Monthly Archives

August 2017

Planning your retirement today

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Nearly two-thirds of Canadians are concerned about retirement planning. The other third will worry about it later… but will it be too late? We discussed the topic with Natalia Sandjian, Financial planner.

Generally speaking, do people start planning their retirement too late?

People start to think about their retirement around the age of 50, and that’s far from ideal. You should start planning your retirement once you enter the job market. It’s important to know that ultimately, things will be easier for you if you start saving for retirement early. Compound interest will do a lot of the work for you… if you give it time!

Do people in the workforce see retirement differently than the previous generation of retirees?

Retirement isn’t considered to be the twilight years anymore, it’s a second life. Nowadays, new retirees think, “Now I can try something new!” They want to take on new projects, and keep working on the side, because they want to… or need to.

Has retirement planning become more complex?

Most of all, the reality is different. In some cases, people are retired for as long as they worked. In addition, workers need to be self-sufficient: private retirement plans are increasingly rare, or less substantial, and government pensions are lacking.

In addition to all of this, retirees have a higher debt rate. In the previous generation, mortgages were paid off at retirement. Now, people in their 50s and 60s are coming to see us to refinance their properties.

Since there is less guaranteed income and more expenses over a longer period of time, it has never been so important to properly plan your retirement to keep things simple.

Do your clients have retirement “dreams” that are sometimes… unrealistic?

Yes and no. Basically, clients want to maintain their lifestyle when they are retired.

A decline in their standard of living is by and large their greatest fear. They are afraid that they won’t be able to keep doing what they love. These are far from big, unrealistic dreams! In fact, people keep themselves from dreaming because they are too worried about the financial aspect of their retirement.

Rather, it’s their expected return on investment that is unrealistic: future retirees don’t understand all of the actions that they have to take to make their retirement goals a reality, even if they are reasonable.

What kind of questions do we need to ask ourselves when planning for retirement?

It’s not enough to put your retirement plans in writing. The numbers are important: you need to specify your ideal retirement age, calculate the cost of your current lifestyle (a good indicator of what’s to come), take stock of your current investments and estimate the private and government benefits that you expect to receive at retirement.

What are some common retirement planning mistakes that people make?

Number one: not thinking about it. Number two: not thinking about it early enough!

Of course, when you’re in your twenties and thirties, you have other priorities, like your house and children. You think, incorrectly, that you have enough expenses now and that you’ll invest in your retirement later.

Lastly, another mistake is to think that you can simply save without a plan. If you don’t have any goals, the chances of success are slim…

What specific strategies do financial planners propose?

Financial planners establish customized strategies that take into account clients’ priorities, lifestyles and personalities.

A thirty-something at the beginning of his career will have a pile of expenses, but plenty of time ahead of him. He won’t have the same investment strategy as a conservative woman in her fifties who wants to start making withdrawals over the coming decade.

How often should people update their retirement strategies?

For young people, every five years or with each major life event (birth of a child, marriage or divorce, an inheritance or new job, etc.). If you’re close to retirement, you could use a yearly review.

Smart savings tips for every age

In your 20s: Save regularly, according to your budget. An investment as small as $25 per month can make a difference at the beginning, and will get you in the habit of saving.

In your 30s: Don’t stop saving for retirement, even if this is the time in your life when you’re the most in debt and there’s the biggest strain on your income.

In your 40s: Keep up your savings habit by increasing your contribution according to your financial situation and a well-balanced budget that will leave room for savings and discretionary spending. Because if you make an effort all year long before contributing to your RRSPs, you can buy yourself a reward with part of the tax return you might get.

In your 50s: Make the most of your contributions, and even double them if you notice that you’re not meeting your retirement goals.


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The opinions in this article are those of the person interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For any advice concerning your or your business’ finances, please consult your financial advisor or another professional as necessary (accountant, tax expert, lawyer, etc.).

Edited on 22 December 2016 by 

Margin accounts: an advantageous option

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Margin accounts can help you have a better stock market exposure and access to competitive borrowing rates. While it is not a panacea, a margin account is an option worth exploring.

With a margin account, you can borrow funds from your broker under certain conditions. It’s a good way for the investor to have a source of ready cash to take advantage of market opportunities, or to use as an emergency fund, or purchase goods outside of the margin account or to contribute to your RRSP.

Variable margin

The way it works is simple: by transferring quality assets from an unregistered account to a margin account, you can borrow an amount based on the market value of the eligible securities held in the account.

The margin or maximum advance granted by the broker will vary depending on the investment product. For example, it may be 95% to 96% of the value of government bonds, 94% of term and index-linked GICs, 99% of Treasury bills, or 50% of mutual funds. For shares, the advance is tied to the value of the security (up to 70% for shares trading at $5 or more; up to 50% for shares trading between $2 and $5).

The investor will have to provide a minimum amount and pay a margin deposit, which is a security deposit of sorts. Thus, margin accounts do not have a pre-determined fixed amount of margin as is the case for a bank line of credit. They are variable and calculated daily based on the value and type of product held in the account.

To illustrate how a margin account works, let’s look at an investor who would like to invest in company XYZ at $10 per share (security marginable up to 70% of its value) with a deposit of $10,000. Since the investor has a margin account, she can purchase 3,333 shares for a total amount of $33,330, of which $23,330 is advanced by the broker and $10,000 comes from the deposit, which is the set minimum she has to cover. With a cash account, the investor would be able to purchase only 1,000 shares because she had just $10,000 of her own money.

Margin accounts: number of benefits

Competitive interest rates are just one of the considerable benefits of margin accounts. They stand out in fact versus those that you would get on personal loans, credit cards or lines of credit. With a margin account, interest rates vary depending on the amount borrowed, but for a sum of $0 to $9,999, you could qualify for the NBC prime rate plus 1.25%; from $10,000 to $99,999, NBC prime rate plus 1%; and for $100,000 and over, NBC prime rate. Currently the prime rate is 2.70% ¹, meaning there are big savings offered!

Another benefit that bears mentioning is the leverage effect, which gives investors greater market exposure and can maximize their returns. For example, let’s say an investor purchases 1,000 shares for $10 each (security marginable up to 70%), covering the minimum with $3000 of his own money and using a $7,000 advance from his broker. If the security’s value increases to $12, the return will be 67% because he spent just $3,000 initially. In comparison, the return would be only 20% if he had made the purchase with a cash account and used $10,000 of his own funds.

What’s more, the broker can make another advance based on the portfolio’s new value. That’s two big advantages in one!

In addition, when the margin is used to generate income from the stock market, the interest could be income-tax deductible.

It should also be said that you don’t have to use the margin, because the account can be managed like a cash account, making it very flexible.

Risks to consider before opening a margin account

Conversely, the leverage effect that boosts returns can also put the squeeze on, potentially leading to a margin call. If the value of a share falls and the market value decreases, the broker’s maximum advance will decrease as well, resulting in a negative difference. This variation will increase even more if, following the drop, a security that was marginable up to 70% then becomes marginable up to 50%.

In the event of a margin call, the investor will have to provide new capital so as not to exceed their borrowing capacity for the security. To do this, cash or securities can be deposited into the account or securities already held in the portfolio can be sold.

To prevent clients from finding themselves in margin call situations at the slightest market fluctuation, brokers require a cushion corresponding to a certain percentage of the loan value of the largest account position.

While flexible, margin accounts have a few risks that you should be aware of before taking the plunge.

Conditions to enable a margin account

To be eligible, investors must meet certain criteria. For example, for National Bank Direct Brokerage (NBDB), you must have an annual income of at least $35,000, a net worth of $10,000, and a credit report that satisfies NBDB’s criteria, in addition to holding assets worth at least $5,000 in your margin account.

Margin accounts are not for every investor. It’s best to have a good risk tolerance and sufficient market knowledge in addition to being relatively comfortable financially.

¹ This rate is subject to change from time to time without notice.

Note that the use of borrowed money to finance the purchases of securities involves greater risk than purchases using your own funds. When borrowing money to purchase securities, you are required to repay the loan, including its cumulating interests, in accordance with its terms, even if the value of the securities purchased declines.

Edited on 6 April 2017 by 

Big tax changes on the horizon for small business owners

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Rob Tétrault, B.A., J.D., MBA, CIM
Vice-President, Portfolio Manager

Cédric Paquin, B.Comm, CPA, CA, CFP
Wealth Planning Consultant

On July 18, 2017 the department of finance released a consultation paper they publicized as a crackdown on perceived tax loopholes for wealthy business owners.

Personally, we had an uneasy feeling as we read through the proposal. The changes will have significant adverse implications on tax planning strategies widely used for several years by many business owners; not just the wealthy ones! As tax advisers, we always felt the strategies we implemented were available (and encouraged) to compensate our business owner clients for the risk they take, for the jobs they create and for the fact they do not have job security, employment benefits, employer sponsored pension plans, employment insurance, sick days or vacation days. The latest Key Small Business Statistics released by Statistics Canada in 2016 revealed that small businesses employ 70.5% of the labor force in Canada, were responsible for 87.7% of net employment change, accounted for 27% of R&D and contributed an average of 30% to the GDP of their respective province. They are the backbone of our economy! How will these figures be impacted over the long term?

Here is a brief review of the tax planning strategies targeted by the proposal.

Income splitting and multiplication of the capital gains exemption

Corporate structures are commonly set-up with all family members owning shares of the corporation, either directly or indirectly through a family trust. Income splitting can be achieved by paying dividends to lower income family members. The capital gain exemption can be multiplied on the future sale of the business by allocating the capital gain incurred to various family members based on share ownership or per the discretion of the trustee(s) of the family trust.

The “kiddie tax” was introduced in 1999 causing private company dividends paid to minor children to be taxed at the top personal tax rate. Currently, income splitting with minors can only be achieved by paying them a reasonable salary based on the work they perform for the business.

Starting in 2018, the Department of Finance proposes a number of measures to extend the “kiddie tax” to all related family members, whether minors or adults. Dividends received from related private corporations will be subject to the highest personal tax rate unless the amount is reasonable in the circumstances based on the recipient’s labor contribution and/or invested capital.

The capital gain exemption will no longer be available to minors, will not be available for any family member if the capital gain is subject to the extension of the “kiddie tax” rules above and will no longer be available for gains that accrued while the shares were owned by a family trust.

Tax deferrals when passive investments are held inside of a private corporation

Incorporated business owners can take advantage of tax deferrals by leaving passive investments inside of their corporation. For example, a corporation that earns income eligible for the small business deduction pays a combined federal and provincial tax rate of 10.5% in Manitoba. An individual subject to the top personal tax bracket would pay 50.4% in tax. Therefore, a 39.9% tax deferral can be achieved by leaving excess funds inside a corporation allowing for better compound growth and a larger nest egg in the future.

The consultation paper proposes to eliminate the advantage of retaining income in a private corporation. While the Department of Finance did not release any draft legislation they did set out a number of different approaches under consideration.

While it remains to be seen what form the rules will take, they will no doubt result in significantly higher taxes for the majority of business owners. Alternative planning strategies such as individual pension plans (IPPs) and retirement compensation arrangements (RCAs) will likely become more popular in the future.

Converting dividends into capital gains

Much less common than the previous two strategies was a practice we knew was under scrutiny so the proposed draft legislation came in as less of a surprise. The strategy involved embarking on a series of transactions with the effect of converting highly taxed dividends income into lower taxed capital gains.

The consultation paper proposed draft legislation to expand current anti-surplus stripping rules to capture these transactions. Amendments to these rules are effective as of July 18, 2017.


These proposals, if and when they become law, will have considerable impact on tax and estate planning strategies commonly implemented by incorporated business owners. We will closely monitor and advise you of any significant changes or revisions to these proposals as they occur and once they are eventually enacted. No doubt, they will require a careful review of existing corporate structures as well as an analysis of future tax planning opportunities.

Please do not hesitate to contact us if you would like to discuss your situation in more detail.

This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use, and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor.