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A note to readers: The Retirement newsletter will be taking a break for the festive season, but we’ll be back in your inbox on Jan. 4. Happy holidays!
The holiday season is here again, which means it’s time for advisors to reconnect with clients on ways they can reduce their tax bills. And given the rising cost of living and ongoing economic uncertainty, year-end tax planning is even more important for many Canadian households this year.
In a recent LinkedIn Live event, Globe Advisor reporter Brenda Bouw spoke with Wilmot George, head of tax, retirement and estate planning at CI Global Asset Management in Toronto, about some year-end tax planning strategies advisors should discuss with clients.
Here’s a summary of what Mr. George had to say:
“A common year-end strategy is tax-loss selling. How can it be used to a client’s advantage?
Generally, you don’t want to sell a security when the market is down, but sometimes, it can make sense, particularly when you have realized capital gains from other areas of your portfolio. You can use capital losses to offset capital gains to pay fewer or no taxes. A net capital loss in a year can be carried back three years or carried forward indefinitely to apply against capital gains for those years. With tax-loss selling, the selling transaction must settle on or before the last business day of the year. It’s worth noting that 2023 is the last year to trigger net capital losses carried back from 2020.
“You can’t talk about tax-loss planning without talking about the superficial loss rule. The Canada Revenue Agency’s ‘superficial loss’ rule states investors can’t claim a capital loss on the sale of an investment if they – or anyone affiliated with them, such as a spouse, common-law partner or certain affiliated trusts – buy back the same investment within 30 calendar days before or 30 calendar days after the disposition – so there’s a 60-day window. Investors need to be mindful of the superficial loss rule and avoid it if the goal is to benefit from a capital loss for the year.
“Another popular year-end strategy is charitable giving. Let’s talk about the opportunities here and anything new investors need to consider. Charitable donations can be an effective way to reduce your tax bill. They can create credits of up to 54 per cent, depending on the donor’s income, the province or territory where they live, and the amount donated.”
Read the full article here.
For more from Globe Advisor, visit our homepage.
When can Norman, 62, afford to join Margaret, 65, in retirement?
Margaret retired last spring and Norman is keen to follow. She is 65, he is 62. They have two children, both in their early 30s. The younger one is living at home and saving for a down payment. They have a mortgage-free condo in a comfortable Toronto suburb and no debt.
When she was still working, Margaret earned just shy of $90,000 a year. Norman, who works in publishing, earns $92,000 a year including bonus plus another $5,000 a year in royalty income.
“We are wondering when Norman can retire or move to part-time hours,” Margaret writes.
Although neither has a defined benefit pension plan, Norman’s employer contributes to his deferred profit-sharing plan (DPSP) and non-registered investment account. (A DPSP is a type of employer-sponsored retirement savings plan.) They both have RRSPs.
In the short term, Norman and Margaret plan to upgrade their home and do some travelling. They wonder when they should start collecting government benefits and when to convert their RRSPs to registered retirement income funds and begin withdrawing. They ask, too, if they can afford to help their children with a down payment on a first home, and if their investments are appropriate.
Their retirement spending goal is $77,000 a year after tax.
In this Financial Facelift, Matthew Ardrey, a portfolio manager and certified financial planner (CFP) at TriDelta Private Wealth in Toronto, looks at Norman and Margaret’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
Are incomes rising over time? Why working-age Canadians need government help, not seniors
Canadians have significantly higher incomes in real terms now compared to 20 years ago. In this Charting Retirement article, Fred Vettese, former chief actuary at Morneau Shepell and author of Retirement Income for Life, makes the case that most seniors are doing better than those of working age here.
In case you missed it
Clawback haters, is it even worth applying for Old Age Security?
While it’s a problem of the very fortunate, the clawback of Old Age Security benefits can be quite irritating.
So much so that a reader got in touch with personal finance columnist Rob Carrick recently to ask if there’s any point in him applying for OAS at all. He’s 71 and hasn’t applied yet for this benefit. He says his income is high enough that he’ll have 100 per cent of any OAS payments clawed back. If he never receives OAS, he’ll never have to deal with the clawback. Wouldn’t that be easier?
For some thoughts on this question, Carrick turned to the financial planners and advisers in my LinkedIn community. The consensus answer: apply for OAS in case of an unforeseen drop in income at some point in the future.
One of the planners who contributed an answer, Aaron Hector, noted another reason to apply for OAS. The clawback thresholds are indexed to inflation, which means they rise from year to year.
One more thought for this reader was to look into the possibility of pension income splitting.
For more expert advice on OAS, read the full article here.
Retirement Q & A
Q: I need to speak to my family over the holidays about how I want to live in retirement; how do I approach the conversation?
We asked Julie Cowan, managing director, total wealth planning & insurance, Scotia Wealth Management, to answer this one.
Congratulations for taking the initiative to communicate with your family about your retirement plans. Sharing your wishes and intentions can help avoid confusion or disagreements later, particularly if you experience something unexpected or a crisis. To approach the conversation with family members and loved ones over the holidays, start by letting them know that you have some important things to discuss, including your retirement plans and suggest a time while you are all together. This may reduce the emotional toll of a surprise discussion.
As you prepare for the discussion, be clear on what it is you want to achieve with the conversation. Even if your retirement plans are not yet clearly defined, I would encourage you to identify at least one or two concrete goals that you consider to be non-negotiable. Have an idea of some goals you might want your family’s input on as well. Identify areas of concern that may arise and how you want to address them or manage expectations of family members around your decisions – they may not necessarily react or respond the way you expect and will often be considering the impact of your decisions on them. You can even establish some ground rules at the start of the meeting: these are your decisions, but you are hoping for a consensus to enable positive outcomes for you and for your family.
To help create a positive discussion, ensure everyone has a voice at the table. You should encourage questions, share concerns and discuss possible outcomes – if needed, there are facilitators that can help manage difficult family conversations. Keep in mind this won’t be the only conversation you will have and you should allow time to digest the information and then loop back to define the next steps.
Work with a financial planning professional to help establish the financial implications of this exciting life transition and consider engaging them prior to the meeting to understand considerations. When preparing the next generation, it is also important they meet your wealth advisor to understand your wishes. Most importantly, family meetings can be emotional but in the spirit of the season, enjoy your time together. Keeping communication open will help your family support your retirement plan as it evolves and create some peace of mind.
Have a question about money or lifestyle topics for seniors? E-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Sign up for our weekly Retirement Newsletter.
