The new capital gains tax policy, effective from June 25, 2024, brings significant changes for individual investors, corporations, and trusts. This new policy imposes a higher tax rate on earnings from the sale of assets, like stocks or investment properties, also known as capital gains.
Capital Gains Inclusion Rate Changes
Individual Investors: Previously, individual capital gains exceeding $250,000 were taxed at a rate of 50%. However, under the new policy, these gains will now be subject to a higher tax rate of 66.67%. It’s important to note that this increased rate only applies to gains earned after the initial $250,000. The first $250,000 of gains within a tax year will still be taxed at the original rate of 50%.
Corporations and trusts: Corporations and trusts, unlike individual investors, will not benefit from the lower rate on the first $250,000 of annual capital gains. Instead, they will be subject to the higher tax rate of 66.67% right from the first dollar of gains.
The increase in the capital gains tax inclusion rate will have various implications depending on your situation. For example, the new policy may affect the timing of your investment sales, as well as the types of assets you choose to invest in. It’s important for you to understand how these changes will impact your overall tax liability and to plan accordingly.
Contact Us
If you have concerns about the new policy’s impact on your investments, we are here to help. Our team at Rothenberg Wealth Management provides free, professional advice and guidance. Our advisors can help you navigate the intricacies of the new capital gains tax landscape, understand the specifics of the policy, assess your current investment portfolio, and develop a plan to minimize your tax liability.
Old Age Security (OAS) is a source of income for many Canadians during retirement, but many retirees are concerned about losing a portion of their OAS benefits due to clawback rules that reduce these benefits after a certain income threshold. In this article, we’ll share some strategies to prevent your OAS benefits from being clawed back, allowing you to maximize your retirement income.
Before we begin, let’s review what the Old Age Security benefit is. If you are already familiar with OAS, you can skip this part and jump straight into the different strategies to reduce the impact of the OAS clawback. These strategies include:
Old Age Security is a pension benefit that provides a monthly payment to most Canadian retirees and seniors. If you meet the legal status and resident requirements for receiving OAS, you can start enjoying OAS benefits as soon as age 65 with the option to defer payments until the age of 70.
How much you will receive in OAS will depend on your income. As of April to June 2024, the maximum OAS monthly payment amount for individuals aged 65 to 74 is $713.34, and for those aged 75 and over, this amount is $784.67. These amounts are adjusted on a yearly basis depending on inflation.
It’s important to note that there is a maximum annual net income threshold for OAS eligibility. If your income exceeds this threshold, you will not be eligible to receive any OAS benefits. This is particularly relevant for high-income earners.
(Maximum payments and income thresholds – April to June 2024, Source: CRA Website)
You can find all the details about maximum payments and income thresholds (April to June 2024) on the CRA website here in addition to other relevant information about Old Age Security.
Remember, OAS is a valuable pension benefit that supports Canadian retirees and seniors. Ensure you meet the requirements and understand the income thresholds to make the most of this benefit.
Now let’s discuss the different types of strategies to manage potential OAS clawback. Most strategies presented below focus on reducing your annual net income below the clawback threshold, since this is what the amount of OAS you receive will depend on.
Income Splitting
To manage your retirement income efficiently, consider income splitting with your spouse or common-law partner. This method involves sharing up to 50% of eligible income, such as from Registered Retirement Income Funds (RRIFs) or pensions, which can keep individual incomes below the clawback threshold. It’s a strategic way to reduce your overall tax burden and effectively manage your retirement income, ensuring you receive the maximum amount of OAS you’re eligible for.
Utilizing Tax-Advantaged Savings Accounts: TFSAs and RRSPs
Early strategic withdrawals from Registered Retirement Savings Plans (RRSPs) to fund your Tax-Free Savings Account (TFSA) can be a smart move, especially if you can do so before reaching higher OAS clawback thresholds.
Another option is contributing to an RRSP if you have the available contribution room. However, it is important to note that if you are already retired and getting OAS, contributing to an RRSP may not be an option if you don’t have the contribution room or are over the age of 71. As a reminder, the last day you can contribute to your RRSP is December 31 of the year you turn 71 years old.
Another strategy involves transferring your least tax-efficient investments, like Guaranteed Investment Certificates (GICS) and bonds, into a TFSA to reduce your taxable income and minimize future tax implications. In this way, you lower your income threshold and can qualify for a maximum in OAS benefits.
Deferring OAS Payments
Another effective strategy you may benefit from is to delay receiving your Old Age Security (OAS) payments if you’re working past the age of 65. You have the option to defer your OAS up to the age of 70.
For each month you delay the start of your OAS pension up until age 70, your future monthly payments may increase by 0.6%. You can delay payment of OAS for up to 60 months, or 5 years, which means your OAS payments will go up by 7.2% per year up to a total maximum of 36%.
(Application for the Old Age Security Pension ISP-3550 Form, Source: Service Canada)
Delaying your OAS payments boosts your eventual payments and results in larger payments in the future but also provides a window to manage other retirement funds under lower tax brackets if you don’t need the OAS retirement income right away. You could also delay the first payment indefinitely, but there wouldn’t be any advantage.
It’s important to keep in mind that you won’t be eligible for other OAS benefits like the Guaranteed Income Supplement (GIS) and Allowance during the pension deferral period.
Here is a table with an estimated breakdown of OAS payments.
*This table is based on an annualized monthly maximum pension of $713.34 on January 1, 2024. Assumes conservative inflation adjustment of 2% per year on the annualized monthly pension. Adjusts pension by 10% at age 75.
One important thing to note about the table above is that it doesn’t factor in any investment returns made on OAS payments. Some people wish to take their OAS pension early and invest that money rather than delaying OAS to the age of 70.
When deciding whether to defer your OAS payments, it’s important to consider different factors besides your income requirements and the potential income boost promised to you by an OAS deferment. Other factors you may want to consider include your health and any dependents.
Flow-Through Shares (FTS)
Another viable option to minimize your OAS clawback is to invest in Flow-Through Shares, or FTS. FTS can give you a tax deduction to reduce your taxable income. These types of investments are not for everyone as they can carry high risk, which can lead to significant losses, so it’s important to speak to your advisor to know if this option is suitable for you.
Other Strategies
Consider other financial planning strategies such as reallocating income to reduce or eliminate the clawback of OAS benefits. For instance, reallocating eligible pension income to enable both spouses to receive the pension income tax credit can be beneficial.
Additionally, waiting until the end of the year you turn 71 to convert your RRSP to a Registered Retirement Income Fund (RRIF) and taking only the minimum RRIF withdrawals annually can keep your net income low.
Prudent investing is also important along with understanding how different income is taxed. Not all investment income is taxed the same, so it’s important to select investments that are tax-efficient, which an advisor like a Rothenberg Wealth Management Advisor can help you with. This can also mean rearranging or rebalancing your portfolio to continue generating the income that you need but also change the type of income you receive from interest, dividends, or capital gains to return of capital, to further reduce your taxable income in a given year. Return of income capital, or ROC, is not taxable in the year it is received.
Applying strategies like income splitting, utilizing Tax-Advantaged Accounts like TFSAs and RRSPs, and opting to defer OAS payments until you turn 70 years old can be practical steps that can safeguard your income in retirement, ensuring you maintain as much of your OAS benefit as possible. Remember, every financial decision you make impacts your retirement comfort, so planning with these strategies in mind is critical.
The journey to maximizing your Old Age Security doesn’t have to be navigated alone. Whether you’re fine-tuning your current retirement plan or just starting to ponder over your future finances, professional advice can make all the difference. Contact a Rothenberg Wealth Management Advisor for retirement planning advice to explore how you can implement these strategies effectively in your overall wealth management plan.
(Image: Rothenberg Wealth Management Chief Operating Officer Raj Pandher, third from the left, pictured with the champions of the Calgary Interclub Squash Association’s Men’s Level 1 Final and the Rothenberg Cup Trophy).
Rothenberg Wealth Management is proud to have served as the Title Sponsor for the Calgary Interclub Squash Association’s (CISA) Men’s Level 1 Squash League, furthering our ongoing partnership with CISA from previous years.
Our Chief Operating Officer Raj Pandher was in attendance to represent our firm at the Men’s Level 1 Finals at the Calgary Winter Club on Saturday, April 20, 2024. Raj presented the Rothenberg Cup trophy to the members from the winning team. Congratulations to Bow Valley Athletic Club on their victory!
The release of the Canadian federal budget is always a highly anticipated event. Serving as the government’s financial blueprint, it outlines its priorities and proposed spending initiatives across diverse sectors.
On April 16, 2024, the 2024 federal budget was released. Now, let’s take a closer look at what it contains and what you should know as an individual or business operator:
For Individuals
Personal Tax Rates: Personal tax rates remain unchanged from the previous year.
Increase in Capital Gains Inclusion Rate: The capital gains inclusion rate will increase from 1/3 to 2/3 or 66.6% on capital gains exceeding $250,000 when realized on or after June 24, 2024.
Lifetime Capital Gains Exemption (LCGE): The LCGE will be raised to $1.25 million. The indexing of the LCGE will resume in 2026.
New Capital Gains Inclusion Rate for Entrepreneurs: Entrepreneurs will benefit from a new 1/3 capital gains inclusion rate for up to $2 million of certain capital gains realized.
Principal Residence Exemption: Capital gains from the sale of a principal residence will continue to be exempt from tax.
Increase in Home Buyer’s Plan (HBP) Withdrawal Limit: The withdrawal limit for the Home Buyer’s Plan (HBP) will be increased from $35,000 to $60,000 for withdrawals from a RRSP made under the HBP after April 16, 2024.
Extension of Repayment Grace Period for HBP: The repayment grace period under the Home Buyer’s Plan (HBP) will be extended from 2 to 5 years.
Alternative Minimum Tax (AMT) Calculation Change: The calculation of the Alternative Minimum Tax (AMT) will be changed. This revision allows individuals to claim up to 80% of the proposed charitable donation tax credit when calculating AMT, instead of the previous 50%.
Extension of Disability Support Deduction: The list of expenses covered by the disability support deduction has been extended. You can find a complete list of eligible expenses here on this CRA list.
For Businesses
Corporate Tax Rates: Corporate tax rates remain unchanged from the previous year.
Increase in Capital Gains Inclusion Rate: The capital gains inclusion rate for corporations and trusts will be increased from ½ to 2/3 or 66.6% on capital gains realized on or after June 24, 2024.
Temporary Increase in Capital Cost Allowance (CCA) Rate: The capital cost allowance (CCA) rate for eligible new purpose-built housing projects will temporarily increase from 4% to 10%.
Amendments to Immediate Expensing: Amendments will be made to immediate expensing for productivity-enhancing assets purchased by businesses.
New Canada Carbon Rebate for Small Businesses: The new Canada Carbon Rebate for Small Businesses proposes to return a portion of the fuel charge proceeds to Indigenous governments and small to medium businesses.
Additional Details on Clean Electricity Investment Tax Credit: Additional details are proposed on the eligibility and implementation of the Clean Electricity Investment Tax Credit.
The release of the 2024 federal budget brings important updates for individuals and businesses. It is essential for individuals and businesses to review the budget carefully and seek professional advice to understand how these measures will impact their financial situations and investments.
For more information on how these budget measures may affect your financial situation, or have any questions about other financial or investment matters, please contact Rothenberg Wealth Management. We would be pleased to assist you.
A taxes and investment income calculator is a practical tool used to find out the amount of taxes you will owe, depending on where you live, and how much you would keep in your pocket. This calculator is especially useful if you have various sources of investment income since they are taxed at different rates.
Why Use a Taxes and Investment Income Calculator?
Understanding Your Tax Liability
Calculating taxes and investment income manually can be prone to errors. Using a calculator can provide you with clarity and assurance when it comes to handling your tax responsibilities. By inputting relevant financial information, the calculator can generate tax estimates for various types of investment income, providing you a better understanding of your tax liability.
Investment Insights
Interest, capital gains and eligible dividends are three types of possible investment income. Since they are taxed at different rates, a taxes and investment income calculator can help you compare their after-tax implications. This can help you make more informed investment decisions on which type of investment offers the best returns.
How Does a Taxes and Investment Income Calculator Work?
To use a taxes and investment income calculator, you need two basic details:
Your taxable income (which you can find on line 260 of your personal income tax return)
The amount of investment income
The calculator takes these inputs and uses them to compute the total amount of taxes you would owe and how much you would keep based on the amount of investment income you have entered,
Benefits of Using a Taxes and Investment Income Calculator
For New Investors
Using a taxes and investment income calculator empowers new investors in the wealth building phase by providing a clear understanding of how investment income and taxes impact wealth accumulation. It guides them towards tax-efficient investment decisions and assists in determining optimal asset allocation. This empowers them to make informed and strategic decisions, laying a strong foundation for their financial future.
For Pre-Retirees
For pre-retirees, a taxes and investment income calculator offers critical support for transitioning into retirement. It helps them estimate their investment income and taxes, enabling more effective budget and expense planning. By understanding the tax implications of different investment options, pre-retirees can make informed decisions to enhance tax efficiency.
For Retirees
For retirees, using a taxes and investment income calculator provides valuable insights for financial planning. It offers a clear picture of how investment income and taxes will impact overall retirement income, helping retirees to estimate their investment income and taxes more accurately.
Conclusion
A taxes and investment income calculator is a handy tool for anyone who receives income from their investments. It provides a transparent, predictable way to see how much tax you would pay and how much you would keep. Utilizing this tool can give you valuable insights into your financial situation and help you make decisions regarding your savings goals and investment strategies.
As you navigate the complexities of investment income and tax implications, it’s essential to have a comprehensive financial plan in place. To gain personalized insights and strategic guidance tailored to your specific financial goals, consider reaching out to a Wealth Management Advisor at Rothenberg Wealth Management. Our experienced advisors can provide expert assistance in optimizing your investment strategies, maximizing tax efficiency, and aligning your financial decisions with your long-term wealth goals. Contact us today to schedule a consultation and take proactive steps towards securing your financial future.
Professional growth and development for our associates is very important to us, which is why we are excited to share that Claire Churchill-Smith has been promoted to Wealth Management Advisor!
As a Wealth Management Advisor, Claire provides personalized long-term wealth planning solutions for clients’ financial needs, including investment recommendations, portfolio management, retirement planning, estate planning, and financial education. Claire joined the Rothenberg team in August 2021 and previously worked closely with the advisor team at the West Island office, providing comprehensive support in various areas of wealth planning and client service.
We look forward to seeing Claire grow in her new role as she works with our existing clients and builds her own portfolio of clients with the firm. Please join us in congratulating Claire on her promotion!
With the December 27, 2023, deadline fast-approaching, contact your Rothenberg Wealth Management Advisor to see if your investment portfolio can benefit from this strategy, and if you can save money on your 2023 personal income tax return.
Investing is the key to growing your wealth, but you can’t always expect to take profits from all your investments. There’s always some risk involved, and losses are inevitable. Tax-loss harvesting may sound like a fancy concept, but it’s a rather straightforward and highly effective strategy that can find a silver lining in those losses, when implemented by an experienced investment professional like a Rothenberg Wealth Management Advisor.
What is Tax-Loss Harvesting?
Tax-loss harvesting (also called tax-loss selling) involves selling an investment within a non-registered account that has depreciated in value and leveraging these losses to offset capital gains from other investments. The primary objective is to minimize the tax liability that comes with capital gains.
But wait, what are capital gains?
To understand tax-loss harvesting, it’s important to understand capital gains. You have a capital gain when you sell an investment for more than its purchase price, which means you make a profit.
In Canada, capital gains are included in your annual taxable income and taxed at your marginal tax rate. However, only 50% of the total capital gains is taxable.
Capital losses, on the other hand, are triggered when you sell an investment for less than what you purchased it for, meaning you are taking a loss.
Implementing Tax-Loss Harvesting
Not every investment will be profitable, but that’s the risk you accept when you make an investment. However, you can find a silver lining to losing investments with tax-loss harvesting.
With tax-loss harvesting, the strategy is to sell an investment that’s declined in value and losing money so you can use the loss to reduce the total amount of capital gains you would otherwise be taxed on when you file your personal income taxes.
Finally, you reinvest the proceeds from that initial sale in different investments and better position your portfolio going forward.
Example of the Power of Tax-Loss Harvesting
You buy XYZ stock for $1,000 and it’s now worth $2,000, so you sell it and trigger $1,000 in capital gains. You also bought ZYX stock for $800 but it’s now worth $200, so you sell it and trigger $600 in capital losses. You can net the capital gains and losses to report only $400 in capital gains on your tax return.
Since only 50% of the total capital gains are taxable, using the above example, only $200 in capital gains will be subject to your marginal tax rate. Without tax-loss harvesting, you would have to pay tax on $500 of capital gains from XYZ stock. As you can see, tax-loss harvesting as a strategy can actually help you save money on your tax bill.
The above example is relatively straightforward, using small quantities of securities and manageable investment amounts, but normally your portfolio will be more complex. You’re not just holding one type of security, your portfolio likely includes a diverse asset mix, including but not limited to stocks, ETFS and Mutual Funds.
Applicable Investments & Limitations
• Applicable Investments: Tax-loss harvesting can only be applied to investments held and sold within a non-registered account. This can include securities like individual stocks, bonds, ETF or Mutual Funds, which incur taxable capital gains. Tax-loss harvesting is not useful in registered accounts like a RRSP or TFSA, since they are tax-exempt.
• Superficial Loss Rule: You should not sell an investment at a loss and buy the same investment within 30 days before or after the sale, otherwise you cannot use the capital loss for current income tax purposes.
• Year-end deadline: To offset capital gains realized in a calendar year, losses must be settled within that same year. The last day for Canadian and U.S. tax-loss selling is December 27, 2023, for your 2023 income tax return.
The last day for Canadian and U.S. tax-loss selling is December 27, 2023. With the deadline fast approaching to take advantage of the potential tax benefits of tax-loss harvesting, contact your Rothenberg Wealth Management Advisor to get personalized support. Your Rothenberg Advisor will be able to help you make an informed decision about whether tax-loss harvesting is a strategy you can benefit from.
With interest rates at an all-time high, right now is the time to invest in GICs for long-term security and peace of mind.
Guaranteed Investment Certificates (GIC) provide a reliable source of income and are a great way to get closer to your financial goals. With competitive fixed interest rates, you can rest assured that your funds are invested safely and securely regardless of stock market fluctuations. It can be time-consuming, however, to shop around for the best rates. That’s why you may want to consider working with a GIC broker.
GIC brokers like Rothenberg & Rothenberg specialize in finding the best possible GIC rates on the market. As a broker, they monitor rates across dozens of institutions daily and compile this information to make sure you have access to the highest interest rates.
“We know what’s happening with the GIC rates on a day-to-day basis. We do the homework for the client,” said Tina Patel, GIC department coordinator at Rothenberg & Rothenberg. “We shop across Canada to get the best rate for our clients, and we don’t just deal with one financial institution. We deal with over 25 financial institutions across the country.”
But it’s not only a matter of easy and flexible access to great GIC rates from Canadian banks, trust companies and credit unions. When you choose to go with a GIC broker instead of buying from the issuer directly, you can potentially maximize your returns.
By purchasing directly from the issuer, your funds are at risk if you invest more than the $100,000 amount covered by the Canadian Deposit Insurance Corporation (CDIC). You want your interest protected, so you should always invest less than the eligible insured amount. By purchasing a GIC through a broker like Rothenberg & Rothenberg, you can increase your insurance coverage and invest across multiple financial institutions.
Further, using the services of a broker like Rothenberg & Rothenberg to purchase GICs has no cost for you as the client. Much like a mortgage broker that is paid by the provider and not by the client, GIC brokers are paid a fee by the financial institution offering the GIC.
“There is no fee charged to the client if a client were to come into Rothenberg. If we quote them a one-year GIC rate at six per cent, that is the rate the client will get,” Patel said. “The commission paid to Rothenberg does not affect the rate of return to the client in any form.”
With the help of a GIC broker, achieving your financial goals becomes a lot more realistic. Through their guidance and expertise, you can be confident knowing your investments are in good hands.
Rothenberg & Rothenberg has been serving the GIC needs of Canadians since 1979. With offices in Westmount, South Shore, Pointe-Claire in Quebec, and an office in Calgary, Alberta, we are conveniently located to serve your GIC needs. To see what rates they currently have available or to get in touch with a GIC broker, you can visit www.rothenberg.ca/gic-rates.
This article originally appeared in the Montreal Gazette. To view the original article, click here.
Please note: Rothenberg & Rothenberg, the company mentioned in this article, deals exclusively with GICs and operates independently of its sister company Rothenberg Wealth Management, which provides a full suite of wealth management solutions.
Founded in 1986, Rothenberg Wealth Management is a leading investment firm and trusted wealth management partner for families, individuals, their affiliated business and condominium corporations.
