Category: Financial Planning & Wealth Management

FIRST HOME SAVINGS ACCOUNT (FHSA): A New Investment Tool

Posted on by Edixon

The tax-free FHSA was introduced in 2023 to help first-time home buyers save up to $40,000 for a home purchase.

Individuals eligible to open an FHSA must be at least 18 years of age and resident in Canada. The individual must also have not lived in a home that they or their spouse owned jointly or otherwise at any time in the year or the preceding four calendar years.

Contributions to an FHSA are deductible (like an RRSP). Income earned in an FHSA and qualifying withdrawals from an FHSA made to purchase a first home are non-taxable (like a TFSA).

The lifetime limit on contributions is $40,000, subject to an annual contribution limit of $8,000, both of which apply at the individual level. Each spouse (or commonlaw partner) could invest $40,000 and withdraw the full value (including investment income and growth) tax-free to acquire their first home. Individuals can carry forward unused portions of their annual contribution limit up to a maximum of $8,000.

Individuals can also transfer funds from their RRSP to an FHSA tax-free, subject to the $40,000 lifetime and $8,000 annual contribution limits. The maximum participation period for an FHSA ends at the earliest of:

  • 15 years after opening an FHSA;
  • the end of the year following the year of the individual’s 70th birthday; and
  • the end of the year following the year when the individual first makes a qualifying withdrawal from an FHSA.

Any funds remaining in the plan after the maximum participation period could be transferred tax-free into a RRIF or an RRSP without eroding contribution room. Otherwise, the funds will have to be withdrawn on a taxable basis.

Timing of opening an FHSA

A June 28, 2023, Advisor’s Edge article (How to properly plan the opening of an FHSA, Charles-Antoine Gohier) discussed the impact of individuals purchasing homes later in life on FHSA planning.

The article quoted a study from 2020 that estimated that the average age to buy a home in Canada is 36. If an individual opens an account at age 18, the plan must be closed no later than 15 years later, that is, when the individual is 33. If the individual contributes the annual maximum of $8,000 for the first five years to reach the maximum contribution of $40,000, assuming a 4.5% return, the balance of the FHSA would be $74,221 at the end of 15 years. If not used for a home, the individual must either withdraw the balance on a taxable basis or roll the balance into their RRSP on a tax-free basis. While rolling the FHSA into the individual’s RRSP does not erode their RRSP contribution room, no tax-free withdrawal would be possible for subsequent use of the funds to purchase a first home. Up to $35,000 could be withdrawn from the RRSP under the home buyers’ plan, but this would be subject to repayment conditions. Where sufficient funds are available in the RRSP, the home buyers’ plan can be used in conjunction with a tax-free FHSA withdrawal.

Home buyers’ plan (HBP)

In a May 15, 2023, French Technical Interpretation, CRA was asked whether an individual could withdraw $8,000 under the HBP and contribute the funds to a tax-free FHSA, knowing they would purchase a qualifying home the following month.

CRA first noted that the HBP and FHSA can be used for the same home purchase. Provided that the relevant requirements of both plans were complied with, the taxpayer could contribute the HBP withdrawal as a deductible FHSA contribution, then take a qualifying withdrawal from the FHSA in respect of the same home purchase.

This would be an alternative to rolling funds from the RRSP to the FHSA. Using the HBP approach would provide an immediate deduction for the FHSA contribution (a rollover would generate no deduction) but would also require the HBP withdrawal to be repaid to the RRSP in future years to avoid tax. The legislation does not impose any minimum period that contributions must remain in an FHSA before being withdrawn to acquire a home.

Tax-free qualifying withdrawals

A May 23, 2023, Advisor’s Edge article (What are the FHSA qualifying withdrawal rules?, Rudy Mezzetta) discussed the conditions for a qualifying withdrawal.

The taxpayer holding the FHSA must be a resident of Canada at the time of withdrawal and remain so until the qualifying home is acquired.

The taxpayer must also have a written agreement to buy or build a qualifying home before October 1 of the year following the first qualifying withdrawal. Further, they must occupy or intend to occupy the qualifying home as a principal place of residence within one year after buying or building it. The article indicated that CRA had confirmed, in an email, that there is no minimum amount of time that the taxpayer must live in the qualifying home. The article also noted that if the acquisition of the home before October 1 of the following year was frustrated by unforeseen events, the taxpayer may have to provide evidence supporting their intent to occupy the property to avoid the withdrawal being subject to tax.

The individual must also be a first-time home buyer, defined as someone who has not owned or jointly owned their principal place of residence in the current year or any of the previous four years, to make a qualifying tax-free withdrawal. Unlike the requirements for opening an FHSA, home ownership by the individual’s spouse or common-law partner is not considered in the definition of a qualifying withdrawal. The individual may own the qualifying home for up to 30 days prior to the qualifying withdrawal and still be a first-time home buyer.

ACTION: Consider whether opening up and contributing to an FHSA is an option for you or a family member

Prioritizing The Security And Protection Of Our Client’s Assets

Posted on by Edixon

Fraudulent activities and scams continue to pose a risk to individuals and organizations alike. As part of our commitment to your financial well-being, we want to ensure that you are aware of these risks and equipped with the knowledge to protect yourself.

The Impact of Fraud and Scams

In Canada, reports to the Canadian Anti-Fraud Centre revealed staggering losses of $530 million in 2022, with a concerning 40% increase compared to the previous year. However, it is important to note that these figures likely represent only a fraction of the total financial losses, as estimates indicate that only 5-10% of fraud cases are reported.

Source: Fraud Prevention Month 2023: Fraud losses in Canada reach another historic level | Royal Canadian Mounted Police (rcmp-grc.gc.ca)

Protect Yourself and Your Investments

Education is vital to staying one step ahead of fraudsters. Therefore, we encourage you to familiarize yourself with the following guidelines to protect your investments:

  • Be cautious of investment offers that seem too good to be true, whether from friends, family, social media contacts, or websites.
  • Be skeptical when someone insists that you keep an investment opportunity confidential.
  • Exercise caution with unsolicited investment opportunities received online or via phone.
  • Take your time to evaluate offers and avoid rushing into decisions. Fraudsters often use high-pressure tactics to exploit time constraints.
  • Assess the credibility of the information or “hot tips” you receive. Consider the motivations behind those providing the tips and verify the legitimacy of the information.
  • Before making investment decisions, verify the registration and background of the person offering the investment. Generally, anyone selling securities or offering investment advice must be registered with their provincial securities regulator.
  • When in doubt, ask questions and consult with your dedicated DJB Wealth Management Advisor or TriCert Portfolio Manager before proceeding.
Our Role in Preventing Fraud

There are many ways we help protect our clients:

  • We maintain up-to-date client records, including telephone, email, and mailing address details and Know Your Client (KYC) information. This information enables us to identify any uncharacteristic or uncommon requests.
  • We verify the accuracy of requests against the information on file.
  • We adhere to strict guidelines regarding the authorization of instructions and the disclosure of information. We request written and signed instructions from clients before sharing confidential information or acting upon requests.
  • We exercise caution with requests involving unfamiliar addresses, bank accounts, or third parties. We may contact your Trusted Contact Person (TCP) for clarification if we have any doubts.
  • We ensure the secure disposal of unnecessary paperwork containing personal information through shredding.
  • We encourage the immediate reporting of suspicious requests or fraudulent activities to your DJB Wealth Management Advisor or TriCert Portfolio Manager.
  • Never share sensitive personal account information via email.
Additional Measures for Client Protection

Apart from our internal efforts, we urge you to take the following steps to safeguard yourself against fraud:

  1. Create strong and unique passwords for your accounts, changing them periodically. Whenever possible, enable two-factor authentication for added security.
  2. Exercise caution when clicking links or opening attachments, especially from unfamiliar sources.
  3. Be mindful when using public Wi-Fi networks, which may pose security risks. Assume that your online activities can be monitored.
  4. In case of suspicious phone calls, immediately terminate the call without sharing any personal or financial information. If you need more clarification about the legitimacy of the phone call, contact the alleged source directly using a reliable phone number from a trusted source.
  5. Never grant strangers remote access to your devices or computers, as this can be exploited to obtain personal financial information.
What to Do if You Become a Victim of Fraud

If you believe you have fallen victim to fraud, please remember that it can happen to anyone, and you should not feel ashamed. Here are the initial steps to take:

  1. Document all relevant information regarding the incident, as it may be required for investigations.
  2. Notify your DJB Wealth Management Advisor, TriCert Portfolio Manager and/or financial institutions.
  3. Change your passwords with us and other financial institutions or service providers.
  4. Request warnings be placed on your accounts to ensure additional precautions are taken when accepting or disclosing information.
  5. Consider reporting the fraud to Equifax and TransUnion. If you suspect mail redirection, please get in touch with Canada Post.
  6. Report the incident with the Canadian Anti-Fraud Centre. They can be reached toll-free at 1-888-495-8501 or through the Fraud Reporting System.  
Test Your Knowledge

To test your knowledge and enhance your awareness of fraud prevention, visit this Government of Canada resource.

We remain committed to your financial security and well-being. If you have any questions or concerns regarding fraud prevention or any other matter, please don’t hesitate to contact your dedicated DJB Wealth Management Advisor or TriCert Portfolio Manager.

Charitable Gifting of Securities

Posted on by Edixon

According to Statistics Canada, Canadians donate $10.6 billion annually to charitable and non-profit organizations for altruistic reasons.  While most of this is in the form of cash donations from after-tax dollars, there is also the option for gifting using investment securities.  This could be done by those who do not have the cash resources for charitable gifting but who may have investment assets that could be used instead of an outright cash gift, or for those who want to donate and take some tax benefit for themselves at the same time.  It is therefore important to understand these additional tax benefits available when you have qualifying charitable donations of securities to include on your tax return.

The following provides some helpful information if you are considering this strategy.

Charitable Giving Using Investment Securities

Most charitable organizations accept investment securities as gifts or donations instead of cash.  These are referred to as donations in-kind and are eligible for the donation tax credit equal to the market value of the investment at the time it is transferred to the charitable organization.

When gifting an investment security to a registered charitable organization, Canada Revenue Agency (CRA)does not require the taxpayer to recognize any taxable gains associated with the donated investment securities.

Using an example to illustrate, let’s say an individual wants to donate $10,000 to a registered charity. In order to fund that donation, this individual needs to sell $10,000 worth of stock which they originally purchased for $6,000. When the donor files their tax return, they will need to include the $4,000 capital gain income ($10,000 – $6,000), of which 50%, or $2,000, is taxable.  If this individual has a marginal tax rate of 40%, the act of selling those shares to fund their donation added $800 to their tax bill ($2,000 x 40%).

Alternatively, if the donor in the example above had gifted the shares to the charity, they would not have had to recognize the capital gain and saved $800 in tax while receiving a tax receipt for the $10,000 donation. So, if you are thinking of donating, check your investments and consider making the donation by a transfer of securities – you may be able to save on tax and make a larger charitable contribution as a result. And most importantly, you will be contributing to a worthy cause.

NOTE: These are general figures for the purposes of illustration. We recommend you seek appropriate professional advice before deciding on your charitable gifts.

Psychology of Selling Your Business

Posted on by Edixon

Whether you’re an established business proprietor, a generational business owner, or an entrepreneur, you’ve put your heart and soul into building your company. Still, there comes a time when you need to move on, and that’s where selling comes in. However, it’s more than finding the right buyer and negotiating the best price or contract terms. Many owners, like you, find themselves struggling with a deep-seated reluctance to sell, which can be hard to understand and even harder to overcome.

You may have invested so much time and energy into your business that it’s become a part of you. Or there are family issues that are holding you back. Whatever the reason, it’s essential to recognize that this reluctance is not uncommon, and it’s perfectly normal to feel this way.

You may find yourself delaying the acceptance of a fair offer, stalling the process, declining, or otherwise sabotaging the deal without really understanding why. You may think it just didn’t “feel right”, the buyer wasn’t the right fit, or you convince yourself you’re not ready. Perhaps it is one of these reasons, but often this is not the case.

The psychology of selling your business

Selling a business that has been painstakingly created, nurtured, and struggled with, and one that is ultimately successful, is akin to a child leaving home to take on the world for themselves. For owners like you, a business can be like having a child. Whether you’ve conceived the business from an idea, inherited the family business, or purchased an established enterprise, you’ve put your blood, sweat, and tears into your business to make it successful.

Like new parents, you can often feel nervous, unprepared, and overwhelmed, having never done this before. Regardless, you push through as the reward and satisfaction far outweigh the fear; the effort is fulfilling and long-lasting. Over the years, you’ve spent many hours cultivating and nurturing the business, celebrating its successes, and watching it grow into a successful, independent, self-reliant enterprise that is ultimately valuable to the world.

You and your business struggled together, overcame obstacles in the face of adversity, stumbled, got back up, and learned and grew through it all. Like a baby, you initially carried the business when it could not carry itself. Over time, your business grew and found its legs and rhythm. As your business matured, it became important to others – clients, staff, suppliers, and, most importantly, you. Like a child, the business gained independence over time and needed you less and less, becoming an entity unto itself. You no longer manage every aspect of the enterprise, coddle it, and protect it. Your business has become a thriving entity that can stand on its own.

Letting go of what you or your family created, nurtured, and grew is often very difficult. Like a child, you are proud of what it has become but still worry about what might happen if you let it go. Will it be okay without you? Will it be damaged if you are not there to protect it? Will it even survive if you are not guiding it in the future?

With business, as with children, you reach the point where you have done everything you can to prepare it for the world, and you must let go. Let it move on. Let it continue its evolution, whatever that may be.

Considering a different perspective about the sale of your business and understanding the emotions you may be experiencing often helps you conquer the reluctance of finalizing the sale. Selling is a very difficult time for many business owners, which could result in a lost opportunity to monetize your lifelong achievements if you can’t overcome this obstacle.

How we can help

Work with your trusted accounting and financial advisors under our TriCert™ integrated approach. We specialize in owner-managed businesses to help you overcome many psychological hurdles of selling your business.

Leveraging the experience of accountants and tax specialists, and integrating these advisory services with your financial planner, can give you the peace of mind and the confidence to work through one of the most significant events in your lifetime with a strong team supporting you every step of the way.

 

Staying Calm When Markets are Volatile

Posted on by Edixon
Why Avoiding Short-Term Performance Figures Can be a Sound Strategy

In times of economic turbulence, it’s normal to feel apprehensive when you’re about to read your portfolio’s performance. And, of course, seeing the fluctuating short-term results doesn’t help. It is more important to keep your sights on the bigger picture and stay focused on your long-term investment strategy and performance. By doing so, you can navigate the choppy waters of the current economic climate more confidently and ultimately achieve your financial goals.

Typically, volatility is a short-term issue; in the long run, your long-term investment plan and confidence in your investment holdings matter. Therefore, avoiding short-term “noise” can be a good strategy. While performance is undoubtedly crucial, it should be evaluated in years, not months.

For example, take a look at it in graph terms:

Strategies for navigating market volatility

The performance figures can be an unpleasant surprise, depending on the period you are looking at or the duration being reported on your account statements.

Consider:

  • Evaluating the quality and long-term sustainability of your investments with your portfolio manager. It’s likely that your holdings are still reasonable, and no drastic changes are necessary. You may come across opportunities to refine your portfolio, but try to refrain from making significant “panic changes” that could lead to missing out on future market recoveries.
  • Updating or creating a financial plan. It’s crucial to take this step during market downturns as it can
    provide reassurance that your long-term financial goals are still achievable. Our experience has shown that personal financial plans often remain on track despite market downturns. Take advantage of this opportunity to update your plan and gain some much-needed reassurance.
  • Triggering a capital loss strategically if you have non-registered accounts. This can help offset a realized capital gain if you plan to sell an asset, or if you need cash or want to diversify your holdings.
  • Lowering the risk profile of your account permanently only if you cannot tolerate market
    volatility anymore. It may involve selling some holdings at a less-than-ideal time, but taking a hit now could be easier for you in the future. However, this should be considered a final, one-way option.
Reframe your perspective

Imagine thinking about your investment portfolio as if it were your own home. This relatable comparison can help you weather market downturns with greater ease.

Unlike your monthly investment statement, you don’t receive regular updates on your home’s value nor see real estate index numbers fluctuating in real-time. This lack of daily stress means that when the value of your home drops, you don’t immediately consider selling it. After all, your home is a long-term investment and a significant part of your net worth.

Similarly, selling off your stocks doesn’t make sense just because the market is down. Likewise, jumping out of the market and buying back once values have risen is not a sound strategy. Instead, stay the course
and trust in your long-term investment plan.

Bottom line

We will always have periods of volatility. It’s important to keep calm and avoid knee-jerk reactions that may jeopardize your long-term plan. Review your portfolio and strategies with your Accountant, Financial Planner, and Portfolio Manager, and gain the confidence you need to stay the course.

How to Financially Prepare for Divorce

Posted on by Edixon

Jane is divorced. Going through divorce was a difficult time, not just for her but for her entire family. The emotions were draining, but the financial strain made it even worse.

As Jane prepared for divorce, there were so many decisions to be made quickly. She knew she had to be proactive to protect her financial well-being.

Jane first needed to understand her financial situation before entering the divorce process. She started by compiling her financial records – tax returns, loan documents, retirement accounts, bank statements, and investment statements. Then, with her accountant’s help, Jane was able to fully understand where she stood financially.

Jane also pulled her credit report to ensure she knew all her accounts and liabilities. She made a comprehensive list of all her assets that could be divided during the divorce, including their marital home, investments, pensions, personal property, and more.

Next, Jane opened new personal bank accounts and closed her joint accounts with her soon-to-be ex-husband. She updated all her direct deposits to her new account and started paying her bills using those accounts. Importantly, to avoid being responsible for any debt her husband may accrue post-divorce, she also paid off and cancelled any joint credit cards.

Jane wanted to ensure her wishes were honoured in the event of her death – and that her former husband wouldn’t have access to her private information. She updated her Will and Power of Attorney, designating new beneficiaries on her investment accounts and insurance policies.

Jane also changed her mailing address to keep her mail private during the divorce proceedings. She wanted to ensure that any correspondence from her lawyer or information about her finances wouldn’t fall into the wrong hands.

Finally, Jane wanted to avoid losing assets or handing over more than she had planned. To do this, she refrained from making significant financial decisions until the divorce was finalized. Instead, she worked with legal and financial professionals to make sure her best interests were protected throughout the process.

Jane had to figure out her new income post-divorce and set a budget. She needed to get her life back on track. With her financial planner, she determined all her monthly inflows, debt payments, and fixed expenses and allocated her discretionary spending accordingly. Together, Jane and her financial planner started a new financial plan and set new, achievable goals. She also reviewed her investments with her portfolio manager to make sure they aligned with her new financial goals and comfort level.

Today, with the help of the right professionals, including her accountant, financial planner, and portfolio manager, Jane can finally start fresh post-divorce and have financial peace of mind.

Are you at the start, or in the middle of a divorce? Remember these steps.
  • Compile your financial records and assess your personal assets.
  • Open new bank accounts and credit cards.
  • Close joint accounts and pay off/close joint credit cards.
  • Update your Will, Power of Attorney, and insurance policies, including beneficiaries.
  • Update your mailing address if you no longer live in the marital home.
  • Refrain from making significant financial decisions that may be included in the division of
    property.
Starting Fresh, Post-Divorce
Determine your new income and set a budget.

Post-divorce, your cash flows are likely to change drastically. So first, determine all your monthly inflows, debt payments and fixed expenses. From there, figure out how to allocate your discretionary spending.

Start your financial plan.

Your future looks different than the last time you did a financial plan. Work with your advisor to lay out new objectives and determine the next steps to get your financial life back on track.

Review your investments.

Your investment objectives may have changed since your divorce, or it may be your first time learning about investing. Talk to your portfolio manager and ensure your portfolio aligns with your objectives and comfort level.

Work with your accountant, financial planner, and portfolio manager to clearly understand your financial position and set you on the right path to financial well-being post-divorce.