Smart Ways to Get Smarter About Money (2024)

Succession Planning for Your Family Business

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By iA Private Wealth, May 8, 2024If you’re like most entrepreneurs, your family business isn’t just a job – it’s your passion. That’s why you’ve invested so much time and effort into growing your business. Now that retirement is on the horizon (or no longer an abstract, way-in-the-future thought), you’re turning your attention to next steps. More specifically, it’s time for a succession plan.Succession planning is complex and the transition process could take years. Let’s look at some key considerations so you can begin strategizing now and construct a plan that’s right for you, your family and your company.All in the familyFor a minute, we’ll put aside the business aspect of succession planning and focus on the family aspect. Mixing work and loved ones can be tricky, especially when it comes to naming a successor to the family enterprise. Among the next generation, who gets the inside track to lead your business? Is it, by default, the oldest child? The one who exhibits the best leadership skills? The one who’s most interested in your business or is in a certain role that lends itself to taking over?There’s no automatic “right answer” since all family and business situations are different. What’s universal, however, is the need to give everyone their say and then, once you’ve arrived at a decision, communicate it clearly and logically. You might not achieve consensus – and some feelings could get hurt – but you’ll earn respect for transparency. While family harmony is desirable, of course, you’re also wearing a business owner’s hat and must ensure the continued strength and viability of your company.Going outside the familyDon’t assume a family member will take over the business. Maybe none of the next generation works in your business, is interested in leading it, or is qualified to take over. Another option is for a current employee to lead the company. Once you’ve identified a good candidate, be sure to let them know – in as much detail as possible – what the leadership role entails. Again, explain this decision to your family and encourage questions. Every step of the way, open communication can align everyone’s interests and expectations, and helps minimize conflict.Regardless of whether the leader-to-be is a family member or other employee, build a comprehensive, goals-based development plan to position them for success. Document the key responsibilities you face (both regularly and ad hoc), and train the future leader to handle those duties. Be open minded and seek input on where they see potential for improvement in organizational processes, business culture, company structure and avenues for growth. Everyone has different perspectives, and fresh insights could take the business to the next level.Navigating financesThe financial side of succession planning can get complicated if you have more than one child, each with varying degrees of involvement in the company. If the family business spans generations and also involves extended family (e.g., cousins, nieces, nephews), the complexity increases. The owner(s) must determine the best – and most fair – way to transition the business and allocate assets. When selling to a third party, will family members remain involved in the business? If so, in what capacity?Whether the business is sold to family members or a third party, your selling price should reflect fair market value. For many owners, their business represents their largest investment and biggest source of retirement income. Don’t shortchange yourself by discounting the sale price – even if selling to your own children.Given the challenges of succession planning, it’s typically wise to consult regularly with your advisor and related professionals, such as a lawyer, business exit strategist, and tax and estate specialist.

What Are the Financial Implications of Divorce?

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By iA Private Wealth, May 1, 2024Any way you look at it, divorce is challenging. Aside from the emotional strain of ending a marriage – especially if you have kids – your finances could be affected significantly. Let’s look at four common steps that can help safeguard your wealth. Get a good grasp of your financial situation. Many people have an idea of their overall finances, but when divorcing you should examine bank and investment accounts, credit cards, mortgage statements, loans, lines of credit, etc. to know where you stand financially. Of particular importance is scrutinizing joint accounts ahead of divvying assets. Consider an agreement with your soon-to-be ex (who, for simplicity’s sake, we’ll refer to as “ex”) to continue paying joint expenses, but to avoid new borrowing charges pertaining only to one of you. If either has co-signed a loan or line of credit, request the financial institution remove the co-signer and rework this debt so the appropriate party is solely responsible. If you don’t have your own savings or chequing account, arrange for it. Also obtain a credit report to find out your current score. Link to your individual account any direct deposits beyond what you need to meet your share of expenses in the joint account. Regarding credit cards and loans, neither divorcing partner should deal with creditors or be liable for debt they didn’t incur. If you and your ex can pay off joint account balances, agree to close those accounts. Everyone’s heard stories of vindictive exes racking up large bills, so monitor your accounts to keep your assets protected. Update policies and beneficiaries. Divorce may change your insurance needs. For instance, if you become critically ill or disabled and need assistance paying bills, you may require more coverage as an individual compared to having a spouse’s income to cover expenses. Similarly, assess your life insurance needs as an independent policyholder and ensure you’ve got adequate coverage. Permanent life policies often have cash value, so if one exists, include the cash value when dividing joint assets. It’s also crucial to review beneficiaries named on financial accounts and registered plans like RRSPs, TFSAs, RRIFs and workplace pensions, and amend accordingly. If you’ve named your ex as beneficiary in your will or as holding certain powers of attorney, you’ll probably want to change that. An estate professional can help you implement planning changes brought about by divorce. If you’re on your ex’s workplace benefits plan (or vice versa), a divorce might lead to rethinking benefits to ensure adequate coverage persists. Deal with the family home. This one may have emotional repercussions as well. Discuss whether one of you wants to remain in your home and has the financial ability to do so. Both partners could be making mortgage payments, so the absence of one income may make the existing mortgage unmanageable, requiring renegotiated financing for the ex who’s staying put. You may choose to sell the family home and split the proceeds, or the remaining homeowner can buy out the other’s share for the amount of equity they’ve invested into it. If young children are involved, keeping them in the family home could help reduce the disruption in their lives that a divorce inevitably causes. Work closely with your investment advisor. Getting professional advice is especially valuable in divorce. An advisor can help identify your assets and liabilities, and calculate your personal net worth. They can also adjust your budget and wealth plan based on new life circ*mstances, including recalculating the money earmarked for retirement and revising your goals to put you in the best possible position for financial success. If you need to save and/or invest more (or in a different manner) to achieve your long-term objectives, an investment advisor can work with you to make it happen. Your income may also be impacted by child or spousal support, whether you’re paying or receiving. It’s practical and comforting to assemble a team (e.g., investment advisor, tax consultant, estate planner, divorce lawyer, accountant) that can help you get through a divorce with financial independence and a sense of clarity moving forward.

HBP or FHSA: Which One Should You Use?

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By iA Private Wealth, April 19, 2024While 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 $60,000 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 $60,000, 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.HBP withdrawals must be paid back to your RRSP account in annual minimum amounts over a 15-year period, beginning the second calendar year after the withdrawal. In April 2024, the government extended this two-year grace period to five years for withdrawals made between January 1, 2022 and December 31, 2025. 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 the 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.

Tax Filing Checklist

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By iA Private Wealth, March 14, 2024It’s tax season, and no matter how many times you’ve gone through the ritual of preparing your income tax return, our refresher will help get you organized and on track for what will hopefully be a smooth and painless experience.Reference materialsIt may help to have last year’s return handy as a guide to figuring out which slips and forms you may require for this year’s return, and which lines must be completed on those forms. Of course, circ*mstances can change but knowing what you needed last time is a good starting point for gathering info.Similarly, last year’s CRA Notice of Assessment could help. Each notice contains valuable info, such as your RRSP deduction limit for the next tax year, the amount of unused net capital losses that can be applied to reduce future taxable capital gains, and the correction of mistakes you might have made on your return. Finally, note any tax installments you paid over the year as well as any relevant correspondence you received from the CRA.Here’s a checklist to help gather your tax slips, forms and other required info that’ll be used when completing your income tax return.Federal tax slips T3: Investment income (allocations, distributions) received during the tax year T4: Employment income (also includes CPP/EI premiums paid, income tax deducted, pension adjustment amount, charitable donations made through payroll, etc.) T4A: Pension, retirement, annuity and other income received T4A(OAS): Old Age Security pension benefits T4A(P): Canada Pension Plan benefits T4E: Employment Insurance benefits T4RIF: Income received from a RRIF T4RSP: Income received from an RRSP T5: Investment income (e.g., interest earned from bank accounts and GICs; corporate-class mutual fund distributions) T2202: Tuition and related fees (or a TL11 form if you studied outside of Canada) T5013: Statement of Partnership IncomeReceipts/documentation RRSP receipts for contributions made in previous calendar year, up to first 60 days of current year Investment-related expenses, including loans used for investing purposes Child care and/or adoption expenses Child support, alimony/spousal support payments Medical expenses Moving expenses Charitable donations, political contributions Professional or union dues not on your T4 slip Digital news subscription fees Business income and related expenses Rental income and related expenses Investment counsel fees and carrying charges Documents pertaining to the sale of real estate Work-from-home expensesRegarding the deduction for home office expenses that was introduced during COVID-19, some rules and conditions have changed. According to the CRA, eligible employees working from home in 2023 must use the detailed method to claim home office expenses. The temporary flat rate method no longer applies. Visit the Government of Canada website to learn more about eligible expenses and other important information concerning work-from-home expenses. Our checklist is a basic compilation of common slips, receipts and other documents you may need while completing your income tax return, but it isn’t exhaustive. Not all items will apply to you, and you might need additional info to file your return. We recommend consulting a qualified professional to help ensure you complete your return accurately and fully, claiming all deductions and credits for which you’re eligible. 

Can You Retire Early?

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By iA Private Wealth, January 11, 2024While some people love their job so much they never want to retire, for a lot of us the only thing better than saying goodbye to the rat race is doing it sooner than expected. But before clocking out early, there are a few boxes to check to ensure you’re making the right choice. Figure out your financesThe first thing to consider is whether retiring early is financially feasible. Working with an advisor to assess your wealth plan may identify issues affecting your long-term finances, and allow you to amend your plan to ensure you have the money needed in retirement. An advisor can calculate your sources of income after you stop working, and project what benefits you’ll likely receive from the Canada Pension Plan (CPP) and Old Age Security. Keep in mind that if you draw from CPP before the typical age of 65, your benefits are reduced accordingly. If you hold personal RRSP/TFSA assets and a workplace pension, those will be accounted for as income sources, as will investment accounts, a business or property you might own, plus other savings and assets. Whatever your income streams, factor in tax implications because a good portion of your cash flow could be taxable income.After totalling your financial resources, consider likely expenses, including the cost of everyday life. Where do you plan on residing and will you rent or own? Do you have health concerns or family history to be mindful of? What lifestyle do you anticipate? Will you travel regularly? What are your hobbies? Do you have dependents to look after? Once you answer these questions, you can arrive at a rough estimate of your expenses.If there’s a shortfall between income and expenses, you’ll need to address it. Proven ways to close the gap include modifying your expected lifestyle to reduce costs, possibly working part time, saving more aggressively and generating higher investment returns (e.g., maintaining enough exposure to equities and other securities with growth potential).Benefits of retiring earlyThere are two major benefits to taking an early retirement: Mental/physical health. Over the course of many years, work takes its toll. Even if you enjoy your job and colleagues, working is often stressful and can drain you mentally and physically. Maybe long work hours compel you to sacrifice valuable activities like regular exercise, socializing and eating sensibly. If you have a serious illness, it might make sense to retire early and tend to your health care needs. Meaningful use of time. While all work has value, being retired lets you focus on things you like doing. Perhaps certain volunteer opportunities and other philanthropic pursuits are appealing, or you want to devote more energy to favourite hobbies. You’ll also have abundant quality time to spend with friends and loved ones, or to begin working on that “side job” or project you always wanted to try.On the fence?Maybe you need a change of pace but don’t want to retire completely. In this case, consider a phased retirement, which means scaling back on work (e.g., taking a part-time job or putting in fewer hours at your current job). This phased approach allows you to continue earning money for the future, provides the social benefit of interacting with colleagues, promotes mental fitness so your mind stays sharp, and offers flexibility to spend more time doing things you enjoy.Whatever you choose, ensure your decision takes into account all your unique personal and financial circ*mstances.<!-- We can help you with a wealth plan that addresses tax efficiency, so contact us today. -->