Smart Ways to Get Smarter About Money (2024)

HBP or FHSA: Which One Should You Use?

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By iA Private Wealth, September 19, 2023While many people want to purchase a home, it’s become a greater challenge in today’s economic environment. Consumers are financially stretched by high inflation that’s lifted the price of food, fuel and just about everything else. On top of that, central banks have raised interest rates to help control inflation, leading to soaring mortgage rates. Never mind that real estate valuations – while largely off their           peak – remain high, especially in large urban centres. What’s a prospective homebuyer to do?In addition to sensible actions like watching your spending and trying to put away more of your earnings, the federal government also helps Canadians pursue home ownership via two targeted programs: the Home Buyers’ Plan (HBP) and Tax-Free First Home Savings Account (FHSA).How the HBP worksThis plan lets you withdraw, on a tax-free basis, up to $35,000 from your Registered Retirement Savings Plan (RRSP) to purchase your first home. Essentially, it’s an interest-free loan from your own RRSP to help you buy a home. You’re allowed to withdraw funds from more than one RRSP, to a cumulative total of $35,000, provided you’re the owner of each account. The institution(s) that issued your RRSP(s) won’t withhold tax on the money you withdraw. You should also note that certain RRSPs, such as locked-in or group RRSPs, may not qualify for the HBP.You have up to 15 years to pay these funds back to your RRSP, beginning in the calendar year after the withdrawal. Repayment is based on a prescribed schedule with a minimum annual repayment of 1/15th the original withdrawn amount. Note, you may repay more than the minimum in a given year, or repay the entire amount at any time prior to the end of this 15-year period. If you fail to repay the full amount within the allotted time, your outstanding balance is considered taxable income.How the FHSA worksThis plan was introduced in the 2022 Federal Budget, and now that the legal and administrative details have been addressed, financial institutions are rolling it out. The FHSA is a registered account for Canadians aged 18+ who haven’t owned a home ever or, at a minimum, in the past four calendar years. It allows eligible Canadians to contribute up to $8,000 annually on a tax-deductible basis, to a lifetime limit of $40,000. If you contribute less than the maximum in a given year, the unused contribution room (up to $8,000) may be carried forward to the following year. When you withdraw funds to buy a home, this amount is not taxable (including any income earned in the account). If you don’t withdraw all your FHSA funds to buy a home within 15 years, you must close the account. You can transfer the remaining assets, tax free, to an RRSP or RRIF; otherwise, withdrawal of residual FHSA funds will be taxable. As with many registered accounts, you may invest in various types of securities in your FHSA, such as stocks, bonds, mutual funds and ETFs. Your Investment Advisor can help determine which securities best suit your time horizon, risk tolerance and financial objectives.How do you decide?While the HBP and FHSA may have their own features and distinct rules, both plans can help accelerate the home ownership process. An HBP is valuable if you don’t have much cash available, since you’re withdrawing from your established and funded RRSP. An FHSA is valuable if you can contribute a significant amount of cash, since it’ll lower your taxable income and withdrawals are tax free. The good news is, you don’t need to decide. If you wish (and have money readily available), you may use both the HBP and FHSA to assist with funding the purchase of a first home.Consult with your Investment Advisor to decide how best to use the HBP and/or FHSA to help buy your home, based on your tax situation and overall financial circ*mstances.

Why Work with an Investment Advisor?

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By iA Private Wealth, May 15, 2023Do-it-yourself (DIY) investing is nothing new, but in recent years it has grown in popularity thanks to the proliferation of self-styled experts on the internet, particularly YouTube and social media channels such as TikTok. The idea is that personal finance and investing really aren’t that complicated, and that you’ll save money on advisor fees if you go it alone. The truth is that only a very small number of people – people who live and breathe investing and personal finance in their spare time – have a reasonable chance of doing a good job of managing their own finances. But even they would significantly benefit from the unbiased assessment of a professional advisor, in the same way that doctors and lawyers turn to other doctors and lawyers when they need health or legal advice. For virtually everyone looking to build and preserve wealth, save for their children’s education, and meet all the other goals that define our financial lives, working with an advisor will be the best financial decision you ever make. Let’s take a closer look at some of the key benefits of working with an advisor. A dedicated professional An accredited advisor has the training, skills and experience to help build and maintain your wealth plan. Think of this plan as a roadmap to help you navigate life’s many twists and turns. For instance, if you buy a home, get married (or divorced), start a family, have a change in job status, experience a serious illness    (or a death in the family), or receive an inheritance – just to name a few notable events in life – your advisor will adapt your plan so you can remain on track towards achieving your financial goals. It’s similar to how GPS recalculates your route if you miss a turn or encounter an unexpected construction zone. Advisors also have proven methods of helping you save better, spend more wisely and budget smarter.It takes time and skillNot many people have the time or expertise to monitor their finances, including their investments. If major economic or geopolitical issues arise (recent examples include skyrocketing inflation and interest rates, the war in Ukraine and the global pandemic), would you know how they may impact your investments and overall financial situation? Would you be able to make the required adjustments to address current and impending conditions? Your advisor can be proactive and make financial decisions in your best interests, using the latest professional research and analytical insights to inform those decisions.A nose for savingsAdvisors know how to maximize tax efficiency so you can pay less tax and keep more money working for you. They’ll assess your life circ*mstances and recommend sophisticated solutions and strategies as part of your plan. Depending on your and your family’s needs, an advisor may suggest an RRSP to save for retirement, an RESP to save for your child’s post-secondary education, a TFSA to cover an upcoming large expense, an RDSP to provide financial support for a child living with disabilities, an FHSA to help save for your first home, etc. An advisor can also make you aware of certain government benefits and programs, and help you apply for them.Focus and disciplineOne of the biggest pitfalls of DIY investing is failing to maintain proper discipline. So many people react to short-term market and economic events (positive or negative) by being impulsive and either buying or selling when they shouldn’t. Investing is a long-term endeavour and you shouldn’t allow short-term “noise” to influence your decisions or interfere with your carefully developed wealth plan. Fear, panic, greed and overconfidence are just some of the emotions that can lead you to make poor or risky investment decisions. An advisor can help you stay calm and focused, so you can enjoy peace of mind even when markets are highly volatile.What all of this means is that any money you think you’ll be saving by going the DIY route will almost certainly pale in comparison to what you’ll save once an advisor has put your finances under the microscope. If you’re ready to take the next step towards securing your financial future, get in touch with an iA Private Wealth Investment Advisor today.

Understanding Your Notice of Assessment

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By iA Private Wealth, April 3, 2023It may have taken some time and effort, but you managed to complete your income tax return for another year. While most of your work is done, you’re not quite finished yet.After the Canada Revenue Agency (CRA) reviews your tax return, they will send you a Notice of Assessment (NOA). Go through it carefully and also think about sharing it with your Investment Advisor. Before we consider the main reasons why, let’s look at the basics of the NOA.What is a Notice of Assessment?The NOA is an annual statement that the CRA sends (through the mail and/or electronically) after you file your income tax return. It will state whether you received a refund or had an amount owing, and will provide the exact figure. If a balance due remains outstanding, you should pay it promptly to avoid additional interest charges.The NOA is also an itemized tax assessment. It will list details from that specific tax year, such as your income, deductions, credits and tax payable (both federal and provincial). If you made an error when filing your return, CRA will correct it and provide an explanation of the adjustments they made. The NOA will also indicate your RRSP contribution limit for the next calendar year, as well as the dollar amount of unused net capital losses (if any) from previous years that you may apply to reduce taxable capital gains in the future.An advisor can help decipher your NOAAs you can see, the NOA is a practical and informative snapshot of your finances for the past year. When you read through it, enhance your overall understanding of the types of income you generate and your primary sources of tax relief. Take note of any mistakes or incorrect calculations you may have made so you can avoid them when filing future tax returns. An advisor has the experience and relevant skills to review your NOA with a critical eye and offer specific advice regarding matters you might be unaware of. Maybe you missed capturing some deductions or credits that would lower your income tax payable or increase your tax refund. If you donate to charities, an advisor may recommend – depending on your financial situation – that you donate securities instead of cash, or defer claiming donations to a future tax return in order to maximize your tax savings.An advisor may also uncover opportunities to adjust your investment portfolio to increase capital gains and dividends while reducing income generated from interest, which is taxed at your highest marginal rate. Advisors are trained to develop and execute tax-efficient investment strategies so you can reduce the amount you owe each year. They may also work with other professionals* in their network, such as an accountant, to help build a tax-smart plan that is customized for your unique financial circ*mstances.It’s also valuable for your advisor to know how much unused capital losses you have from previous years, as it could impact decisions on selling securities that trigger capital gains. Knowing your RRSP deduction limit for the upcoming year will help your advisor create or revise your strategy regarding how much to contribute. Your advisor may also help you take advantage of a pre-authorized contribution plan so you can automatically contribute a set amount to your RRSP on a regular basis (e.g., monthly) rather than try to make a large annual lump-sum contribution.We can support all your wealth planning needs and help you manage your finances in a tax-effective manner. Contact us today.

Ready for Tax Time?

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By iA Private Wealth, March 24, 2023It’s that time of year again. Tax time is right around the corner, and the sooner you get your slips, receipts and forms in order, the smoother everything will go. Preparing well is crucialFirst off, you want to make sure you file your tax return on time. If you owe money, you won’t incur an interest penalty on your balance if it’s paid before the deadline, which is typically April 30, but this year it’s May 1 since April 30 lands on a Sunday. If you’re entitled to a refund, it’s better to receive it as soon as possible so you can put that money to good use (e.g., investing for the future, paying down debt, getting essential repairs done on your home).Enlist a professionalIt may also help to work with an accountant or other professional with experience filing income taxes. Not only can they ensure that you pay all the taxes you owe, but they’ll also help lower your tax bill because they know how to find and properly claim the credits and deductions you’re entitled to.For instance, you may qualify for a tax deduction if your employer required you to work from home as a result of the pandemic. This deduction is valid for the 2020, 2021 and 2022 tax years, provided you worked from home 50% or more of the time over a period of at least four consecutive weeks. The deduction is calculated using one of two methods provided by Revenue Canada: the “temporary flat rate method” and the “detailed method.” Your accountant or tax preparer can help you choose the one that will yield the greatest financial benefit given your personal circ*mstances.A tax professional will help you maximize your allowable tax benefits related to medical and childcare expenses, charitable donations, and more. If you earned employment income from foreign sources or investment income from foreign property in 2022, the tax calculations are fairly complicated, so they’re best left to an experienced accountant.Looking aheadOnce your income taxes are filed for the 2022 tax year, it’s not too early to begin planning for your next tax return. Be organized by having a good recordkeeping system for all tax-related forms and documents. It’ll make tax time run more smoothly next year, plus it will help you stay on top of whatever tax breaks you should be claiming. You can work with your Investment Advisor and tax professional to ensure you do everything possible to minimize your taxes. You want to make the most of tax-advantaged plans such as the RRSP, RESP, TFSA, and RDSP. Your Investment Advisor can also work with you to implement tax-efficient investment strategies to optimize your long-term wealth-creation potential.We can help you invest according to your needs while also saving on taxes, so please contact us today.

Does Compounding Capture Your Interest?

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By iA Private Wealth, March 1, 2023 Maybe it’s the rising price of goods and services, or the higher rates charged for mortgages, credit cards and other types of debt. Or it could be something else, but the reality is that financial challenges will always surface in everyday life.While some factors are out of your control, you can take certain actions to improve your finances. For instance, consider investing regularly to help grow your wealth over the long term, or being mindful of any non-essential expenses. You can also take advantage of compound interest.Understanding compound interestWith higher inflation comes higher interest rates to help cool off an overheated economy. That’s why it may cost you more these days to pay down your debt. On the flipside, savers have welcomed rising interest rates because, after decades of ultra-low rates (not too long ago, rates were sitting at or near zero), interest-bearing investments are finally providing some meaningful income.From guaranteed investment certificates (GIC) to high-interest savings accounts (HISA) and more, the attractive interest rates they are now paying reflect the fact that the Bank of Canada raised its benchmark interest rate seven times in 2022 alone, to help slow the economy and calm inflationary pressures.So, if you hold GICs and/or a HISA at your financial institution, you can put a dent into soaring costs by earning more interest income. But it gets better. When you earn interest on such investments, you may reinvest the interest as it’s paid, which means your interest will actually start earning interest as well. In a nutshell, that’s the concept of compound interest, and it can help you grow wealth faster.Compound interest in actionHere’s a simplified example. Let’s say you invest $20,000 in a five-year GIC that pays 4% annually. Your principal amount will generate $800 of interest income after the first year ($20,000 x 4%). If you choose to reinvest the $800 in this GIC that’s yielding 4% per year – rather than take it as a cash payout – then that $800 will also earn 4% annualized interest. This means that for the second year of your GIC, you will receive $832 in interest ($20,000 original investment + $800 interest earned in year one x 4%).For each year of your GIC, the accumulated interest you collect will continue to earn 4% annually on its own, in addition to your $20,000 original investment. The same principle applies to a HISA, where interest is typically calculated daily and then that interest starts to generate its own interest income. There’s the magic of compound interest as an effective wealth builder over time.Investment flexibilityHere’s one more notable benefit of compound-interest savings vehicles like GICs and HISAs: you may hold them in registered plans or accounts – such as the RRSP, TFSA, RESP, RDSP and RRIF – that each have their own tax advantages, allowing you to retain more of your hard-earned money. Your Investment Advisor can work with you to help determine which account(s) to utilize.Although the cost of living continues to rise, you can help keep pace by taking advantage of compound interest. It doesn’t even require you to invest a large lump sum. Some plans allow you to get started with as little as $50, and then you can add to your investment whenever the money is available. Consider a pre-authorized contribution (PAC) plan that automatically invests for you on a specific schedule (e.g., $100 per month). PACs can be a convenient way to invest regularly and allow compounding to build your long-term wealth.We can help you benefit from the power of compound interest, so contact us today to learn more.