Estate Planning

Ontario allows probate applications by email

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The change is meant to address “perennial” backlog issues

Ontarians will now be able to apply for probate and receive probate certificates by email after the Ontario government announced several changes to the application process last week.

Previously, an application for a Certificate of Appointment of Estate Trustee – as probate is known in the province – either had to be submitted in person at a court office, or sent by courier or mail. Between March 23 and July, while courts were closed due to Covid-19, applications were temporarily limited to courier or mail only.

The decision to allow electronic submissions is meant to address persistent backlog issues and is part of a wider initiative by the government to update the estate and will process in the province.

In a tweet announcing the change, Attorney General of Ontario Doug Downey wrote: “I am committed to modernizing the estates and wills sector to make it easier for Ontarians to manage the estate process with less hassle and address the probate application backlog.”

Effective Oct. 6, applications for probate, supporting documents (e.g., affidavits, consents and proof of death) and responding documents can be filed by email to the Superior Court of Justice.

However, hard copies of original documents filed in support of the application (e.g. wills, codicils, bonds, ancillary certificates) still need to be sent by mail or courier, or delivered in person. Estate administration tax payments (probate fees) and any filing fees must also be sent by mail or courier to the court office or paid in person.

The option of applying for probate by email “is going to streamline things a fair amount,” says Keith Masterman, vice president of tax, retirement and estate planning with CI Investments Inc. in Toronto. Masterman characterizes the backlog as a “perennial” problem that was likely exacerbated by the Covid-19 pandemic.

“I think the biggest change is that the certificate of appointment of estate trustee will be emailed back to you,” Masterman says. “That will save some time. That’s a great start.”

Electronic applications for probate must be sent to the email address for the court office in the provincial jurisdiction where the deceased lived. If the deceased didn’t reside in Ontario but owned property in the province, then the application is sent to the court office where the property is located.

The government has also introduced a new information form that must be completed and emailed to the court together with the probate application.

Applications filed prior to Oct. 6 may be resubmitted by email without the application losing its position in the queue, the government’s guidance says.

Ontario is currently reviewing estate law in the province more broadly.

Among other measures, the government is considering making permanent a temporary measure introduced during Covid-19 that allows for virtual will signings; repealing the section of the law that revokes a will upon marriage; and raising the dollar value for what’s considered a “small estate.”

In August, Downey sent a letter to the estate practitioner community asking for feedback on these issues.

This year, the Ontario government also eliminated probate fees on the first $50,000 of an estate and extended the filing deadline for the estate information return to 120 days from 90 days.

By: Rudy Mezzetta, October 15, 2020

Registered Disability Savings Plan (RDSP)

Common RDSP misconceptions

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By: Jacqueline Power, assistant vice-president with Mackenzie Investments, March 3, 2020

Registered Disability Savings Plan (RDSP)

The Registered Disability Savings Plan requires proper planning

The Registered Disability Savings Plan (RDSP) launched more than a decade ago, but there’s still confusion about some of the more intricate details.

One of the RDSP’s largest benefits is the “free” money that beneficiaries can receive from the government up until the end of the year they turn 49.

The Canada Disability Savings Grant is a matching program based on family net income. Until the year the beneficiary turns 19, family net income is based on the parents’ incomes; afterward, it’s based on the beneficiary’s income plus their spouse’s income.

These rules hold regardless of who the account holder is, whether the beneficiary is dependent on someone or where the beneficiary lives.

If the beneficiary qualifies for the maximum grant (family income is $95,259 or less), an annual contribution of $1,500 will provide an annual grant of $3,500, up to a maximum lifetime grant of $70,000.

For low-income families, the government also offers the Canada Disability Savings Bond. If a beneficiary qualifies for the maximum bond (family income is $31,120 or less), they receive $1,000 annually up to a lifetime maximum of $20,000, with no contribution required.

What is the assistance holdback amount?

The government wants RDSP accounts to be long-term investments. To discourage early withdrawals, it established the assistance holdback amount (AHA).

If an RDSP account is collapsed, the AHA applies, which means all the grant and bond amounts deposited to the account in the 10 years prior must be repaid to the government.

For partial RDSP withdrawals, the account holder repays $3 of any grant or bond received in the 10 years prior for every $1 withdrawn.

This holdback amount is often misinterpreted. People generally assume they can access the grant or bond they received more than 10 years ago that it’s no longer subject to the AHA. This is not true. While the grant or bond received more than 10 years ago belongs to the beneficiary, they’re unable to access it unless the entire account is collapsed, or no grant or bond has been deposited to the account in the 10 years prior to the withdrawal.

When can an RDSP be collapsed?

If a beneficiary passes away or loses the Disability Tax Credit, an RDSP can be collapsed.

Many advisors and investors believe the RDSP account can be collapsed at any time, but this may not be the case.

If the account has more private contributions than government money, there’s no limit to the maximum amount that can be withdrawn.

If the RDSP is a primarily government-assisted plan (government grant and bond payments exceed private contributions), the maximum amount that can be withdrawn annually is the greater of 10% of the account or the lifetime disability assistance payment (LDAP) formula. Below is an example of the LDAP formula.

LDAP withdrawal = A ÷ (3 + B − C)

A = fair market value of the plan at the beginning of the year

B = greater of 80 and the beneficiary’s age at the beginning of the year

C = beneficiary’s age at the beginning of the year

If the beneficiary is age 60 and has $400,000 in the account at the beginning of the year, the LDAP withdrawal amount would be:

$400,000 ÷ (3 + 80 − 60) = $17,391.

In this case, 10% of the account is greater than the LDAP withdrawal amount.

Can a beneficiary designation be added to an RDSP?

It’s not possible to add a beneficiary designation to an RDSP account. When an RDSP beneficiary passes away, the RDSP is paid out to the beneficiary’s estate. As mentioned above, if the grant or bond was contributed to the account in the 10 years prior to the closure, it must be repaid to the government. The balance is paid to the beneficiary’s estate.

If the beneficiary has capacity and is age of majority, they would be well advised to write a will as a way to determine how the proceeds of the account will be distributed. This may also be a great time to discuss powers of attorney.

If they don’t have a will, account proceeds will be distributed as per the provincial rules of intestacy. Note that, since account proceeds are paid to the estate, it’s not possible to avoid probate on an RDSP account.

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For more information about RDSPs, or financial planning for someone with a disability, contact me.
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Real Estate - Capital Gain

Selling real estate? The CRA is watching

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When you sell property, the transaction must be correctly defined and reported for tax purposes. Failure to do so may result in unwanted audits, potential back taxes, and related interest and penalties. Such negative outcomes occur regularly.

Last spring, the Canada Revenue Agency (CRA) announced updated results of its audits in the real estate sector, which resulted in over $1 billion in additional gross taxes since 2015. During the same period, CRA auditors reviewed over 41,700 files in Ontario and British Columbia (see tables below), resulting in over $100 million in assessed penalties.

Looking specifically at last year, the CRA assessed $171 million more in taxes related to real estate than in the prior year—a 65% increase—and penalties more than doubled to over $57 million.

Clearly, the CRA is concerned about non-compliance in the real estate sector and has taken steps to curb what it deems to be inappropriate behaviour.

Tax on the sale of real estate

From a tax perspective, much of the discussion about real estate transactions focuses on two things. When appreciated property is sold:

1. Is the transaction taxable?
2. If yes, is the net profit taxed as business income or a capital gain?

The answers depend on circumstances. How a sale should be reported for tax purposes depends on a number of factors (see “Factors the CRA considers in an audit” below).

Since 2016, all property sales must be reported to the CRA, including that of a principal residence. The tax characteristics of the sale normally depend on whether the property was bought primarily to:

-live in as a principal residence,
-build or renovate, and sell (often referred to as a “flip”) or
-create rental income.

In the first scenario, you buy a property to live in as their principal residence (or for a spouse, common-law partner or child to live in). When the property is sold, although the sale must be reported to the CRA on your tax return for the year of sale, any resulting capital gain is often fully sheltered from tax because the conditions for claiming the principal residence exemption are satisfied, and the property was designated as such for each year of ownership.

Next, consider the case where you buy a property (or buy vacant land and builds a property), takes possession and does some renovating. After the home is improved, you sell the property, and the gains (or losses) form part of your income. You may have lived in the property while making improvements; however, this doesn’t entitle you to the principal residence exemption if the intention was always to buy, improve and sell for profit. In this case, profits realized on the sale would normally be considered fully taxable business income.

Lastly, consider the case where you buy a property primarily to earn rental income, which you pay tax on as it’s earned. When the property is sold, the profit would normally be taxed as a capital gain, subject to a 50% capital gains inclusion rate. If a property is used primarily as a principal residence but a portion is used to earn rental income, the property can be fully sheltered from tax using the principal residence exemption, provided that:

-the income-producing use is ancillary to the main use as a principal residence,
-there is no structural change to the property, and
-no capital cost allowance is claimed on the property.

Factors the CRA considers in an audit

During an audit, the CRA considers a number of factors to determine whether a property sale was reported correctly. These include:

-the type of property sold,
-how long the property was owned by the seller,
-the seller’s history of selling similar properties,
-whether the seller did any work on the property,
-why the property was sold, and
-the seller’s original intention in buying the property.

Understanding these factors can help you appropriately define the nature of your property sales.

CRA’s ongoing strategy for tax non-compliance

Through experience and the use of third-party data, the CRA has aimed to gain a better understanding of non-compliant behaviour, leading to more audits and compliance actions. To support these efforts, the 2019 federal budget proposed providing the CRA with $50 million over five years and $10 million ongoing to create a Real Estate Task Force focused initially on the Toronto and Vancouver areas. The task force will focus on ensuring that:

-taxpayers report all sales of their principal residences on their tax returns;
-any capital gain derived from a real estate sale, where the principal residence tax exemption doesn’t apply, is identified as taxable;
-money made on real estate flipping is reported as income;
-commissions earned are reported as taxable income; and
-for Goods and Services Tax/Harmonized Sales Tax purposes, builders of new residential properties remit the appropriate amount of tax to the CRA.

According to the Department of Finance, expected revenue from this initiative is projected to be $68 million over five years, starting in 2019-20.

Correcting a previous return

Where you have made a mistake or left out details about income on a tax return, you can request an adjustment using CRA Form T1-ADJ. Alternatively, for more complex scenarios and where significant penalties may be assessed, the Voluntary Disclosures Program may be appropriate.

By: Wilmot George, July 18, 2019, Advisor’s Edge

Visit the CRA’s website for more on the agency’s plan to address non-compliance in the real estate sector.

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CRA takes aim at the wealthy

CRA takes aim at the wealthy

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CRA takes aim at the wealthy

The agency’s HNW audit program is comprehensive and costly for clients, tax practitioners say.

As governments around the world continue to target aggressive tax avoidance and tax evasion, pressure on the wealthy to provide transparency about their finances increases. Canada is no exception: tax practitioners here say that the Canada Revenue Agency’s (CRA) audit program of high net-worth (HNW) individuals requires Canadians to provide extensive details about their tax and financial affairs.

“[The CRA is auditing] partnerships, joint ventures, any foreign affiliate – it’s like a laundry list of information that [the agency] is asking for,” says Deborah Graystone, private client service practice leader in Canada and leader of BDO Americas Private Client Service Practice with BDO Canada LLP in Vancouver.

Says Peter Weissman, partner with Cadesky and Associates LLP in Toronto: “It is a very intrusive and expensive process.”

The CRA’s Related Party Audit Program (RPAP) seeks to address non-compliance among wealthy individuals and families who control them, as well as these taxpayers’ associated entities. “The CRA approach is to audit the entire group vs auditing a single taxpayer,” the CRA stated in an email to Investment Executive in response to questions about the RPAP.

In recent years, the CRA has broadened the reach of the program (which, until April, was known as the Related Party Initiative), including removal of the requirement that an HNW individual have 25 or more related-party entities to fall under the program’s ambit.

The CRA states that there are 600 individual audits currently in progress under the RPAP, and that during the period of April 2014 to September 2019, more than 900 audits had been completed. Furthermore, the CRA has identified more than 1,100 HNW groups qualifying for audit under the RPAP.

Tax practitioners interviewed for this article say that in their experience, several CRA auditors – not just one – will be assigned to an individual RPAP file. After the CRA received additional resources as part of the 2016 federal budget, the agency states, it added 17 RPAP audit teams, for a total of more than 30 teams.

“If the CRA, historically, has always just looked at one auditor at one entity at a time, that would be very difficult to assess compliance overall,” says Curtis Davis, consultant in tax, retirement and estate planning services, retail markets, with Manulife Investment Management in Toronto. “Hence the more team-based or holistic approach that [the CRA] is taking.”

The CRA also is increasingly using data, leveraging internal as well as third-party sources, to identify and analyze RPAP groups, the agency states: “The CRA’s use of advanced data analysis techniques to mine the business intelligence [the CRA] has at its disposal has allowed the CRA to more precisely target non-compliance in a timely manner.”

The roots of the RPAP go back to the mid-aughts, when the CRA launched a pilot project to audit HNW individuals. However, the program became official and picked up momentum only after the global financial crisis of 2008-09 and the publication of a report by the OECD about the risk that tax avoidance and tax evasion posed to government revenue around the globe.

Over the past decade, the scrutiny on HNW individuals in Canada has increased, particularly after events such as the release of the so-called Panama Papers, which contained details of more than 200,000 offshore accounts.

The federal government has signed several agreements and treaties with other countries to exchange financial information about each other’s tax residents. In March 2018, the CRA changed the rules governing the voluntary disclosure program, making the agency much less forgiving if it deems a taxpayer’s non-compliance to be intentional.

“In virtually all of these cases, the CRA can make that claim [that the non-compliance was intentional],” says Robin MacKnight, partner with Wilson Vukelich LLP in Markham, Ont. “Whether it’s true or not, they can certainly make it.”

HNW clients who are the subject of an RPAP audit may well feel overwhelmed, but should seek out tax advice rather than try to deal with the CRA directly.

“My preference is for the CRA to come and interview the [tax] advisor first,” Graystone says. If the client does choose to meet with the CRA, the advisor should be present, she suggests.

Weissman agrees: “When someone is nervous, they talk a lot. They may have nothing to hide, but if they say something in the wrong way, the CRA may start chasing [down a path].”

Both Graystone and Weissman stress the importance of co-operating with the CRA. They recommend asking the agency to provide a list of questions, in writing, related to the audit. These steps may narrow the scope of the audit, reducing costs and hassle for your client.

“See what they’re really looking for, see if we can start with the bigger entities first, and then, if [the CRA] has other questions, we can expand [the client’s responses],” Graystone says.

Depending on circumstances, seeking legal advice for your client’s protection may be necessary, Weissman says: “When I do think something has not been done properly, I will sometimes get a lawyer involved to get solicitor/client privilege.”

In fact, engaging the services of a lawyer can help to make sure that your clients aren’t sending information to the CRA inappropriately, Graystone says: “More complex [financial] transactions are often subject to solicitor/client privilege, and then we definitely want to work with legal counsel to navigate that information request.”

Graystone says that dealing with an RPAP audit can take years, with information and questions going back and forth between the taxpayer and the CRA.

Weissman says that while advice and legal costs can vary depending on the structure of a client’s financial affairs, an RPAP audit could “easily cost between $75,000 and $100,000 before you get through the process, and that is before you need to appeal or go to court.”

However, with governments around the world trying to address the issue of income inequality – during Canada’s recent federal election campaign, several parties’ platforms addressed affordability – sympathy for the plight of HNW Canadians may be hard to find, Weissman says: “There isn’t any, and I get that.”

Weissman does point out to clients – facetiously, he says – that the cost of advisory fees in regard to a CRA audit are tax-deductible.

By: Rudy Mezzetta | Source : Investment Executive | November 1, 2019

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Financial Advice

Financial Advice

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An advisor can help you determine where you are today financially and where you want to go. An advisor can provide you guidance on how to reach your short, medium and long term financial goals.

Why work with a Financial Advisor? 

  • Worry less about money and gain control. 

  • Organize your finances. 

  • Prioritize your goals. 

  • Focus on the big picture. 

  • Save money to reach your goals.

What can a Financial Advisor help you with? 

Advisors can help you with accumulation and protection

Accumulation: 

  • Cash Management – Savings and Debt

  • Tax Planning

  • Investments

Protection: 

  • Insurance Planning

  • Health Insurance

  • Estate Planning

How do you start? 

  • Establish and define the financial advisor-client relationship.

  • Gather information about current financial situation and goals including lifestyle goals. 

  • Analyze and evaluate current financial status. 

  • Develop and present strategies and solutions to achieve goals. 

  • Implement recommendations. 

  • Monitor and review recommendations. Adjust if necessary. 

Next steps…

  • Talk to us about helping you get your finances in order so you can achieve your lifestyle and financial goals. 

  • Feel confident in knowing you have a plan to get to your goals.

Estate planning and the disabled beneficiary

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Consider these factors before establishing a Henson trust

For thousands of Canadian families, estate planning is complicated when a loved one has a disability. Typically, the family member with the disability requires financial or money management assistance, and receives provincial disability benefits. Because entitlement to most provincial benefit schemes is contingent on income or capital, if the family member is a beneficiary and receives their share of an inheritance outright, benefits may be lost.

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How to Make the Best of Inheritance Planning

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How to Make the Best of Inheritance Planning

Inheriting an unexpected, or even an anticipated, lump sum can fill you with mixed emotions – if your emotional attachment to the individual who has passed away was strong then you are likely to be grieving and the thought of how to handle your new-found wealth can be overwhelming and confusing but also exciting. One of the best pieces of advice in this situation is to give yourself some time before making any binding financial decisions. The temptation to quickly put the money to so-called ‘good use’ or to rush out and spend it can be strong but you must allow the news to sink in and also take some time to consider your options before you embark on the process of dealing with the inheritance. In the short term, put the money away in a high interest savings account and take time to research and think carefully about your financial goals and objectives and how this inheritance can help you to secure and maximize your financial future in the best way.

Although there is no one-size-fits-all approach to dealing with larger sums of money, here are some useful ideas of where to start.

Reduce your debt burden

If you have significant or high-interest debts, one of the safest options of all is paying this debt down. Not only will you achieve a guaranteed after-tax rate of return of your current interest rate, it can also add to your feeling of financial security and potentially offer you a more consistent financial picture. Debt often carries with it a significant interest rate – particularly on credit cards and overdrafts for example – so in many cases, eliminating this burden should be considered as one of your main priorities.

However, you may like to take careful note of the option below regarding investing the money instead as much depends on the prevailing interest rates and, of course, your appetite for risk, as you may well find an investment option with a potentially higher return more attractive.

Make investments

A particularly effective way of investing an inheritance is to add it to your retirement savings – especially if your nest egg is not looking quite as healthy as it should due to missed savings years for example. Those with lower or less reliable incomes should look upon this option as a great choice in particular.

Be charitable

After considering your own future financial needs, giving some of your wealth away to either charities or to family and friends is a good option to share out some of your inheritance to those who could benefit from it. What’s more, donating to charity can also offer you some tax breaks which may reduce your overall tax burden.

Many individuals see this philanthropic route as offering them the opportunity to do something meaningful and rewarding with their wealth and contributing towards their own sense of moral duty and emotional wellbeing.

Make a spending plan

Of course, you are likely to be keen to spend some of your wealth on yourself and your family, particularly if your financial situation means that you have previously had to be more careful and prudent with money than you would have liked. A great way to do this is to create a spending plan so that you can enjoy the benefits of spending, without it significantly eating into money set aside for your financial planning goals. You could, perhaps, aim to set aside 10% of the inheritance just for yourself and loved ones to enjoy. The proportion will naturally depend on your circumstances but, in principle, it’s a great idea as it allows you to balance sensible saving and investments with some short-term enjoyment of your wealth.

Talk to us, we can help.

2019 Ontario Budget

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2019 Ontario Budget

The 2019 budget for Ontario was announced by Vic Fedeli, Finance Minister, giving details of a deficit of $11.7 billion for 2018-19 and $10.3 billion for 2019-20. Below are details of the key changes in relation to personal and corporate finances.

Personal

The budget did not announce changes to personal tax rates.

Ontario Childcare Access and Relief from Expenses (CARE) tax credit

Effective the 2019 tax year, the budget introduces a new refundable Ontario Access and Relief from Expenses (CARE) personal income tax credit, beginning with the 2019 tax year.

The tax credit will be based on the taxpayer’s family income and eligible child care expenses. It will provide the following tax credit per child up to:

  • $6,000 under the age of 7

  • $3,750 between age 7 to 16

  • $8,250 with a severe disability

The new credit will be calculated as the amount of eligible child care expenses multiplied by the credit rate shown below. The credit is eliminated when family income is greater than $150,000.

For 2019 and 2020, the taxpayers may claim the new tax credit on their tax returns. In 2021, Ontario intends to allow families to apply for regular advance payments.

Estate administration tax

Effective Jan 1, 2020 the budget eliminates the Estate Administration Tax on the first $50,000 of an estate’s value and extends the filing deadline of the Estate Administration Tax Information Return with the Ministry of Finance to 180 days (from 90 days) after the receipt of an estate certificate, and extends the deadline for filing amended information returns to 60 days (from 30 days).

Review of property tax assessment system

The province will review the property tax assessment system.

Addressing tax loopholes and tax integrity

The province has created a specialized unit of tax experts to find and address tax loopholes and abuse.

Corporate

The budget did not announce changes to the provincial corporate rate.

Ontario interactive digital media tax credit

The budget reduces the minimum Ontario labour expenditure to qualify as a specialized digital game corporation to $500,000 (from $1 million.)

Review

The budget will review the Ontario Innovation Tax Credit, other research and development incentives and cultural media tax credit certification process.

Please don’t hesitate to contact us if you have questions about how the budget will affect you.

Tax Planning Tips for End of 2018

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Now that we are nearing year end, it’s a good time to review your finances. 2018 saw a number of major changes to tax legislation come in force and more will apply in 2019, therefore you should consider available opportunities and planning strategies prior to year-end.

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Retirement Planning

Survey reveals top financial fears of seniors

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One-in-four seniors fear they might run out of money before they die

An alarming number of seniors are afraid as to whether they can afford long-term care and stretch their retirement savings, according to a national survey commissioned by the Financial Planning Standards Council (FPSC) and Credit Canada.

The Seniors and Money Report asked 1,000 Canadians over the age of 60 how they felt about debt, income, financial planning and work.

The survey revealed that nearly half of Canadians aged 60 and older say they have at least one financial concern.

For example, one-in-four seniors surveyed fear they might run out of money before they die, while an equal amount are concerned they won’t be able to pay for long-term care. Other fears include never being able to pay off their debt, not having enough money to retire, having to sell their house or needing to depend on children for financial support.

The report also discovered that Canadians are extending their working years. Specifically, one-in-five Canadians are still working past age 60, and 6% are working to age 80 and above.

The reasons for doing so include:

  • Three-in-ten can’t afford retirement (including 13% who say they’ll never afford retirement)
  • One-in-eight have too much debt
  • Approximately 28% don’t have enough savings
  • Twelve per cent are still helping their children financially
  • Nearly a third continue to work because they love their job

The report also demonstrates that fewer Canadians are able to reply on company pension plans. For example, 50% of Canadians 80 and older list a company pension plan as a source of income, while the percentage is 41% among those 60 to 69.

“Times are changing, and many seniors haven’t planned for or anticipated the life and financial circumstances they now are facing,” says FPSC’s consumer advocate Kelley Keehn, in a statement.

“Some seniors may feel embarrassed or that it’s too late to ask for assistance when it comes to their finances,” she adds. “Truthfully it’s never too late to get started.”

Additional findings from the study include:

  • Men are significantly more likely to be employed, have a company pension plan or have investments as their current source of income than women
  • Four-in-ten of those who have a company pension as a source of income also hold investments
  • Three-in-ten Canadians age 60 and older with children are supporting them financially (including 22% of those 80 and older)
  • Overall, Canadians aged 60-years and older are more likely to be supported by the government (73%) than any other form of income.