Plan your charitable donations

Many of us are fortunate enough to be in a position to give back to society. Many individuals choose to demonstrate their philanthropic support through monetary contributions while others choose to dedicate their time by serving on boards, volunteering and other charitable actions. With thousands of registered charities in Canada, there are many options available to individuals wishing to make a charitable impact.

One of the questions we ask clients is if they have charitable intentions. We also talk about charities they may be considering and how they would like to support them. The reason we ask this is to ensure we know if it is a registered charity or a non-profit organization. From a tax standpoint, only a registered charity in good standing with CRA is able to issue official donation receipts.

Having all of this information enables us to provide proactive strategies. Eligible donations are considered non-refundable tax credits. When we know our clients are making significant donations, we may adjust other components of their financial plan. Donation strategies should be integrated into both the current financial plan and long-term estate plan. In nearly every case we have reviewed, our clients are able to give more if they create a strategy on how they make their donations.

The number of charities is growing and they are becoming increasingly sophisticated in their campaigning techniques. As more charities chase donor dollars, the landscape is getting more competitive. Appeals from charitable causes seem to be consuming more time and energy than ever, leading to terms such as “donor fatigue.”

Similar to investing, we advise our clients to do their homework before they give. We feel that individuals with a limited amount to allocate to charities are best to plan their donations. We also encourage individuals with powers of attorney to review donations being made. We also understand that donations cannot always be planned, for example giving additional funds to individuals/groups affected by a natural disaster or other unforeseen event.

Your portfolio manager should be able to assist with the planning activity and should include making calculations of your tax savings, based on specific donation amounts. You can then decide how to allocate the donations to a charity or among a number of charities. Planning your donations often enables you to obtain the best tax breaks for the dollars you donate. This planning may allow you to make even greater donations in the future.

There are many different strategies for making significant donations, including donating insurance, setting up a charitable remainder trust and specific bequests in your will.

Below, we have mapped out two commonly used strategies: Donating securities and leaving your RRSP or RRIF to charity.

Benefits of donating securities

Most well-established charitable organizations have an account with a financial institution and accept donations of securities (publicly traded shares or mutual fund units) known as a gift in kind.

The reason charities have these types of accounts is to facility another method of receiving donations. Most of our large-client donations to charities are facilitated through the transfer of shares of publicly traded companies. If certain types of capital property, including publicly traded securities, are donated to a registered charity, then it is eligible for an inclusion rate of zero on any capital gain realized on such gifts.

Essentially, if you gift publicly traded securities that have appreciated significantly over the years, you will not have to pay tax on the capital gains. Another primary benefit of given publicly traded securities is that it is assessed at its fair market value which is used for purposes of determining the donation tax receipt you receive.

Shares are best transferred electronically from the donor’s investment account to the charity’s brokerage account. To transfer securities electronically, an investor will generally have to provide the financial institution with appropriate written instructions that may be referred to as a letter of authorization (LOA). Different firms may have additional or alternative requirements. Most Portfolio Managers will be able to assist you in drafting your LOA.

Let’s assume that an individual owns 1,000 shares of a company with significant unrealized gains. The individual may choose to donate only a portion of these shares, say 100 shares. Alternatively, the individual may decide to donate all of their shares over a number of years. This provides the ability to support a charity on an ongoing basis while also dealing with a security that has a significant unrealized gain.

Most financial firms will complete in-kind security transfers to a registered charity on a complimentary basis (with no fees or commissions). If you are planning to sell some stocks, and if you are also planning to make donations, it makes sense to consider contributing shares in-kind to your favourite charity. It is important to note that certain other types of property can be donated to charity and have the same tax preferred treatment. It is best to check with your tax advisor and portfolio manager prior to making the donation.

Leaving your RRSP or RRIF to charity

Couples have the ability to name each other the beneficiary on their Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Funds (RRIF). One of the main benefits of this is on the first passing, the RRSP or RRIF can be rolled into the surviving spouse’s registered account on a tax deferred basis.

For singles and surviving spouses, planning your estate to avoid a large tax bill becomes more challenging. Naming the beneficiaries of your RRSP and RRIF accounts should involve some strategy and should be integrated into your overall estate plan.

If you have charitable intentions, then your RRSP and RRIF accounts can be a source of funds for this purpose. One way to avoid paying Canada Revenue Agency nearly half of your registered account is to gift your RRSP or RRIF to charity.

We will use Mr. Wilson as an example, with $1,000,000 in his RRIF account. If Mr. Wilson were to name the estate as the beneficiary and pass away with other taxable income plus the RRIF, about $498,000 would be paid to Canada Revenue Agency and $14,000 in probate costs. The estate would net out $488,000.

If Mr. Wilson instead chose to name four charities as beneficiaries on his RRIF then the outcome would be considerably different. Each of the four charities would each receive a cheque for $250,000 and CRA would not receive any tax revenue with respect to the RRIF account.

Before implementing any strategy noted in our columns, we recommend that individuals consult with their professional advisers. As we mentioned in an earlier article, if you have made significant charitable donations then these are considered non-refundable tax credits. Your portfolio manager should be made aware of these to ensure that any adjustments to taxable income (i.e. registered account withdrawals) can be factored in prior to the end of the year.

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 at Call 250-389-2138.


An end-of-year financial checklist

As we near the end of 2019 it is always a good idea to reflect on the past. We have rounded up some of our past articles to help make sure you have completed all the financial transactions that you had either planned on making or should consider doing, before year end. We have also put together a financial check list of items to start thinking about before the end of the year.

Have you topped up your Tax Free Savings Account?

As of 2019 the maximum one can contribute to your TFSA is $63,500. Earlier in the year we wrote three articles specifically on the TFSA (TFSA Limit increased to $6,000 for 2019Strategies help contribute to your TFSA earlyUnderstanding TFSA beneficiary terminology). If you have not already done so, now is a good time to make sure that you have topped up your TFSA for 2019. If you have not, or are not able to, not to worry, you are able to carry forward any unused room and make those contributions when the cash flow allows. As we have mentioned in previous articles, we view the TFSA as a long-term account that would typically hold equities inside it so, the earlier you get those contributions in, the longer you have to protect any potential gains within the TFSA.

2020 TFSA limit announced

We already know that Canada Revenue Agency has announced that the 2020 TFSA limit is $6,000. December is the ideal time to speak with your portfolio manager to determine how you want to fund 2020’s TFSA contribution. Some of our clients will mail a cheque to be deposited in their non-registered account so that we can simply journal these funds over in the first week of January. We have spoken with other clients about transferring securities in-kind from their non-registered account in early January. In many cases we have had these discussions in 2019 to plan what we will be doing in early 2020.

Determine if you should contribute to an RRSP

By now you should have a pretty good idea of what your income is going to be for the year. Although the deadline to contribute to your RRSP is not until March 2, 2020, if you already know how much you would like to contribute and have the available funds then why not do it now? If you are unsure of how much to contribute, or if you even should contribute to your RRSP, then we encourage you to read our Feb. 1 article (The mathematical approach to RRSP contributions) and Feb. 8 article (50 questions to consider before making an RRSP contribution) which discusses various strategies in much more depth.

2020 RRSP maximum contribution

On the Government of Canada website it states that the RRSP dollar limit for 2020 is $27,230. This additional room would be added provided you have $151,278 in earned income without other adjustments (i.e. pension adjustments). Similar to making TFSA contributions early, we encourage clients who want to maximize RRSP contributions to make early contributions. Having the funds earmarked in December will help you make a contribution early next year. The longer you have the funds in your RRSP, the longer you have for potential tax-deferred growth.

Converting your RRSP to a RRIF

In the year you turn 71 you are required to convert your RRSP to a RRIF. This conversion has to be done before December 31st. The reason for this is that the following year is the first year that you actually take the payment from the RRIF which is percentage based on the Dec. 31 value of your RRIF. In some cases even though you are not turning it may make sense to convert earlier than the required date. In our March 1 (When to stop contributing to an RRSP) and Nov. 22 (What to consider when looking at registered accounts withdrawals) articles we outline some strategies on when it makes sense to convert early. If converting all or part of your RRSP to a RRIF suits your particular financial situation, then make sure to do it before Dec. 31 as this is the date used to determine what your minimum payment will be for the following year.

Interest payments on spousal loans

Some of our clients have spousal loans for income splitting strategies. There is no requirement to pay back any of the principal of the loan but you are required to pay the interest on the loan each year at the prescribed rate set when the loan was first taken out. To avoid any attribution rules you are required to repay interest on the loan within 30 days of the end of the year. It should be noted that if you do not pay the interest in the designated time frame, then all the income in the current year as well as all future years will be attributed back to your spouse.

Cash flow needs

The end of the year is a good time to look at what you have spent throughout the year and to consider if you will need to draw the same amount, more, or less from your portfolio for the following year. As we discussed in our April 12 article (Asset mix should be tied to cash-flow needs and market conditions) knowing the amount of funds required allows us to set aside 12 to 24 months of cash, which we refer to as a ‘wedge’. The wedge is earmarked for these cash withdrawals. This is done to ensure that investments do not have to be sold at the wrong time in the equity market cycle.

Tax loss selling

In October (Tax-loss selling might reduce your tax bill), we wrote about strategies to consider. In Canada and the U.S. the settlement for trades is now the trade date plus two days (T+2). This means that if you have any losses that you want to crystallise or gains that you want to realize in 2019 then the last day to enter the trade is on December 27th. Remember that any losses will be denied if you purchase the same security within 30 days of selling it.

Rebalancing your portfolio

In a year where markets have been very good, it might be worthwhile to do some rebalancing in your portfolio. If you hold individual equities then a good year in the market could lead to some of those positions being overweight. It makes sense to have a look at some of those overweight positions and consider trimming some of the gains and using those funds to add to any existing positions that may be underweight that you believe are still a quality long-term holding. We provided some rebalancing tips in the article titled Rebalancing helps manage risk.

Topping up your child or grandchild’s RESP

The maximum you can contribute to an RESP is $50,000. While there is no annual maximum (as long as you are below the $50,000 limit), the maximum you can contribute each year to get the maximum basic CESG grant of 20 per cent ($500) is $2,500 for each child. We discuss this in our March 22 article (A spring break refresher on RESPs). If you want to maximize the grant each year (maximum lifetime grant per beneficiary is $7,200) then make sure to contribute $2,500 to each beneficiary before the end of the year. If you have missed a year in the past then not to worry, you are able to carry forward some of those missed contributions to a maximum contribution of $5,000 which will get you 20 per cent or $1,000 in the basic CESG grant.

Taking advantage of the $2,000 pension credit

Some clients will open a small RRIF account in order to claim the $2,000 pension credit. The pension income amount allows a taxpayer to claim a federal non-refundable tax credit on up to $2,000 of eligible pension income which includes RRIF income. The federal tax credit rate is 15 per cent, so the maximum federal tax savings available is $300 (15 per cent of $2,000). In order to do this you must be 65 years old and withdraw the $2,000 out of a RRIF by the end of the year.

Ensuring instalment account is up to date

If you are required to make any tax instalment payments then you would have received a notice in February for payments due on March 15 and June 15 and/or one in August for payments due on Sept. 15 and Dec. 15. It is important to make these payments as the CRA charges instalment interest on all late or insufficient instalment payments. The CRA may also charge penalties if you make payments that are late or less than the requested amount. To learn more about who is required to make instalments and why, see our article from March 8 (Do you need to make income tax instalment payments?) Don’t forget to make the last instalment of 2019 by Dec. 15.

Making the most of charitable donations

A lot of people like to make their charitable contributions at the end of the year. While there are many ways to make these contributions, one way we would suggest looking at is an in-kind donation of securities. If you have a non-registered account then you have to look at the holdings that you have with the largest percentage gains and consider using those securities as your donation.

When you do this you will get a tax receipt for the market value of the securities donated on the day that you donate and you will not have to pay any capital gain on the security donated. This is one of our favourite strategies. If you do this, and you would like it to apply for 2019, make sure you talk to your portfolio manager well before Dec. 31 to help with processing.

Check out the Greenard Index next week as we prove more comprehensive tips on those considering charitable donations.

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 at Call 250-389-2138.


Methodology for registered account withdrawals

At the end of each year, we ask our clients to provide an estimate of their income.

The income sources we want to approximate are those that we may not be aware of, such as Part-time work, full-time work, Registered Pension Plan payments, Canada Pension Plan, Old Age Security, and any other sources of income outside of what we know.

This is especially important if it is a new income source in the current year. We can easily estimate what the taxable dividend or interest income from non-registered accounts will be. All of this information helps us calculate the projected taxable income for each client for the current year.

Refundable and non-refundable tax credits

Clients can subtract both refundable and non-refundable tax credits from the income taxes they owe. If the non-refundable credits exceeds the amount of taxes owed, the excess is a lost opportunity. The more refundable and non-refundable tax credits a client has the higher the taxable income we can recommend by increasing registered account withdrawals. For example, if I know a client qualifies for the disability tax credit, a non-refundable tax credit, then we are able to pull more funds out of an RRSP or RRIF then a client that does not qualify for the disability tax credit to create comparable taxes payable. Other common non-refundable tax credits are the age-amount tax credit, donation tax credit, pension income amount and tuition and education amounts. Another common non-refundable tax credit is medical expenses. If a client communicates to us that they have $20,000 in medical expenses during the year, we can certainly factor that in when providing suggestions on registered account withdrawals.

Taking advantage of the lowest tax bracket

In 2019, the top of the first federal tax bracket is $47,630. For some of our clients, this is a preliminary bench mark for taxable income to work toward. We are often able to smooth out our client’s taxable income by using their registered accounts as the variable that may change year to year. In a year where you have large capital gains, and no tax credits, we would not recommend pulling extra funds out of the registered plans, if additional funds are not needed for cash flow. Years where you have capital losses and lots of tax credits would be the years where we may recommend pulling extra funds out of registered plans.

After we know the income levels and tax credits available, we can quantify with respect to the appropriate dollar amount to pull out of an RRSP or RRIF account, if any. There are many things to take into consideration when deciding whether it makes sense to pull funds out of your RRSP/RRIF. For some individuals, they do not have a choice. They have to pull funds out of a RRIF for regulatory reasons.

Mandatory RRIF minimum payments

When you turn 71, you have three options: Collapse your RRSP (fully taxable and not normally recommended), convert it to a RRIF account (most common option), or purchase an annuity.

You do not have to take a payment in the year you turn 71, or the year you create a RRIF if earlier than age 71. The year you turn 72 is the first year where you are required to make a withdrawal from your RRIF account (if the RRIF account was opened at age 71), also referred to as the minimum required payment. The amount you are required to withdraw each year is based on the Dec. 31 market value of the preceding year.

Below, we show the percentage withdrawal required. If you have a younger spouse, you can elect to use your younger spouses age. There is also the option to convert your RRIF before the age of 71. If you convert early (before age 71), or have a younger spouse, the age formula applies, calculated as follows: 1/(90 – age). For example, if you converted to a RRIF early, and your age is 65, your required percentage withdrawal is 1/(90-65) = four per cent. If both you and your spouse are older than 70 then the table below applies.

Age Percentage
71 5.28
72 5.40
73 5.53
74 5.67
75 5.82
76 5.98
77 6.17
78 6.36
79 6.58
80 6.82
81 7.08
82 7.38
83 7.71
84 8.08
85 8.51
86 8.99
87 9.55
88 10.21
89 10.99
90 11.92
91 13.06
92 14.49
93 16.34
94 18.79
95+ 20.00

Using the table as a reference, if you are 77 years old and the market value of your RRIF on Dec. 31 of the preceding year was $600,000, your minimum required payment for the current year would be $37,020.

Ratio of registered to non-registered funds

If the majority of our clients’ investment funds are in RRSP or RRIF accounts, they are running a larger risk of paying a significant estate bill. Single people also have a larger risk of paying a significant estate bill as they have no ability to roll-over registered accounts to a surviving spouse. The ratio of registered to non-registered funds is a factor we consider in the delivery of the financial plan to our clients. We also feel that single individuals may consider withdrawing funds from their registered plans at a faster pace to avoid the potential large final tax bill.

When you decide to withdraw funds from a registered plan, you are also lowering the amount that will be taxed upon death. You likely will pay a little more tax in the year of withdrawal. With registered plans (excluding the TFSA) the year you pass away, all those funds are deemed income unless they are rolled over to your spouse. This is the tricky part of the calculation as we do not know our clients’ life expectancy. I have seen situations where clients worked hard to save a million dollars in an RRSP, pass away and have half of their hard-earned dollars go back to Canada Revenue Agency and probate fees. One has to decide whether they want to focus on minimizing tax in the current year or mapping out a plan that avoids paying half of the value of your registered account in taxes and fees.

Taking advantage of Tax Free Savings Account (TFSA)

One of the main benefits of RRSP and RRIF accounts is the ability to defer taxes. With the introduction of the TFSA in 2009, our clients had the ability to not only defer, but to avoid taxes on funds invested. In cases where clients do not have savings outside of a registered plan to fund the annual contributions we will often do the math and map out a strategy to take advantage of the TFSA. Growth in an RRSP and RRIF account will be taxed dollar for dollar that you pull out in the future. Growth in the TFSA will not be taxed. Saving taxes over time should be the goal, not just in the current year.

Old Age Security (OAS) Repayment

Above we mentioned that for some of our clients we work toward creating taxable income of about $47,630. For couples, the total taxable income would be $95,260 for the household. For other clients we set a higher taxable income benchmark, which is $77,580 per individual, or $155,160 for the household. This is the threshold that if a client, who is collecting OAS, has taxable income exceeding $77,580 they will have a portion of their OAS subject to repayment. The repayment is often referred to as the “claw back.” If our clients’ individual taxable income is above $126,058 in 2019, all of their OAS will be clawed back.

Unlike CPP which you apply for, once you turn 65 you will automatically begin receiving OAS. For some of our clients we encourage them to write to Service Canada before they turn 65 to delay receiving OAS if we know that a client’s income is going to be subject to the OAS repayment. Similar to CPP, every month you wait to receive OAS you may receive a greater amount in the future, provided you map out a plan to keep the future income under the claw-back thresholds this can be an effective strategy. Timing of when to collect OAS is one more factor in the decision of how much to pull out of registered plans.

Early withdrawals often makes sense

Although clients who are under 72 are not required to take a RRIF payment, we will often advise them to consider it for different reasons. One of the reasons is to ensure that you receive more of your OAS in the future. To illustrate I will use a 65-year-old client with projected income as follows: OAS at $7,289.52 ($607.46 x 12), CPP $7,972.92 ($664.41 x 12), and Registered Pension Plan (RPP) $38,136 ($3,178 x 12). The total taxable income for the current years is projected to be $53,398. The OAS repayment threshold amount begins at $77,580. This client is well below the threshold and will get the entire OAS ($77,580 – $53,398 = $24,182). If this same client has an RRSP projected to be greater than $447,806 at age 72, then the client may be subject to OAS repayment in the future. If the client waits until age 72 to pull any registered funds out then the minimum amount required is 5.4 per cent of the $447,806, or $24,182. Once this RRIF income is added to the other sources of income then OAS repayments may occur. In these situations we often recommend clients either convert part, or all of their RRSP to a RRIF, early and map out withdrawals that enable our clients to get more OAS longer term.

In order to calculate the recommended RRIF withdrawal, we need to know the client’s age, current taxable income without RRIF payments, and the current RRIF Value. We can do this calculation for any age. Below we used a 65- year-old client with different levels of taxable income to highlight the maximum recommended RRIF withdrawal.

                                             Projected             Maximum

Current                             RRIF                      RRIF                      

Taxable Income             Value *                  Withdrawal **                

$45,000                               $603,333                   $32,580

$50,000                               $510,741                   $27,580

$55,000                               $418,148                   $22,580

$60,000                              $325,555                   $17,580

$65,000                              $232,963                   $12,580

$70,000                              $140,370                   $7,580

$75,000                              $47,778                      $2,580

$80,000                 N/A – income already subject to OAS clawback

*   At age 72

**Assumes early conversion of RRIF and electing an amount which exceeds the minimum required

• If taxable income is $45,000 and RRIF valued over $603,333, we may recommend an early RRIF withdrawal up to $32,580.

• If taxable income is $50,000 and RRIF valued over $510,741, we may recommend an early RRIF withdrawal up to $27,580.

• If taxable income is $55,000 and RRIF valued over $418,148, we may recommend an early RRIF withdrawal up to $22,580.

• If taxable income is $60,000 and RRIF valued over $325,555, we may recommend an early RRIF withdrawal up to $17,580.

• If taxable income is $65,000 and RRIF valued over $232,963, we may recommend an early RRIF withdrawal up to $12,580.

• If taxable income is $70,000 and RRIF valued over $140,370, we may recommend an early RRIF withdrawal up to $7,580.

• If taxable income is $75,000 and RRIF valued over $47,778, we may recommend an early RRIF withdrawal up to $2,580.

• If taxable income is $80,000 we would not recommend an early RRIF withdrawal if OAS is the only factor.

Income splitting opportunities

Withdrawals from RRSPs are not eligible for pension-income splitting unless the income is annualized. Between the ages of 65 to 71, it is worth exploring the income splitting benefits of converting the RRSP to a RRIF early. RRIF income is considered eligible pension income for income-splitting purposes when the transferring spouse (higher income) is 65 years of age, or older. The transferee spouse can be younger than 65 and you are still able to income split RRIF income. Provided the transferor’s age criteria are met, it is possible to income split up to 50 per cent of the RRIF income. Splitting RRIF income essentially enables you to shift income from the higher income spouse to the lower income spouse. If income-splitting opportunities exist, pulling extra funds out of registered accounts might make sense. If you and your spouse are 65, or older, then it is possible to each claim the $2,000 pension income amount.

Canada Pension Plan (CPP)

With CPP, you must apply with Service Canada when you want to start receiving CPP. Similar to when you take funds out of an RRSP or RRIF account, it requires strategy and integration with the other forms of income. We recommend that you speak with your wealth adviser prior to submitting the application to receive CPP. If you, and your spouse, are both 65 then you are able to make an application to share CPP. In many cases we feel the decisions of when you collect CPP should be integrated with the dollar amount, and timing, of registered account withdrawals.

Listed above are just some of the tax related items to consider when looking at registered account withdrawals. For a plan to be effective you must communicate all tax credits and income sources to your portfolio manager. This information can then be integrated for both short-term actionable steps and a long-term tax minimization strategy.

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 at Call 250-389-2138.

Opening up your wallet to help your kids purchase their first home

We have had many discussions with our clients about whether or not to financially assist their adult children with purchasing a home. Some feel that if they help their children, by giving them money, they may never build a work ethic or understand the value of building wealth. That may be true.

On the flip side, if they help their children financially, you could assist them in overcoming challenging financial obstacles that could otherwise take years, such as coming up with a down payment on a principal residence.

My approach is to have a face-to-face family discussion.

If a parent or grandparent is considering helping the younger generation purchase a home, I would want to see that the children are also doing everything they can to help themselves. If they are spending excessive amounts on other things (fancy vehicles or lots of holidays) and not focused on the goal of home ownership, then chances are that behaviour would still continue. My advice to my clients is that if your child is not willing to make some sacrifices themselves, probably wait until they are ready to do so. This article assumes your child is also making an effort toward home ownership.

Even though your child may be focused, family dynamics also have to be factored in. Some families communicate very well together and others do not. Families who think as one large unit are often further ahead. This article is intended to help families in which the child is taking proactive steps toward home ownership and there is an open line of communication in the family home.

When both of these criteria are met, we can map out very creative strategies that can have many family benefits. An example of one strategy is for parents with high incomes who may be paying as much as 49.8 per cent in income taxes. Instead of investing that money, the parents could help their child get away from paying rent and build equity in a principal residence. If the principal residence increases in value, there would be zero tax. But we digress.

One common hurdle that we often encounter is couples who disagree on whether or not financial support should be provided to a child. Parents may have different opinions and concerns. Some of the concerns may be running out of money themselves in retirement; treating all children equal (if they help one they should help all); marital break-down if the child is in a relationship (will the money they contribute be lost); appreciation of the financial support or lack of (as noted above, will they build a work ethic and value the effort required to build wealth); conflicting priorities (help children purchase a house or help grandchildren with education); and having children with different needs (i.e. disabilities, marital status, different levels of income, grandchildren, location of where they live).

To avoid making this article too long, I will focus on the most common hurdle for first time home buyers — coming up with funds for the down payment. In earlier articles, we outlined that the average selling price of a single-family home and condo in Victoria at the end of September 2019 were $846,500 and $511,600, respectively. To avoid mortgage insurance, down payments for a single-family home and condo in Victoria are $169,300 and $102,320, respectively.

For purposes of this article, we will summarize the discussions with a few short family cases and how the financial support was structured in each situation. For illustration purposes, we will refer to four couples:

Mr. and Mrs. Smith

Mr. and Mrs. Smith have been happily married for 35 years. Together they have three adult children: Penelope, 27; Peter, 30; and Pauline, 32.

During our meeting, I asked Mr. and Mrs. Smith what was new. Mrs. Smith said they were going to be grandparents soon. She mentioned that son Peter is soon to be a father. Mr. Smith mentioned that Peter was living in a small apartment with his wife and that it will be too small for them once they begin having children.

The Smiths are wanting to help Peter with the down payment on a house. They also know that about half of marriages end in divorce and they want to protect the capital if that happens to Peter. Mrs. Smith was also concerned that if they help out Peter, they should also help out Penelope and Pauline equally when they want to purchase a home one day.

Based on this, we completed a financial plan for Mr. and Mrs. Smith. The plan essentially enabled them to set aside one third of the current down payment amount required to avoid mortgage insurance for each child. Our calculations were $169,300 x one third = $56,433.33.

The family meeting involved meeting with their daughter-in-law’s parents and suggesting a strategy. If both sides of their respective families contribute $56,433.33 then it would be equal in the event of a future division. Peter and his wife would also have to save $56,433.33. Once they were able to save this amount then both the Smiths and the daughter-in-law’s parents each matched their savings by contributing $56,433.33.

I then explained that the bank will want to make sure that the gifts are non-repayable and are from immediate family. The bank will require a verification letter that the money is a genuine gift and does not have to be repaid. This letter has to be signed by both the donor (parents) and borrower (Peter and his wife). Below is an example of the verification letter:

This is to confirm that a financial gift in the amount of $56,433.33 has been made to Peter Smith to assist in the purchase of a home. These funds are being provided as a gift and will never have to be repaid.

I further confirm that I am an immediate relative of Peter Smith and that no part of the financial gift is being provided by any third party having any interest, direct or indirect, in the sale or purchase of the property being mortgaged.


Mr. and Mrs. Smith signatures.

Peter Smith’s signature

Peter’s wife and her parents also signed a similar letter for the bank. This situation worked out as planned as both families were in a position to provide financial support.

Mr. and Mrs. Jones

Mr. and Mrs. Jones have been married almost 35 years. They have only one daughter, Donna, 28, who has just finished university. Mr. and Mrs. Jones realize that one day Donna is going to inherit their entire net worth.

We had already updated the financial plan for Mr. and Mrs. Jones to ensure they could provide the financial support for Donna to purchase a house. They also have no hesitation helping Donna get into a home now that she has finished university and has a good paying job. Donna has been looking around for a home and has finally found one.

Even in situations such as this, where the child has the desire and the parents have the financial means, it is still important to sit down and have a family meeting.

Donna is not yet in a long term relationship so now is the ideal time to set up a family meeting. In talking to Mr. and Mrs. Jones, I recommended that we facilitate the first meeting and then assist them in co-ordinating the other meetings.

In the first meeting, we talked to Donna about how good of an opportunity is being presented to her. We walked through the tax component of the financial support the parents were offering. We outlined that financial gifts to adult children are permitted with no attribution of taxable income under the Income Tax Act. We explained that this financial gift comes with significant responsibility and outlined the additional things she needs to work on. We discussed how Mr. and Mrs. Jones would provide the 20 per cent down payment on a house as a gift.

Mr. and Mrs. Jones also agreed to co-sign on the mortgage of $677,200. We provided Donna with some names of individuals she could discuss mortgage options with and let her know the information that the financial institution will need. Mr. and Mrs. Jones will need to go with Donna to the financial institution to finalize the paperwork. We suggested a 20-year amortization on the mortgage.

We also spoke with Donna about how her parents would like her to take out an individual life insurance policy on her life, with her parents being named the beneficiaries. We provided Donna with a quote for a term 20 life insurance policy with the death benefit being equal to the amount of the mortgage the parents are co-signing for ($677,200). The monthly premiums are $31.71. It would be slightly cheaper if premiums were paid annually at $354.

We provided Donna with the name of a few lawyers that she should meet with. As she is building net worth, we felt it was important for her to have a will and power of attorney. We also suggested she speak with the lawyer on how best to financially protect herself in the event she enters into a long-term relationship in the future.

Mr. and Mrs. Taylor

Mr. and Mrs. Taylor have been married for 29 years. The Taylors have a daughter Jessie, 31, who recently got married to Jack. The Taylors also have a son, Jeremy, 34, who is single. Mr. Taylor was a full-time builder who operated a small construction business. Mrs. Taylor also helped on the administrative side of the business. Both are now semi-retired.

Jessie and Jack are both excited to build a life together and have been saving some money together toward a house purchase. Jack has talked to his parents and they were willing to help them out financially. Jessie spoke with her parents and they also wanted to help, but were not sure if they had the financial means. We had completed a financial plan for Mr. and Mrs. Taylor and the earlier retirement meant they were not really in a position to provide financial support toward a house for either child.

There was a very unique solution to this situation. We had a family meeting where Jack’s parents were involved as well. Jessie and Jack had accumulated enough savings to come up with half of the required down payment. They had found a fixer-upper home, in a fantastic location.

The plan that was mapped out was that Jack’s parents were willing to financially contribute the remainder of the required down payment. Mr. and Mrs. Taylor had agreed to help them with fixing up the home.

Essentially their skills and time would save Jessie and Jack a ton of money over the next couple of years. The house had a self-contained suite that also needed to be renovated. Mr. Taylor agreed to work on this as a first priority to enable Jessie and Jack to rent this out quickly and enable them to have a mortgage helper to service the debt.

Mr. and Mrs. Brown

Mr. and Mrs. Brown would like to help their son and daughter-in-law out. Both the son and the daughter-in-law have finished university and are beginning their respective careers. Together they do not have sufficient funds for a down payment, nor do they have the combined income to qualify for a mortgage.

Mr. and Mrs. Brown sat down with their son and daughter-in-law and mapped out a proposal. Mr. and Mrs. Brown would purchase a house and register title in their own name. The plan would involve their son and daughter-in-law paying rent. The rent would be a reduced rate that would cover Mr. and Mrs. Brown’s servicing costs. The reduced rate was agreed upon, in the short term, to enable them to begin saving for the down payment and building up income levels.

They mapped out a five- year plan that would enable them to save the required down payment. By then, their son and daughter-in-law would have higher incomes and be able to qualify for a mortgage. The transfer price for the home would be the original purchase price. If, after five years, the son and daughter-in-law do not appear to be meeting their side of the bargain then it is agreed upon up front that Mr. and Mrs. Brown would be able to sell the house to an arms-length party at fair market value.

Mr. and Mrs. Simpson

Mr. and Mrs. Simpson have two children that are both doing well financially. Each of their children have two children, leaving the Simpson’s with four grandchildren all aged between 20 and 28.

In the estate-planning discussions with the Simpsons and their two children, we discussed different strategies. The two children did not need the money and agreed that the strategy of skipping them and going to the next generation, the four grandchildren, made more sense.

The strategy involved two stages, the first stage would be during their life time and the second stage would be after their passing. Stage one was to provide a lump sum of $200,000 to each grandchild upon three conditions: The grandchild completed a university degree, obtained a full-time job and used the funds as a down payment on a home.

The Simpsons like this approach as they could see the grandchild enjoy the use of these funds during their lifetime. They agreed to have a meeting with the four grandchildren to discuss this first stage.

The second stage was not to be discussed with the grandchildren. Essentially, the second stage left the residual of the Simpson’s estate to the four grandchildren after the second passing. The second stage distribution would likely enable the grandchildren to pay off the remainder of the mortgage.

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 at Call 250-389-2138.


Holding your child’s hand when they purchase their first home

Financial success often involves making good decisions and avoiding big mistakes.

Parents who spend the time to teach their children the basics of finances will help start them off on a more informed path.

One of the first big decisions your adult child may make is with regards to the purchase of a home. They will have a higher probability of making a good decision when you guide them through all the basic information of home ownership. You can be the steady hand during a stressful and emotional decision.

The following are the ten basic pieces of information they should know:

1. Working with a Realtor

The first thing I would tell your children is the importance of working with a good Realtor. Also, teach your children that the purchaser is not the one who pays the commissions when the house sells. The seller of real estate pays a commission that is typically split between the real estate agent who listed the house for sale and the Realtor who represents the buyer. The Realtor should know exactly what you are looking for and be able to provide you realistic offer prices that fit your budget.

2. Why you need to work with a lawyer

I would also recommend talking to your children about finding the right lawyer or notary to work with when purchasing real estate. The branch of law that deals with the transfer of legal title of real property from one person to another is called conveyancing. Ideally, you know of a good lawyer that deals with conveyancing that you can introduce to your son or daughter. The lawyer will be able to assist with holding the money (in trust), handling the transfer documents, ensuring a clean transfer for title with land titles (i.e. ensuring no liens, etc.), and preparing the purchaser’s statement of adjustments.

3. Explain B.C. Property Transfer Tax (PTT)

Although the buyer does not have to worry about paying real estate fees, they do have to be prepared to pay the PTT. For the purposes of explaining the PPT, we will use the average selling price of a single-family home in Victoria, which was $846,500.00 at the end of September, according to the Victoria Real Estate Board. In B.C., the PPT is a tax charged at one per cent on the first $200,000 of the purchase price and two per cent on the remainder. For the average selling price of a single-family home in Victoria, your child will have to pay the following:

$200,000 x 1 per cent =$ 2,000

$646,500 x 2 per cent = $12,930

Total PTT$14,930

4. Insurance

Protecting your most important financial purchase is prudent. Having home insurance will also be mandatory if your child has a mortgage with a financial institution. Consider pulling out your insurance policy and explaining the terminology to your child will give them some basic knowledge to help them get started. Your child should obtain an understanding of the different coverages and deductible levels, and how those decisions impact premiums. Sometimes insurance companies will request that certain improvements are done to the home to ensure continued insurability or avoid exclusions of coverage. Insurance companies are becoming more risk sensitive. As a result, they are requiring some home owners to go through a home inspection process to continue insurability. Insurance companies may hire third-party inspectors to assist with managing this risk. They will prepare a Residential Appraisal Report that would typically show deficiencies and recommendations that need to be addressed. These deficiencies and recommendations may result in future costs.

5. Utilities

Often times, if your child has been renting, they may be unfamiliar with the concept of the total cost of utilities. Obtaining an understanding of the common utility charges, such as water charges, garbage pick-up, natural gas, electricity, sewer, internet and telephone will help them better prepare for the total cost of home ownership.

6. Assessed values

The assessed value of a property is broken down into the parcel land and the improvements (home and other structures). Many times during real estate transactions, the selling price is grossly different from the assessed value. It’s helpful to ensure your child understands that these values are not necessarily an accurate reflection of value.

7. Property taxes

Tax records are public information. At any time you can go into the municipal hall and look up the taxes due on the property. When you are looking at homes with a Realtor, they will also be able to provide the history of property taxes for any home that you are looking at. This information is readily available on the systems that Realtors have access to.

8. Building inspection

As parents, I think it is important to assist with the emotional aspect of purchasing a home. It may be far too easy for a child to quickly fall in love with a house without doing the full due diligence. Most people would say that it is prudent to get a building inspection done.

As with any profession, there are good inspectors and not-so-good inspectors. My personal experience with building inspectors is that they are not all created equal. Helping your child pick a building inspector with a good reputation is important. You want to help them find a building inspector that will take a very thorough look at the house go onto the roof, go into the crawl space/attic).

If you, or the building inspector, find serious deficiencies then you can either attempt to negotiate a lower price or walk away. Parents may have a more objective view of the condition, and work that would be required to maintain the property.

I once had a client that visited a house ten times prior to making a purchase — I loved hearing that. I realize that when good opportunities come along that buyers often don’t have that flexibility. When you do make an offer on a home that you are interested in, I would certainly encourage your child to make it subject to a building inspection. This will enable you to do a thorough walk through with your child.

9. Initial costs

With any house purchase, you will have initial costs that need to be factored in.

Normally, appliances and window coverings are not included in the purchase price unless specifically included in the offer. Ensuring you have equipment to maintain the property (i.e. lawn mower, weed eater) is also a factor.

A thorough walk-through of the property will enable you to obtain an understanding of the other initial costs you would need to factor in. Sometimes helping your children pick up used items initially will assist them budget when excess cash flow is tight.

10. Financial terminology

Without opening your pocket book, you can help educate your children about financial terminology. Help them summarize the typical information that the bank will require for a mortgage application (two years of tax returns, notices of assessments).

Talk to them about saving and what types of accounts to put their savings into (Tax Free Savings Account, Registered Retirement Savings Plan or investment/bank account).

Discuss a plan on how to come up with the down payment. Ideally, when your child purchases their first home, they can get away from the cost of mortgage insurance.

In order to do this, they will have to put 20 per cent down.

Discuss the difference between variable rate mortgages and fixed rate mortgages with your children. In some home equity type mortgages, you can have a mixture of both variable and fixed. Another option is to have different durations or terms to maturity. As an example, your child could have half of the mortgage funds in a three year variable rate and half in a five year fixed rate.

Parents can also help children with financial support when purchasing a home.

Next week, we will outline some of the ways parents can help their children financially and how this is typically structured.

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 at Call 250-389-2138.


Coming up with the down payment for your home

Last week, we encouraged those individuals interested in purchasing either a condo or a single-family dwelling to understand the financial numbers and to set goals. I have heard many people say that the prices in Victoria are excessive and that it is impossible for young people to purchase a residence. It may be more difficult than in years past, but it certainly is possible if you set your mind to it. Many things in life that are worthwhile take time and patience — purchasing your first home is no different.

Getting trained and educated

I share with my own kids the importance of getting an education on a weekly basis. It is not about sitting in a classroom and hoping that a teacher motivates you to absorb the informed presented. It is about motivating yourself. It is about wanting to read and wanting to learn. Education normally translates to higher income. I’m always telling my kids to pay attention to everything around them and try to surround themselves with intelligent people. Successful people are self-motivated and good listeners. Having skills that create higher income is necessary not only to come up with a down payment on a home but to be able to service the debt, insurance, property taxes, repairs and maintenance going forward.

Working hard and savings

Taking on more responsibility at work, working longer hours and working harder should translate to you accumulating more savings for a down payment. If you put the minimum number of hours in, then accumulating the required savings for a down payment may be a frustrating concept, especially if house prices are rising every year. At least for the years leading up to your first house purchase, we would recommend putting in extra hours at work. Some would say this is short-term pain for long-term gain, which could be true for people that don’t enjoy their jobs. I personally have found the years where I was working extra hard to be really rewarding. It was such a nice feeling to achieve specific goals.

Setting goals and knowing the numbers

In our last column we outlined the key ratios and approximate numbers to give people an idea of the costs of purchasing either a condo or a single-family dwelling. Setting goals is really important if you want to make a significant purchase. Once you know how much you have to set aside every month then you can create a budget. You may find it takes several years to reach your goal. Once you keep track of all your expenses you can determine what you are spending all your money on. You might be surprised at how much you spend going out for breakfast, lunches, dinners, and coffees. Eating breakfast and dinner at home, and making a lunch might enable you to save a little more towards your important goals. Over time, those numbers add up.

Goal of funding the down payment

Ideally, when you purchase your first home you can get away from the cost of mortgage insurance. In order to do this, you will have to put 20 per cent down. For the purposes of this article, we will use the average selling price of a single-family home in Victoria, which was $846,500.00 at the end of September, according to the Victoria Real Estate Board. Also, for illustration purposes, we can use the average selling price of a condo being $511,600.00 in Victoria per VREB at the same point in time. The down payments for a house and condo would be $169,300 and $102,320, respectively.

Below we have mapped out some ideas for those who have been able to set aside some funds with respect to coming up with a down payment.

Utilize the RRSP Home Buyers Plan (HBP)

People who begin contributing to an RRSP may not own a house yet. Does it make sense to contribute to an RRSP if you think you will need to keep funds liquid to buy a home?

In some cases, the answer is yes, especially if a person is earning good income. The HBP allows participants to withdraw up to $35,000 in a calendar year from an RRSP to buy or build a qualifying home. Couples may each utilize the HBP (combined maximum of $70,000). The plan may be suitable for any first-time home buyers who are buying a home and may need additional funds to pay for a down payment or reduce financing costs. As mentioned above, a larger down payment may eliminate the costs to insure the mortgage.

The HBP is open only to first-time buyers and applicants should check for specific details on who can apply. Participants in these plans should understand that withdrawals need to be repaid or have the amount included as taxable income.

The first repayment is due two years after you first withdrew the money. If you withdrew the money in 2019 you will not have to begin payments until 2021. Each year, Canada Revenue Agency will send you a Notice of Assessment with a statement including: amount repaid (including any additional payments), HBP balance, and the amount of the next repayment to make. Participants have up to 15 years to repay the amount that is withdrawn under the HBP. Generally, each year the repayment amount is approximately 1/15 of the total amount withdrawn until the full amount is repaid to your RRSPs. For example, if Bill and Wendy each withdrew $35,000 from their respect RRSP accounts in April 2019, they must each pay at least 1/15th (or $2,333.33) of the original withdrawal starting in 2021 (or the first 60 days of 2022).

Withdrawals from an RRSP account are generally considered taxable income. Financial institutions are required to withhold the following tax on RRSP withdrawals: 10 per cent on the first $5,000, 20 per cent between $5,001 and $15,000, and 30 per cent on amounts greater than $15,000. A qualifying HBP withdrawal is one of the exceptions to this rule. If you give the financial institution a signed T1036 (HBP) then this allows a financial institution to release the full amount of funds (up to $35,000) to you without withholding tax.

It is important to ensure that $35,000 is earmarked in your RRSP within a year of the required withdrawal. You do not want to have this in speculative holdings that could potentially decline with market declines at the same time you need to pull the funds out.

Maximize the Tax Free Savings Account

The Tax Free Savings Account (TFSA) is an ideal account for young people to save for a house. If in 2009 you were 18 years of age or older then you would have accumulated up to $63,500 in TFSA room. The following are the annual and cumulative limits:

Year Annual limit Cumulative limit
2009 $5,000 $5,000
2010 $5,000 $10,000
2011 $5,000 $15,000
2012 $5,000 $20,000
2013 $5,500 $25,500
2014 $5,500 $31,000
2015 $10,000 $41,000
2016 $5,500 $46,500
2017 $5,500 $52,000
2018 $5,500 $57,500
2019 $6,000 $63,500

We recommend investing the TFSA in a manner that is consistent with your own personal time horizon and risk appetite. If you are several years away from purchasing a home then investing in primarily medium risk equities may provide some additional growth (capital gains and dividends) over time. If you are within 12 months of purchasing a home then we recommend ear marking the funds in either cash equivalents or short-term fixed income to ensure you are not impacted by short-term equity market volatility.

For couples purchasing a home it is possible to each have contributed $63,500 into a TFSA (or $127,000). In addition to the contributions you will also have the accumulated growth in these accounts that can be withdrawn.

Non-Registered Investment Account

Once you have maximized the TFSA and hit the $35,000 thresh hold within your RRSP then we encourage opening up a non-registered investment account. For younger individuals who have specific goals, I often will encourage “compartmentalizing” the savings function. If you have a dedicated investment account, you can set up a pre-authorized monthly contribution (PAC).

Hierarchy – House

Below is a guideline for down payment savings in order to purchase a house:

TFSA RRSP Non-Registered Total Savings
Individuals $63,500 $70,000 $35,800 $169,300
Couples $127,000 $42,300 $0 $169,300

Below is a guideline for down payment savings in order to purchase a condo:

TFSA RRSP Non-Registered Total Savings
Individuals $63,500 $38,820 $0 $102,320
Couples $127,000 $0 $0 $102,320

I believe the sooner you purchase a house and quit paying rent, the better off you will be. The power of compounding wealth over time is a key concept I wish I could easily explain to young people. Sacrificing in the short-term to get this done is well worth it in the long run.

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 at Call 250-389-2138.


Buying your first home — know the numbers

One of the most rewarding investments is the purchase of a principal residence.

Getting away from paying rent and building equity can be a significant financial step in the right direction. Many younger people today may not know the numbers regarding what it would take for them to make such a significant purchase. My recommendation would be to begin by setting goals and gaining knowledge.

This article should not replace meeting with a financial institution and getting specific advice from a mortgage specialist. As a starting point, I want to illustrate some numbers using the average selling price of a single-family home in Victoria, which was $846,500.00 at the end of September 2019, according to the Victoria Real Estate Board. Also, for illustration purposes, we can use the average selling price of a condo being $511,600.00 in Victoria at the same point in time.

What are the key ratios that you look at?

The four key ratios for mortgages are: Total Debt Service Ratio (TDSR), Gross Debt Service Ratio (GDSR), Loan To Value ratio (LTV), and Pressure Test Interest rate (PTI).

To calculate your Total Debt Service Ratio, take your total debt and divide it by your income. Total debt for this ratio includes the new mortgage, heat, property tax, condo fees, car loans, etc. Your income is the amount that is represented on your tax return or T4 slips. Once all of these numbers have been verified, the ratio cannot exceed 44 per cent. For example, if your gross monthly income is $6,000 per month, then the total overall debt cannot exceed $2,640 per month.

Gross Debt Service Ratio is similar to the TDSR. The main difference is that the GDSR only takes into account mortgage-related debt. Mortgage-related debt would include mortgage payment, heat, property taxes and condo fees (if applicable). Once you have this information, you apply the same formula of taking your mortgage debt and dividing it by your income. Typically, the ratio for GDSR cannot exceed 39 per cent. Using the same numbers as above, if your gross monthly income is $6,000 per month, then the total mortgage-related debt cannot exceed $2,340 per month.

The Loan To Value Ratio is another key ratio used by mortgage lenders. When mortgage lenders look at this ratio they are first looking to determine if the mortgage is a high ratio mortgage or a regular mortgage. A high ratio mortgage is one where you are financing more than 80 per cent of the value of the home. When you have a LTV of more than 80 per cent, you then are required to get mortgage insurance. A regular mortgage is when the LTV is lower than 80 per cent and there is no requirement to obtain mortgage insurance.

The Pressure Test Rate is essentially a stress test to see if you could handle higher mortgage payments if interest rates were to rise. Currently, the rate used in Canada is 5.19 per cent which can be changed by the federal government. This rate decreased in July 2019 for the first time in three years. For any person applying for a mortgage for a new purchase, refinancing an existing mortgage, or purchasing an investment property, they are required to have the PTI test applied.

Determining a down payment amount on a property is not black and white.

The down payment amount can fluctuate because the mortgage amount can fluctuate based on your income and ability to handle the ratios mentioned above. The down payment can be as low as five per cent with the assumption that the applicant’s income is able to support the other 95 per cent. For any down payment that is less than 20 per cent, you must factor in the high ratio insurance premium. For any down payment which is 20 per cent and above, then there is no high ratio insurance involved, and you would have a better chance at getting a higher approved mortgage amount.

Using the average selling prices for a home and condo in Victoria, mentioned above, let’s look at both regular and high ratio mortgages with respect to the required down payments. This provides four different down payment scenarios as follows: house with a high ratio mortgage; house with a regular mortgage; condo with high ratio mortgage; and condo with regular mortgage. The high ratio mortgages will require mortgage insurance and we assumed a 20 per cent down payment on the regular mortgages.

House price $846,500

Scenario 1: House High Ratio Mortgage

  • $500,000*5 per cent = $25,000
  • $346,500*10 per cent = $34,650
  • Total down payment = $59,650

(Note: CMHC-insured mortgage loans require five per cent down payment on the purchase price portion up to and including $500,000 and ten per cent down payment for the purchase price portion between $500,000 and $1,000,000).

Scenario 2: House Regular Mortgage

  • $846,500*20 per cent = $169,300 (Minimum down payment to avoid mortgage insurance).

Condo price $511,600

Scenario 3: Condo High Ratio Mortgage

  • $500,000*5 per cent = $25,000
  • $11,600*10 per cent = $1,160
  • Total down payment $26,160

Scenario 4: Condo Regular Mortgage

  • $511,600*20 per cent = $102,320 (Minimum down payment to avoid mortgage insurance).

Understanding how mortgage insurance works

There are three companies in Canada that provide insurance for high ratio mortgages: Canadian Mortgage and Housing Corporation (CMHC), Genworth and Canada Guarantee (CG). All three of these companies can do high ratio mortgages and can provide more options for banks and customers. As an example, sometimes the CMHC might not approve a deal so the banks may need other options in order to have the mortgage insured and approved. For insurance premiums, it’s based on the per cent of a down payment up to 20 per cent.

To illustrate this, we will use CMHC insurance. Below we have included a table from the CMHC website for the premiums. Most questions can be looked up on the CMHC’s website.


Premium on Total Loan

Premium on Increase to Loan Amount for Portability

Up to and including 65%



Up to and including 75%



Up to and including 80%



Up to and including 85%



Up to and including 90%



Up to and including 95%



90.01% to 95% – Non-Traditional Down Payment



Using Scenario 1 for a house above, let’s walk through the math. If the house purchase price is $846,500 and your down payment is $59,650 then the mortgage amount is the difference, or $786,850. Therefore, using the table above the mortgage insurance premium is $31,474. This is calculated by multiplying $786,850 x four per cent. The mortgage amount that would need to be approved would be $818,324. This is calculated by adding the original difference of $786,850 plus the mortgage insurance premium of $31,474 = $818,324.

Using Scenario 3 for a condo, let’s walk through the math. If the condo purchase price is $511,600 and your down payment is $26,160, then the mortgage amount is the difference, or $485,440. Therefore, using the table above the mortgage insurance premium is $19,417.60. This is calculated by multiplying $485,440 x four per cent. The mortgage amount that would need to be approved would be $8,324. This is calculated by adding the original difference of $485,440 plus the mortgage insurance premium of $19,417.60 = $504,857.60.

What would your monthly payments be?

For illustration purposes, let’s assume you are going with a five-year fixed interest rate of 2.89 per cent, a 25 year amortization, and a monthly payment schedule.

Let’s go back to the previous four scenarios:

House price $846,500

Scenario 1: House High Ratio Mortgage

  • Purchase price: $846,500
  • Down payment: $59,650
  • Insurance premium: $31,474
  • Mortgage amount: $818,324
  • Payment per month: $3,826.64
  • House price $846,500

Scenario 2: House Regular Mortgage

  • Purchase price: $846,500
  • Down payment: $169,300
  • Mortgage amount:$677,200
  • Payment per month: $3,166.72

Condo price $511,600

Scenario 3: Condo High Ratio Mortgage

  • Purchase price: $511,600
  • Down payment: $26,160
  • Insurance premium: $19,417.60
  • Mortgage amount:$504,857.60
  • Payment per month: $2,360.81

Condo price $846,500

Scenario 4: Regular Mortgage

  • Purchase price: $511,600
  • Down payment: $102,320
  • Mortgage amount:$409,280
  • Payment per month: $1,913.87

The above monthly mortgage payment numbers were taken from the CMHC online calculator. You can change any of these numbers to fit your specific scenario. To purchase a house with a 20 per cent down payment and avoid mortgage insurance, your approximate family income would have to be $115,000 (assuming you have no other debts). To purchase a condo with a 20 per cent down payment and avoid mortgage insurance, your approximate family income would have to be $75,000 (assuming you have no other debts). These numbers are only approximate numbers to be used as a general guideline to help you begin the process of planning the largest financial decision you may make in your life.

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 at Call 250-389-2138.

Who cares for your pet after you pass?

About 15 years ago, I had a client with a terminal illness.

Her biggest concern wasn’t about her own health, but rather who was going to take care of her dog after she died.

I hadn’t really given that type of question a lot of thought until that day.

Today, one of the questions we ask clients is if they have any pets. For many of our clients, their pet is a member of the family. Your pet is dependent on you for its survival and well-being. A contingency plan should be in place if something were to happen to you. When we ask clients about who will take care of their pet(s) when they pass away, most have not considered the matter, let alone made any concrete plans.

Ideally, you have a family member or friend in mind who could care for your pet. To be sure, it is best to have this discussion with the individual to make sure they would be willing and able to care for your pet in the event something were to happen. You should ensure that the new owner is able to keep the pet. Allergies, being too busy, conflict with other pets, prohibition of pets in the new owner’s residence and lack of interest are a few complicating factors for you to consider.

Let us assume you have found the right individual to care for your pet(s). It is not possible for you to leave money to your pet in your will. A pet is considered property under the law. It is, however, possible to leave a pet to the named individual to care for. A simple method is to leave your pet to the named individual, which we will call the “caretaker,” within your will.

Normally a sentence would be added in this section of your will to deal with the contingency of the caretaker being unable or unwilling to care for your pet. One approach in this situation is to give your executor the power to select an appropriate person to take in the animals.

Another approach is to establish a more formal arrangement for your pet’s care. Some people refer to this as a Pet Trust.

Let’s say you have a dog named Marley. You could establish the “Marley Fund” in your will. Although you cannot leave money directly to Marley, you can establish a trust for Marley’s care.

In order to establish this type of trust, you must have a caretaker that you also name as the trustee. The Marley Fund would receive a sum of money payable to the trustee/caretaker provided that the trustee/caretaker uses it to look after Marley. Similar to up above, a sentence would be added in the Marley Fund section of your will to deal with the contingency of the trustee/caretaker you previous chose being unable, or unwilling, to care for your pet. Normally, you would give your executor the power to select an appropriate trustee/caretaker to accept the money from the Marley Fund and take responsibility for caring for Marley.

Naturally, the above paragraphs brings up the discussion of how much money should be left through your will for the care of your pet(s). Several media stories have talked about the ultra-wealth leaving millions of dollars for their pet(s) care to the trustee/caretaker. Those stories are certainly not the norm. In the majority of the wills I have reviewed with these clauses, the amounts are much more modest.

It should be relatively straight-forward to estimate a reasonable dollar amount to designate for the trustee/caretaker. The calculation could be based on your assessment of the life expectancy of your pet, age of the pet and an estimate of the annual costs.

Perhaps the largest annual costs for caring for pets are veterinarian costs if your pet needed specific medical care. Some of our clients have pet insurance for which they pay monthly insurance premiums. Similar to adult term insurance, the premiums are normally adjusted upward as the pet ages. The insurance approach can easily be budgeted out for future cash flows. Even when a pet is covered under insurance, small deductibles are still normally payable. The estimated annual cost of insurance and the deductibles could be part of the calculation.

Each pet is different. Grooming costs, equipment costs and medications will fluctuate. Estimating food and other costs for your pets should also be a relatively easy exercise. The budget could even include the costs of pet cremation and burial, as well as an extra amount for your caretaker/trustee for the time caring for your pet.

You could simply leave a flat dollar amount to the trust or create a methodology that is outlined along with the estimated remaining life of your pet. You could create a budget that says it costs roughly $2,000 a year for your pet. If you feel you would like to leave $2,000 for each estimated year of life left for your pet you would have to know your pet’s age and estimated lifespan. If your dog’s breed has an average lifespan of 12 years then you could build this formula into the calculation. The amount that you set aside for the caretaker for a three-year-old dog (nine years estimated remaining lifespan) would be greater then the amount you set aside for a ten year old dog (two years estimated remaining lifespan). If you use this type of methodology we would recommend you discuss this with the caretaker to make sure they are agreeable.

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 at Call 250.389.2138.


Taking care of aging parents and their finances

Over the years, we have helped clients overcome many different challenges. This article focuses on the challenges of looking after our parents as they age. This is a complex responsibility as it involves emotional and financial management. Handling these effectively requires different skills. Below are a few points to assist with the financial challenges.

Our parents looked after us for many years. They cleaned up after us, dealt with us through the hormonal teen years and helped us with our education. This support helped launch us into our adult lives when we left home and started our own families.

As our own kids are becoming educated, our parents are getting on in years. Eventually our parents reach a stage where they need our support and the caretaking roles begin to be reversed. As already mentioned, supporting aging parents can be complicated. In some cases, aging parents are able to make rational financial and lifestyle decisions. In other cases, they are not. In some cases, they are accepting of change. In other cases they are not.

We have seen many cases of physical impairment and cognitive decline. In some cases, aging parents may lose hearing, speaking, vision, mobility/walking and other taken for granted abilities that help us with our daily living. Cases of cognitive decline could involve normal aging or a more serious decline of mental function. Typically the cognitive problems involve memory, language and judgement. Having worked with a variety of clients over a couple of decades, we have been able to see first-hand the impact of the aging process on financial issues first-hand.

It is advisable to talk to your aging parents about financial issues while they still have full cognitive functions. Most people don’t know how to begin such a conversation. One approach could be to print off an article like this and ask your parent what they think. It is possible they are not seeing the impact of age on themselves. If you are avoiding the discussion and not prepared, your aging parent may be unresponsive to even the best-intentioned help if you wait too long.

How involved children are in dealing with their parent’s financial, mental, physical well-being and lifestyle can differ from culture to culture. Even within a culture, different families have different formulae for how to help aging parent. I’m assuming that if you are still reading this article, you or someone you know wants information on how to help aging parent(s). This just might be one of the most difficult things you will have to do, but hopefully this article will give you some tips to make it a bit easier. Here are our top ten discussion points to consider when dealing with your aging parent’s financial situation:

1. Trust is the No. 1 component that I see as being important. If you are trying to help your aging parents, I would stress to your parents that your discussions will be kept strictly in confidence unless it is agreed issues can be talked about with others. Trust will be completely lost if a person in those discussions does not respect that concept. In order for all parties to communicate opening, they have to feel that what is discussed will not leave the room unless agreed upon. I think all loving relationships are based on trust. If trust has been lost over the years then you have a big obstacle to overcome.

2. The second most important item to talk to your parents about deals with capacity. It is very easy to procrastinate and avoid discussing the challenges of aging. Over the last couple of decades, I have helped hundreds of families go through this important step through a series of discussions. Similar to the advice that I give clients, an important point to highlight to your parents is any form of planning has to be done while they have capacity and are physically able. The more time you have the more likely you are to ensure your parents are taken care of in accordance with their wishes. Don’t wait until it is too late.

3. Ensure you talk to your parents about having all the important legal documents in place, including an up to date will, power of attorney and health-care directives. The discussion should involve you getting an understanding of all the key people helping your parents (i.e. lawyer, accountant, insurance adviser).

4. In addition to the standard legal documents, it is often worth discussing setting up banking power of attorney and financial power of attorney. With banking power of attorney, you can monitor the bank statements to screen for unusual transactions or withdrawals. Unfortunately, the elderly are a vulnerable population and targets of fraud. The primary benefit of having these power of attorney documents in place is the ability to assist with paying bills and making other financial decisions. Another benefit is the position of oversight to ensure that they do not become a victim of fraud.

5. Consolidate bank and investment accounts. If your parents have multiple bank accounts then get them to explain the rationale for having more than one. In the majority of situations one bank account is sufficient. You should try to ensure that all OAS, CPP, RPP, RRIF and income payments are deposited automatically into one bank account. Automatic expense payments should also all be done from the one bank account. Having investment accounts at different financial institutions causes added work to keep in touch with more than one adviser and to monitor the disparate investments. If your parents have three RRIF accounts, then they are getting three times the statements and tax slips. As they age, it is easier to consolidate all RRIF accounts together, consolidate all TFSA accounts together and have only one non-registered account. We encourage you to talk to your parents about reducing the number of bank accounts and financial institutions they deal with if you are getting multiple statements from different institutions.

6. Taking some of the volume of information off their plate can be helpful. A simple example of this is assisting with correspondence they receive in the mail. If you find that your parents are no longer opening and reading their mail, or simply have lost interest in looking at it, then it is relatively easy to get their financial mail (i.e. monthly statements) redirected so that you can take care of it and monitor it. We can also arrange it so both you and your parents receive all mail from our institution.

7. One example of correspondence that is important to stay on top of is from Canada Revenue Agency. Helping your parents file their annual tax return by organizing the information and ensuring it is filed can help them deal with something that can be quite daunting and confusing. Gathering information related to health care costs and medical receipts can be complex. Ensuring your parents are applying for all the tax credits (i.e. Disability Tax Credits) and claiming all receipts can minimize their tax bills and ensure they are compliant. Create a system for your parents to keep all receipts (i.e. medical receipts). You can go through and see what needs to be kept and what they can get rid of. You can help them safely dispose of confidential information and statements. You can help your parents respond to any assessments and ensure that any required instalment payments are made.

8. Obtain a copy of your parent’s financial plan. Normally the plan is a great starting point to obtain a complete listing of your parent’s net worth and the previous recommendations and actionable steps. Having this in writing, with concrete actionable steps, helps ensure your parents execute the appropriate financial strategies. If they do not have a total wealth plan, then you may suggest that they have one completed. One component of a total wealth plan deals with estate planning. The planner completing the plan can bring this component up during the presentation which I would encourage you to attend with your parents. Obtaining any memorandums to deal with personal household items or digital directives with logins and passwords is also helpful.

9. If your parents are currently not working with a portfolio manager then you could recommend that they meet with one. Prior to the meeting, you could assist your parents in creating a cash flow summary, both incoming and outgoing. A portfolio manager would want to have a clear understanding of your parent’s investment objective and risk tolerance. An Investment Policy Statement (IPS) could be created summarizing the discussion. One part of the IPS would cover the required cash flow to transfer from the investment account to the bank account (frequency and dollar amount). A portfolio manager can do trades on behalf of your parents without having to call them on each trade to make a decision. In some situations we can coordinate meetings with our private banker who can also service the client’s day-to-day banking needs. This can be particularly helpful if your parents do not live in close proximity to you.

10. Prepare a financial data organizer that has all of the above documents organized or a summary of the details where originals can be found. It should include a summary of all accounts and insurance policies. It should list all the advisers and professionals assisting you in your banking, financial, insurance, and legal documents. If your parents have a safety deposit box then you should know where the key is and what the purpose of it is.

Some of us are better prepared to help an aging parent than others. Our personal wealth, resources, time, health and family situation, including our ability to set and maintain healthy boundaries are all factors. Trust is the No. 1 factor to ensure the best outcome for assisting your aging parents. Once that trust is established, you and your parents should have clearer and better communication. A capable portfolio manager can act as an invaluable intermediary in this kind of situation. We can assist with having the initial meeting and discussions. We can also assist in mapping out a plan that is triggered at certain points (i.e. death of one parent, health deteriorates, etc.). Depending on how the plan is created you may find yourself gradually or abruptly taking over some responsibilities. The more you plan today, the easier this process will be.

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 at Call 250-389-2138.

Memorandum to distribute personal and household effects

Your will is essentially a document that outlines what you want done with your assets after you pass away.

The term asset is very broad and can include everything from personal and household effects (“articles”) up to your principal residence.

The general structure of a Will typically starts with leaving specific bequests. This can be very general where you simply state that you would like a specific item, or amount of money, to go to one or a small number of specific individuals. This can also get more complex where you identify numerous bequests to kids, grandkids, nieces, nephews, charities, etc.

After the specific bequests, there is a statement that determines the division of the residual of the estate. Common examples of residuals could be to a spouse, siblings, children or charity.

I have had clients who wanted to make sure that certain personal and household effects (“articles”) were given to specific individuals. An example could be a special painting that you want to go to your niece who is very artistic or a collection of records to go to a nephew who shared your love of music.

While the list of items that you would like to be given to specific individuals could get very long, it is possible to put all the specific bequests in your will. Additionally, if you want to add an item, change a bequest or have disposed of one of the listed items, you will have to revise your will. Although this is possible, it can be a lot of trouble to go through for smaller articles and there may be a cost associated with these revisions.

An alternative to itemizing every specific small asset in your will is to have a separate document to deal with the articles. I call this document a Personal and Household Effects Memorandum (memorandum). One of the nice parts about using a memorandum is that it can be updated without having to update the will. The will would refer to the memorandum and exclude the small articles.

The memorandum approach is very flexible. For example, let’s say you had some expensive antique furniture that you wanted to give to your close friend and you put this specific bequest into your will. After speaking with your close friend, you learn that she doesn’t have room for it or even want it. If you want to change this bequest to someone else, you will need to update your will or have a codicil (an addition or supplement that explains, modifies, or revokes a will or part of one) — both of which come at a cost.

With a side memorandum, you would simply change the article bequest to another person.

Another scenario is if you dispose of some of your articles. In this case, the memorandum can be updated without having to update the entire will. Having a memorandum also enables your will to focus on the larger assets and enables your executor to have a clear understanding of how you would like some of the smaller articles with sentimental value to be distributed.

When I have talked to clients about having a methodology to distribute the smaller articles in their house, I have heard different approaches. Many have not done anything the first time we talk about it. I have had clients tell me they have put stickers underneath or behind each item, with names of the individual to receive each item. Over time, these stickers can fall off causing confusion. Other methods that I have seen that works in some situations are to distribute items during your lifetime. In the most likely outcome, you may downsize or move into an assisted living accommodation. This may be the ideal opportunity to distribute some of your items.

I also prefer the memorandum approach because it provides clarity for your executor by itemizing each article that you would like to be given to specific individuals. It can sometimes be the smaller items that family have disagreements with afterward. The memorandum should hopefully minimize disagreements between family members over items of sentimental value and avoid unnecessary conflict.

I have explained to clients how I use a memorandum and refer to it in my will. My memorandum was created using a password protected Excel template. The columns include individual name, contact address, phone number and other notes. Although you may know where all the individuals who are receiving your personal articles reside, your executor may not know. It is helpful to list the address and phone number to assist your executor. The notes column is for additional comments that may include logistics, such as shipping or customs notes if the individuals are not nearby.

A benefit of the Excel spreadsheet Personal and Household Effects Memorandum is that it can be easily edited when items are bought, sold or disposed of without having to update the will. If your executor has the electronic copy, the list can be sorted by individual to make organizing the distribution easier. This comprehensive list of assets could be supplemented with photos/videos to add extra clarity for your executor and would also be useful to keep as a general record of all of your assets for insurance purposes.

The Excel spreadsheets should list all personal and household items of significance that are not specifically mentioned in the will. An up-to-date printed copy is always stored with my will, My will refers to this memorandum. I ensure the printed copy is signed, dated and also witnessed.

Just as I think it is important that a will be kept simple and straight forward, I think the memorandum should be kept to articles of importance, sentimental items and other significant items. Many household items have very little value and are not of any great significance. It is also possible that the individuals that you wish to come into possession of the articles do not want them. It could be that logistical issues or shipping costs of moving an item(s) to a named individual far exceeds the value of the article. Your will should give the power to the executor to handle these potential outcomes.

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 at Call 250-389-2138.