Up Financial – February Planning Update
Big News from the Supreme Court of Canada this month:
Do you know someone who cares for a person with a Disability? The latest SCC decision confirms the viability of Absolute Discretionary Trusts (also known as a Henson Trust). This is a trust used to protect a person living with a disability from losing asset-tested government benefits.
https://www.scc-csc.ca/case-dossier/info/sum-som-eng.aspx?cas=37551
In S.A v Metro Vancouver Housing Corp., the SCC overturned rulings by the Supreme Court of B.C and the province’s Court of Appeal that the “trust should be considered an asset for subsidized housing.” The final ruling is that the trust should NOT be considered an asset and is a big win for parents, guardians and trustees of people with disabilities.
Absolute Discretionary Trusts are created so that assets held in trust for a person living with a disability are not considered assets belonging to the beneficiary. People living with disabilities are often at risk of losing their government benefits like AISH and Subsidized Housing should they not meet specific asset tests. Structuring inheritances and gifts in Trusts and Registered Disability Savings Plans continue to be an effective way to ensure the long term financial success of disabled dependents.
If you have questions about whether or not you should have a Henson Trust established for a disabled dependent, please reach out. Alberta has only amended their legislation recognizing these types of trusts since June 1, 2018. If you know someone who might find this information useful, please forward it on.
GM announces layoff – Common Financial Mistakes when accepting your severance package.
Please, please, please review your compensation package with a lawyer and with your financial advisor before committing to anything.
Common Mistake #1:
Not rolling severance allowance directly into your RRSP’s. With planning you will likely be able to reduce your tax payable on your severance pay. You’ll need to look at your current RRSP room and how much of your severance you are permitted to roll directly into your RRSPs. If you are laid off in December and are about to receive another 12 months pay, your tax bill could potentially be significantly reduced.
Depending on when during the year you are laid off it may or may not make sense to defer your tax bill to a future year when your income is lower. If you happen to be without work for a long period of time, it may even make sense to simply push assets into your RRSP in the current year, to withdraw them the following year if you continue not to work and are in a very low tax bracket.
If you are lucky enough to land work again very shortly, you can potentially defer a large tax bill into retirement.
Common Mistake #2:
Basing your decision about your Defined Benefit Pension plan on what your colleagues are doing. Every situation is unique and it may or may not make sense to stay in a pension plan with the promise of receiving an income now or at a future date or alternately taking the full value you have earned over time (called a ‘Commuted Value’). There are many factors that play into your decision such as what other investment assets you have, whether your spouse has a guaranteed pension, your Canada Pension Plan and Old Age Security eligibility, current Bank of Canada Rates (that affect how a lump sum is calculated), how well the pension fund is being managed, life expectancy, your risk tolerance….you get the idea. This isn’t a decision to be taken lightly; once you’ve committed one way or another there is no turning back!
2018 RRSP Contribution Deadline: March 1st, 2019
Are you still planning on making a contribution to RRSP’s for the 2018 tax year?
An important thing to remember, particularly when your investments may be in a short-term ‘dip’, is that you can often transfer assets directly ‘in kind’ from a TFSA or Non-Registered account to an RRSP without cashing in the investment. You still receive the full value of your contribution! Depending on your situation, t may make sense to use assets in your Tax Free Savings Account or Non-Registered Investments to reduce your 2018 tax payable.
Want to find out how much RRSP room you have?
1) Log in to your CRA account here (make sure to use Internet Explorer): https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/mycra.html
2) Follow the Secure Partner Sign In
3) Click “Savings Plans” to show you your RRSP and TFSA contribution limits for 2019.
Tax Free Savings Account Limit Increases to $6,000/year
Starting in 2019 TFSA contribution room increases by $6,000. Everyone who was a resident of Canada and at least 18 years old in 2008 should have the same overall base contribution room of 63,500 in 2019.
Follow the instructions above for RRSPs to see your TFSA contribution room as of January 1st, 2019.
What’s coming up next?
Expect your tax slips (T4, T5, T3, etc.) to start arriving towards the end of February. If you suspect you should have a slip that hasn’t arrived, you can check the My CRA system as described above to see which were submitted to the CRA on your behalf.
RRSP contributions made within the first 60 days of the year will have their corresponding tax slips mailed out towards the end of March.
As always, we’re here to answer any questions you may have. Please do not hesitate to reach out.
