As we enter into 2016, global capital markets have been volatile, continuing the challenging conditions that characterized much of last year. Although the global economy is still slowly growing, many bond and equity markets are being affected by a combination of factors, including several sharp sell-offs in the Chinese stock market, sinking commodity prices, soft economic data and uncertainty surrounding the U.S. Federal Reserve’s decision to raise interest rates for the first time since the financial crisis.

In 2015, the unstable conditions led to mixed results for equity markets. The MSCI World Index registered a modest 0.3% loss for 2015 in U.S. dollar terms, including dividends. The Canadian dollar’s weakness against the U.S. dollar and other global currencies, however, resulted in a gain of 18.9% for the index in Canadian dollar terms. This performance reflects stronger results for markets in the U.S. and Japan and mixed results in Europe and other Asian countries. Similarly, the benchmark S&P 500 Index in the U.S. added 1.0% (including dividends) in U.S. currency, a return that was magnified to 20.5% when expressed in Canadian dollars. The well-diversified U.S. market continues to benefit from the country’s economic recovery, with improving housing and employment data underpinning business confidence.

Canada’s commodity-heavy S&P/TSX Composite Index, meanwhile, was once again weighed down in 2015 by weakening prices for oil, metals and other commodities and lagged most other developed markets. As the price of oil fell toward US$35 per barrel, the benchmark index headed lower to finish the year with a total return of -8.3%. Equity index results for the commodity-sensitive emerging markets and Latin America were also negative.

Given the slow pace of economic activity in most parts of the world, most central banks are keeping monetary policy highly accommodative to growth.The U.S. Federal Reserve’s announcement on December 16 that it would raise short-term interest rates by 0.25%, however, was an important acknowledgement that the U.S. economy has substantially recovered from the financial crisis of 2008. Nevertheless, government bond yields remained muted and the FTSE TMX Canada Universe Bond Index, a measure of government and investment-grade corporate bonds, added 1.1% in the fourth quarter of 2015 for a gain of 3.5% for the year. The U.S. high-yield bond market experienced a stronger reaction to market conditions, losing 4.6% in 2015 in U.S. dollars.

Looking ahead, there are many reasons to be both cautious and optimistic about the strength of the global economy and the direction of capital markets. Two of the world’s largest economies, the U.S. and China, continue to expand and inflation remains low in most economies. The Fed has reassured investors that further rate increases will occur gradually, to avoid stalling the global economy’s muted growth. Elsewhere, central banks in Europe, China and Japan and Canada have taken steps to keep interest rates low and to stimulate their economies. While the fundamental economic conditions remain supportive for many global businesses, some experts warn that these divergent policies are likely to result in further volatility for investment markets over the coming months.

Although the headlines about volatile markets can be unsettling, it is important to keep the big picture in mind. Equity markets, in particular, are often subject to temporary ups and downs, but over the longer term, the general direction has been up. I continue to believe that a well-diversified portfolio that reflects your financial goals and tolerance for risk can help to smooth those peaks and valleys, as well as provide an excellent opportunity for building wealth over time.

Finance Minister Joe Oliver delivered his first Federal budget on April 21^st, 2015.
While you’ve probably seen plenty of media coverage, I thought you would appreciate an overview of how some of the budget items that relate to investments and taxes.

Increase TFSA contribution limit from $5,500 to $10,000
The proposed change is retroactive to January 1, 2015. For Canadians who are over age 18 and have not contributed since the TFSA’s creation in 2009, you now have $41,000 in contribution room.

Lower minimum RRIF withdrawals from 7.38% to 5.28%
The proposed changes to RRIF rules will mean seniors won’t have to withdraw as much money from their retirement savings. Required withdrawal rates still increase every year, but instead of topping out at 20% at age 94, the cap isn’t reached until age 95. The change is meant to reduce the risk of seniors outliving their savings. However, it could lead to a higher tax liability upon death if you leave too much money inside your RRIFs.

Introduce new Home Accessibility Tax Credit
Another budget item aimed at seniors and others who qualify for the Disability Tax Credit is a new Home Accessibility Tax Credit. This 15% non-refundable tax credit applies to up to $10,000 of renovations, such as wheelchair ramps, walk-in bathtubs and wheel-in showers.

Reduce Small Business Tax Rate from 11% to 9%
Small businesses will get to keep more of their earnings. This year’s budget proposes to reduce the small business tax rate to 9% by 2019 – or 2% over the next four years. The reduction generally applies to the first $500,000 of business income. There is a corresponding change to the Dividend Tax Credit from 11% to 9%, and gross-up factor from 18% to 15%, by 2019. Small business owners also will get a tax break if they sell their companies and donate the private company shares to charity. To be eligible, a sale must take place in 2017 or later.

Overall
With proper planning, people who are in higher tax brackets, own businesses or are nearing retirement will benefit from changes in this federal budget.

Thoughts
For those in lower tax brackets, TFSAs can become more advantageous than RRSPs. Those who are nearing retirement can take advantage of early RRIF withdrawal benefits and then move the money into a TFSA and keep it sheltered. Or, if you’ve already contributed the old $36,500 maximum, you could now move some non-registered investments into TFSAs.
In cases where large capital gains might apply, this might not be a strategy worth pursuing. We can talk about whether this strategy is a good idea when we meet.

I trust that you find these highlights useful. If you’d like to discuss these and other Federal budget initiatives and how they affect your financial plan, please don’t hesitate to contact me.

Remember to always “Dream It. Plan It. Live It.”
I am here to help you on your journey. Reach out if I can be of any assistance.

As we are in the midst of the income tax return season, I would like to remind you that we do offer income tax preparation services (yes, we do prepare Quebec tax returns too), as well as book keeping services. Please contact me directly to schedule an appointment.

Important items to keep in mind for the 2014 tax year:

• Income Tax Return Deadline: April 30th 2015 for most taxpayers. If you or your spouse carried on a business in 2014, you have until June 15th 2015 to file your return. However, your balance, if any, still has to be paid no later than April 30th 2015 to avoid interest and penalty.
• Business Use-Of-Home Expenses: if you meet the requirement for the business use of a work space in your home, you can deduct your business portions of your home-related expenses such as heat, hydro, insurance, property tax, maintenance, mortgage interest (or rent). Be extra careful when it comes to deducting Capital Cost Allowance on the business use part of your home. It might come back and bite you later.
• Motor Vehicle Expenses: if your vehicle is for both personal and business use, make sure to keep a record of the total kilometers you drive to earn income and deduct only the business portion of your vehicle-related expenses. However, you can deduct the full amount of parking fees related to your business activities and supplementary business insurance for your vehicle. And remember to claim the Capital Cost Allowance as well.
• Children’s Fitness Tax Credit: increased to $1,000 per child. Did you keep those receipts? Make sure to claim them.
• Non-Refundable Tax Credit: up to $2,000 per eligible couple. This is a new tax credit that was introduced last year.

You should have received most, if not all, of your receipts and T-slips by now. I suggest that you start a brand-new folder of those and keep them all together, if you have not yet done so. This will be much easier when the time comes for filing your income tax returns.

Remember to always “Dream It. Plan It. Live It.”
I am here to help you on your journey. Do not hesitate to reach out if I can be of any immediate assistance.

I trust that you had a wonderful start for 2015.

As we are in the midst of the RRSP season and the beginning of the income tax return season, I would like to remind you that we do offer income tax preparation services, as well as book keeping services. Please contact me directly to schedule an appointment.

A few important items to keep in mind for the 2014 tax year:

• RRSP Contribution Deadline: March 2^nd 2015 for 2014 tax year. Yes, it is just around the corner. Why wait until the deadline? Do it as early as you possibly can.
• RRSP Maximum Contribution Limit: increased to $24,270 for 2014 tax year, or 18% of your earned income, whichever is lower. Plus any unused contribution room from previous years.
• Children’s Fitness Tax Credit: increased to $1,000 per child. Did you keep those receipts? Make sure to claim them.
• Non-Refundable Tax Credit: up to $2,000 per eligible couple. This is a new tax credit that was introduced last year.
• Income Tax Return Deadline: April 30^th 2015 for most taxpayers. If you or your spouse carried on a business in 2014, you have until June 15^th 2015 to file your return. However, your balance, if any, still has to be paid no later than April 30^th 2015 to avoid interest and penalty.
  • If you are expecting a refund, file your return now and get back your money as soon as possible.
  • If you are expected to pay, complete your return before April 30^th so you know what to expect and pay your balance by the due date.

Most companies and institutions have started sending out the receipts and T-slips. May I suggest you start a brand-new folder of those and keep them all in there as they arrived. This will be much easier when the time comes for filing your income tax returns.

Remember to always “Dream It. Plan It. Live It.”
I am here to help you on your journey. Do not hesitate to reach out if I can be of any immediate assistance.

The global economy in aggregate continued to strengthen in 2014, although the improvement, as has been the case through most of the current recovery, was uneven. After shrinking in the first quarter, the U.S. economy grew at a much stronger rate than expected in the second half of the year. While not as robust, Canada’s economy also registered encouraging signs of improvement during 2014. In other regions, geopolitical events such as conflict in Ukraine and the Middle East, slower growth in China and the risk of deflation in Europe affected financial markets. Overall, the global expansion moved cautiously forward.

Global financial markets also started the year on a hesitant note, but benefited from improving economic trends and strong corporate profits through the spring and summer months. Most equity indexes were positive through the end of the third quarter, but volatile conditions surfaced in the fourth quarter as investors began to focus on the slowing pace of growth in emerging markets, particularly China. Concerns about oversupply in the energy market caused a sharp drop in the price of oil and other commodities, which was felt broadly across many markets and sectors. The price per barrel of crude dropped to less than US$50 at the start of 2015, the lowest since 2009.

Canada’s commodity-heavy S&P/TSX Composite Index was particularly volatile in the fourth quarter, staging a series of sharp declines and rebounds. The Canadian index finished the three-month period with a loss of 1.5%, but registered a respectable gain of 10.6% for the year. The falling price of oil, which is a major Canadian export product, also caused the Canadian dollar to lose value relative to the U.S. dollar. The loonie finished the year about 8% lower at 86.2 cents U.S.

The MSCI World Index, which measures large and mid-cap equities across 23 developed markets, gained 5.5% for the year in U.S. dollar terms. Accounting for the Canadian dollar’s decline, however, this gain was magnified to 15.1% for Canadian investors. The performance of the World Index reflected generally weaker results in emerging and developed markets outside North America and the robust gains for U.S. equities. The benchmark S&P 500 Index benefited from strong U.S. economic trends, growing consumer and business confidence and healthy corporate profits, adding 13.7% in 2014. Again, Canadian investors in U.S. stocks benefited from the decline in the value of our own currency, with the U.S. market up 24% in Canadian dollar terms.

Turning to fixed-income markets, the moderate pace of global economic activity in 2014 meant that monetary policy remained highly accommodative to growth. Although the U.S. Federal Reserve officially ended the asset purchase programs it had used to stimulate the economy since 2009, central banks in Europe, China and Japan took steps to keep interest rates low, their currencies weak and their export markets competitive. Bonds performed well in this environment. The FTSE TMX Canada Universe Bond Index, a measure of Canadian government and investment-grade corporate bonds, added 2.7% in the fourth quarter for a gain of nearly 8.8% for the year.

As we head into 2015, the global economy continues to slowly expand. Although interest rates remain low, there are some indications that rates, at least in North America, could begin to move higher in the coming year (well, at least that is what most analysts think, but only time can tell), which could be a headwind for fixed-income investments. Nearly six years after the financial crisis, equities have delivered generally positive results, but markets are cyclical, and it is always difficult to predict their direction in any given year. While the sharp drop in oil prices has weighed on the Canadian equity market in particular, it is important to remember that asset classes, industry sectors and geographic markets often move in divergent directions. Lower oil prices, for example, can be positive for other sectors as they strengthen consumer confidence and reduce costs for manufacturers, transportation companies and related industries.

Last week, on October 30^th 2014, the federal government announced a new so-called tax break.

The unveiled plan lets Harper use his “promise made, promise kept” mantra. However, is the plan itself good policy or good politics? What’s in it for YOU, the taxpayers?

Here are the 3 main points of the announcement:

• Income Splitting: Couples with children under 18 can share up to $50,000 of income, up to the maximum of $2,000 in non-refundable federal tax credit, effective for 2014 tax year.

• Universal Child Care Benefit (UCCB): Families with children under 18 will gain an extra $60 per month per child, effective for 2015 tax year.
• Child Care Expense Deduction: Families with children under 18 or infirmed children over 16 will have an extra deduction room of $1,000 per year per child in child care expense, effective for 2015 tax year.

Thoughts:

• Non-refundable tax credits are not equal to the actual cash value, so do not think of this as having an extra $2,000 in your pocket.

• For families with very low taxable incomes, no credit is available to transfer. This also does not work for families with two similar taxable incomes.
• The UCCB benefit is fully taxable. The existing child tax credit will be eliminated. Hence this $60 extra is looking more like $23 after taxes. Well, it is still better than nothing, I guess.
• Make sure to check with a tax professional to see how to claim (and indeed if you can claim) the benefit in the case where couples are separated or divorced and share custody of their children. You may even have to visit a family lawyer again to work this out with your child’s other parent.

 Final notes:

This plan is not as great as it appears to be and is not for everybody. The main beneficiaries will be middle class families with young children and uneven taxable incomes, which only account for a small segment of Canadians.

Personally, I would like to see a real broader tax cut that would benefit all taxpayers. I also would like to see plans to encourage entrepreneurship, cut government spending, balance the budget, and reduce debt, just to name a few.

For families who will benefit from this new tax cut, make sure you spend your new-found money wisely. May I suggest contributing towards your children’s education savings fund.

For those who got left out, make sure you claim all of your eligible tax credits when filling your income tax returns. You might want to consider various tax strategies that can be used to reduce your tax payable such as contributing to an RRSP, keeping fully-taxable investments inside a TFSA, or splitting pension benefits. Is your situation different from last tax year? If so, take a look at the tax guide to see if there is anything that might apply to you. When unsure, ask a professional to review it.

This note is written as a general source of information only. Should you have any questions, or wish to discuss your specific circumstances, please feel free to contact us directly at info@RetireRightCanada.ca.

The Canada Revenue Agency (CRA) today announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporations.

Income tax

• The interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 5%.
• The interest rate to be paid on corporate taxpayer overpayments will be 1%.
• The interest rate to be paid on non-corporate taxpayer overpayments will be 3%.
• The interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans will be 1%.
• The interest rate for corporate taxpayers’ pertinent loans or indebtedness will be 4.94%.

These rates are in effect from October 1, 2014 to December 31, 2014.

A comprehensive benefits program is a major component of any organization’s compensation package. It provides protection for an employer’s most important assets, its employees, and helps to attract top candidates in today’s competitive employment marketplace.

European Central Bank surprised the market with a cut to its key interest rate and deposit rate. In a bid to stimulate a flagging Euro-zone economy, the benchmark rate was cut by 10bps to a record low of 0.05%, from a previous 0.15%, and the rate at which the central bank charges large institutions to park up cash moved to -0.2% from -0.1% (deposit rate). President Draghi also announced a program of bond purchases from the private sector on both asset backed securities and covered bonds, to add further liquidity.

Do you talk to kids about #money? Why (not)? What teens don’t know about#finance could hurt us.

Contact us for money workshops for various ages.

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