. In some situations, your employer may offer a matching program where you put in a set percentage of your pay and they will match up to a maximum level. In nearly all cases when an employer is willing to match your contributions it is worth participating in the Group RRSP.

47) Do I have to wait until I retire to transfer part or all of my Group RRSP plan to a self-directed RRSP?

Not all Group RRSP plans are the same. In most Group RRSPs you are permitted to transfer the investments to another RRSP account provided the plan does not have any provisions preventing the transfer. In most cases we recommend that when a sufficient amount has accumulated in the Group RRSP that the amount is transferred to your other RRSP account.

48) What is one of the most common errors you see with RRSP accounts?

I think all too often individuals are so focused on wanting to save as much tax in the current year that they forget to look at the big picture of minimizing tax during their life time.

49) What happens if I need cash out of my RRSP before retirement?

The standard withholding rates are 10 per cent for amounts up to $5,000, 20 per cent for amounts over $5,000 and below $15,000, and 30 per cent for all amounts over $15,000. The actual level of tax that you pay will be dependent on your other forms of income and if you have any deductions or credits.

50) What happens if I passed away with money in an RRSP?

I left this question for last for a reason. If your spouse is listed as a beneficiary then your RRSP would be combined with the surviving spouses RRSP and you would have complete deferral of immediate tax on the first passing. For all others, single people and widows, the tax deferral ceases on the second passing. Canada Revenue Agency is likely to collect nearly half of the amount you have remaining in your RRSP.

The above is just a sample of the potential questions that could be asked as the RRSP conversation unfolds. Understanding the reasons for the above questions can help both you and your adviser make informed decisions.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250.389.2138. greenardgroup.com

 

 

The mathematical approach to RRSP contributions

The Income Tax Act allows you to contribute up to 60 days after the end of the year to your RRSP.

For the 2018 tax year, the last day to contribute is Friday, March 1. This 60-day buffer gives you ample time to estimate your taxable income and determine if it makes sense to make a contribution.

Assuming it makes sense, the next step would be to look up your 2018 RRSP Deduction Limit. This can be obtained either by looking at your previous year’s Income Tax Notice of Assessment. Within this notice you should see a table that is titled “2018 RRSP Deduction Limit Statement.” This table provides your RRSP deduction limit for 2018 and will note the dollar amount of any unused RRSP contributions. If you have unused RRSP contributions, this amount must be subtracted from the RRSP deduction limit to obtain a net amount. Unused RRSP contributions are amounts that you contributed in past years but have not yet claimed.

To illustrate, your statement could show $26,480 on the RRSP deduction limit line. On another line it may show $12,100 of unused RRSP contributions. In this situation, the maximum you would be able to contribute, and be able to claim as a deduction, is the net amount of $14,380. CRA does permit individuals to contribute $2,000 over and above this net amount without being subject to the one per cent per month over contribution penalty.

Now you have estimated your taxable income and you know the maximum net amount to contribute.

In next week’s column, we have listed 50 questions people should ask themselves before jumping directly in. It is still early in February and you have lots of time to still make an informed decision.

Perhaps one of the more simplistic approaches is to estimate the tax savings if an RRSP contribution is made. Reviewing both the federal and provincial marginal tax brackets is the starting point.

Federal tax rates for 2018

• 15 per cent on the first $46,605 of taxable income, +

• 20.5 per cent on the next $46,603 of taxable income (on the portion of taxable income over 46,605 up to $93,208), +

• 26 per cent on the next $51,281 of taxable income (on the portion of taxable income over $93,208 up to $144,489), +

• 29 per cent on the next $61,353 of taxable income (on the portion of taxable income over $144,489 up to $205,842), +

• 33 per cent of taxable income over $205,842

B.C. tax rates for 2018

• 5.06 per cent on the first $39,676 of taxable income, +

• 7.7 per cent on the next $39,677, +

• 10.5 per cent on the next $11,754, +

• 12.29 per cent on the next $19,523, +

• 14.7 per cent on the next $39,370, +

• 16.8 per cent on the amount over $150,000

This math-oriented approach can be simplified through many online RRSP calculators. The estimates below are from https://www.ey.com/ca/en/services/tax/tax-calculators-2018-personal-tax

Taxable Income

Taxable income before RRSP contribution Taxes payable before RRSP RRSP contribution Taxes payable after RRSP Taxes savings difference ($) Taxes payable difference (%)
$10,000 $0 $10,000 $0 $0 00.00%
$20,000 $1,256 $10,000 $0 $1,256 12.56%
$40,000 $5,734 $10,000 $3,618 $2,116 21.16%
$80,000 $16,669 $10,000 $13,831 $2,838 28.38%
$120,000 $31,285 $10,000 $27,230 $4,055 40.55%
$160,000 $48,241 $10,000 $43,661 $4,580 45.80%
$200,000 $66,561 $10,000 $61,981 $4,580 45.80%
$240,000 $86,247 $10,000 $81,267 $4,980 49.80%

No Taxable Income

For individuals with no taxable income, we do not recommend contributing to an RRSP as there are no tax savings. If a child or individual has earned income and they are under the basic exemption it may still be beneficial to file a tax return. Filing a return will report the earned income, 18 per cent of which will be used to build up RRSP contribution room for the future. One day when the individual has higher taxable income they will also have RRSP room they can take advantage of.

Lowest Marginal Rates

Individuals who are in the lower marginal tax bracket but are expecting a significant increase in salary next year may be better off delaying their RRSP contribution. If an RRSP contribution is made then the individual may be better off not claiming the deduction and carrying forward the unused portion to the subsequent years when it is more advantageous. If your income is below the top of the first provincial tax bracket (2018 this is $39,676) you should look at all the non-mathematical components of the RRSP decision.

Highest Marginal Rates

Those in the highest marginal tax brackets may benefit the most from RRSP contributions. Canadian taxpayers have few ways to lower their taxable income — an RRSP contribution is one. As illustrated above, individuals in the 49.8 per cent marginal tax bracket may reduce taxes payable by about 50 per cent of the amount they contribute. In addition to the tax deduction any potential growth within the RRSP compounds on a tax-deferred basis until the funds are taken out as a withdrawal (hopefully in a lower tax bracket in retirement). If you are in the highest marginal tax bracket, with taxable income over $205,842, we normally recommend contributing to an RRSP from a mathematical perspective.

Many people are in the grey zone, with income above $39,676 and below $205,842. The mathematical approach is useful, but often is too simplistic. Next week we will outline 50 questions to help those in the grey zone determine if making an RRSP contribution is right for them.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250.389.2138. greenardgroup.com

Part II – RRSP Turns 60: Still a Good Bet for Retirement

Registered Retirement Savings Plans (RRSPs) were first introduced 60 years ago, created by the federal government to help people who didn’t have a work pension to save for retirement by socking away pre-tax money.

In 1957, the threshold for the RRSP was the lesser of 10 per cent of income or $2,500.  Over the years the threshold methodology has changed.  Over the years, the threshold methodology has changed. Since 1991, the income threshold of 18 per cent of income has been used.

Starting in 1996, and continuing to today, the new contribution ceilings were indexed to the rise in average wages.

For 2017, the annual maximum, or contribution ceiling, is $26,010, which is reached when earned income is at $144,500 for the prior year.  After you file your 2016 tax return, the government communicates to taxpayers their 2017 RRSP contribution limit on the Notice of Assessment.

The calculation for the RRSP contributions limit is adjusted for individuals who have a work pension.   This reduction is referred to as a pension adjustment and also shows up on your Notice of Assessment.

A pension adjustment is done for both Defined Benefit Plans, where employers bear the risk of market-value changes, and Defined Contribution Plans, where employees bear the risk.

Pension plans have been deteriorating over the last decade.  Individuals who either do not have a pension through work, or do not have a good quality pension, should consider having an RRSP.

Outside of the two types of pensions, some employers will offer a program to help build up your RRSP, or other accounts.  In some cases, these are matching type programs, where you can put in a certain percentage of your salary, and your employer will match it, up to a defined threshold.  These are often referred to as a group RRSP and it is worth participating in.

If you have an RRSP program at work, then having that one is a must.  As you are typically restricted by the types of investments you can invest in with a group plan, we encourage people to also have one external RRSP account.

The external RRSP account would hold all the contributions done outside of your group plan.  In some cases, individuals can transfer funds from a group RRSP to an external RRSP.  In other cases, the funds must stay in a group RRSP until you cease employment with the sponsoring company.

You should receive a statement for any company sponsored pension.  Reviewing this statement is especially important if your plan is a Defined Contribution Plan where you had to make investment choices.

You have made decisions to determine the percentage to invest in fixed income versus equity and whether to have Canadian equities versus foreign equities.

If you have a group RRSP plan, you likely can view information electronically and also receive statements more frequently.

All of this information should be provided to your financial advisor, prior to making any financial decisions regarding your external RRSP.

As the quality of pension plans has deteriorated, the methodology of how to invest funds within an RRSP has changed for some investors.  The three broad categories are cash equivalents, fixed income, and equities.

In 1957, a 90 day treasury bill (cash equivalents) could be purchased with an interest rate of 3.78 per cent, climbing to 17.78 per cent in 1981.

Investing RRSPs in conservative investments, such as cash equivalents, provided decent enough returns during this period.  The latest T-Bill auction of 2016 had the 90 day treasury bills paying a yield of 0.50 per cent.   Most would agree that putting the investments within your RRSP into cash equivalents would not provide the returns to keep pace with inflation, especially after tax is factored in.

Bonds are a type of investment that is classified within fixed income.   The reason most investors purchase bonds is for capital preservation and income.  In order to achieve the goal of capital preservation, it is advisable to invest in investment-grade bonds.  Yields on these bonds are at historic lows.  The yield curve is also very flat, so purchasing a longer term investment grade bond does not increase the yield significantly enough to warrant the potential risk if interest rates rise.   The primary reason to hold bonds in an RRSP portfolio today is capital preservation.

Equity investments provide both growth and income.  In fact, the right types of common shares can pay dividend income that exceeds the interest income on most investment-grade bonds.  Portfolio values will fluctuate greater as the equity portion increases.

An advisor can put together a portfolio of lower risk stocks, often referred to as “low beta” that can reduce this volatility.  We feel those who tolerate increased volatility will be rewarded in the long run by holding the right equity investments.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria.  His column appears every week in the TC.  Call 250.389.2138. greenardgroup.com 

This is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article.  The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member Canadian Investor Protection Fund.