The holiday season is a popular time to reflect on the past year and donate to the causes you care about. These types of donations don’t just help people and organizations in need; they confer a potential tax benefit on the giver.
Here’s a look at the tax benefits of charitable giving and how to qualify for a charitable tax credit to lower your taxable income.
Credits for charitable donations
Taxpayers who donate to qualified organizations can claim a tax credit of up to 75% of their net income. In most cases, these credits fall within a range of 20% to 49% of the amount you donated and can only be used to reduce the amount of taxes you pay and not as a tax refund.
You are eligible for a tax credit no matter how much you donate. Exactly how much you are eligible for depends on where you live, how much you gave, and your income. You’ll unlock much higher tax credit rates for any portion of a contribution that exceeds $200. On the federal level, your credit is 15% on the first $200 in donations and 29% for anything more than $200. Provinces have similar credits, which are between 4% and 24%, so what you qualify for may vary depending on which part of the country you live in.
How to claim a charitable tax credit
To claim the tax credit, you will need to report it on your federal and provincial tax return. To be eligible, donations must be made to qualified Canadian organizations, including registered charities and certain public organizations, such as an amateur athletic organization or a housing corporation providing low-cost housing.
You can claim these donations only once, but you do not necessarily need to claim them in the same year you contributed. You can carry them forward for up to five years (or 10 for a gift of ecologically sensitive land made after February 10, 2014).
This means you can essentially “bunch” your charitable contributions for up to five years for a significant tax credit one year, instead of smaller ones where you make your claims year by year. However, you do have to claim tax credits for the gifts you carried forward from a previous year before you can claim credits for gifts you give in the current year.
You’ll need an official receipt for all donations to claim them on your taxes. Most organizations will issue this to you at the time of your contribution. If you decide to carry forward contributions, make sure to keep a record of the eligible amount you are claiming this year and the amount you are carrying forward.
Another strategy to optimize your charitable tax credits is to combine your eligible donations with a spouse or common-law partner into one tax return. By pooling your donations together, you’re more likely to receive higher tax credit rates beyond the $200 threshold.
Keep in mind that charitable tax credits can only be used to reduce your taxable income and will not produce or increase your refund. For example, if you try to use your charitable tax credits during a year in which the amount of tax you owe is less than what your credits are worth, then you won’t receive the full possible benefit. In this case, it would make more sense to hang onto those credits and carry them over to a year when you have a higher tax bill.
Any charitable contribution to an organization in need is an act you can feel good about, and with a bit of planning and the right strategy, you can give to the causes that are important to you while also easing your tax burden.
Contact us today at firstname.lastname@example.org or 647.349.7070 to get the conversation started.
Getting the most out of your registered retirement savings plan (RRSP) isn’t just about maxing out your contribution limit every year. It’s also about carefully planning when to withdraw your savings. As a rule of thumb, the longer you can leave your money in the account, the better, allowing your savings to continue growing. When you make withdrawals early, before you retire, your money is no longer able to work toward securing your financial future.
On the other hand, sometimes financial necessity or early retirement plans require you to withdraw your funds early. To decide when to dip into your RRSP and when to hold off, you need to consider several factors: the tax consequences of the withdrawal, the potential tax-advantaged growth you’re giving up, and your individual financial needs.
RRSP withdrawal rules
You can withdraw money from an RRSP at any time for any reason, but be mindful that withdrawals are taxable as income. If you withdraw money while you’re still working, you could inadvertently bump yourself up into a higher tax bracket. Be aware, as well, that a portion of your withdrawal — up to 30% — will be withheld to be put toward taxes, and you may owe additional money come tax time.
There are two exceptions to this rule: The Home Buyer’s Plan allows you to withdraw up to $35,000 from your RRSP tax-free to pay for a qualifying home for yourself or a relative with a disability. The Lifelong Learning Plan allows you to make a tax-free withdrawal of up to $10,000 per year from your RRSP to pay for full-time training or education for yourself or a spouse. (You cannot use the money to pay for education or training for your child or the child of a spouse.) The funds you withdraw for these programs must be repaid, and repayments are subject to a strict schedule.
It’s also important to note that withdrawals from your RRSP do not increase the amount that you can contribute in a given year. For example, if you have $5,000 of contribution room and withdraw $1,000, you will not have $6,000 of contribution room.
The benefit of leaving your money in the markets
Opportunity cost is one of the biggest issues with early withdrawals from RRSPs. Whatever money you take out of your account is no longer there working for you. In general, you get the most out of a tax-advantaged retirement account when you leave your money in the account over the long term, giving it a chance to benefit from tax-advantaged compounding growth.
Let’s take a look at a simple example. Say you withdraw $10,000 from an RRSP at age 50 to help you buy a new car. That amount is subject to 20% withholding, so you’ll only receive $8,000 to help you make your purchase. If you left that $10,000 in your retirement account until you retired at age 65, it would have had 15 years of tax-advantaged compounding growth. At a 6% interest rate compounding annually, that $10,000 would have grown to about $23,965 by the end of the period. That’s nearly an extra $14,000 you could have put toward retirement income.
Generally speaking, if you can avoid using your RRSP savings for anything but retirement income, you should. In some circumstances, early withdrawals may be necessary. A financial advisor can help you determine your options and come up with a plan to make sure you are still on track to retire.
Contact us today at email@example.com or 647.349.7070 to get the conversation started.
If you’re raising children younger than 18, you may be entitled to monthly support
Of all the challenges that come with parenting, the financial challenge can be the hardest to overcome. Fortunately, if you’re raising children in Canada, the government may offer you monetary assistance in the form of the Canada Child Benefit.
Canada Child Benefit Basics
The Canada Child Benefit (CCB) is a tax-free monthly payment from the Canada Revenue Agency (CRA) meant to help low- to moderate-income families defray the costs of raising children. The CCB began in July 2016 as a replacement for the Canada Child Tax Benefit, the National Child Benefit Supplement, and the Universal Child Care Benefit. It is the most recent and generous incarnation of a program launched in the early 1990s to end child poverty in Canada.
Since July 2018, the CCB has been indexed to the cost of living, meaning that an increase in the cost of living automatically triggers an increase in the CCB amount.
To be eligible for the CCB you must live with a child under the age of 18 whose care and upbringing you are primarily responsible for, and you must be taxed as a resident of Canada. Additionally, either you or your partner must be a Canadian citizen, an Indigenous person, a permanent resident, a protected person, or a temporary resident who meets certain criteria.
If you share custody of your child, and your child spends roughly equal amounts of time at both households, each parent may be entitled to half the CCB payment. In this case, payment will be calculated based on each parent’s own adjusted family net income (AFNI).
How Much Do You Receive?
The amount of your CCB is based on last year’s income and is recalculated every July. For example, your AFNI from 2020 determines how much you’ll get in CCB from July 2021 to June 2022. If your income changes in 2021, it won’t affect your CCB payments until at least July 2022.
The maximum benefit per child is:
- $6,833 per year ($569.41 per month) for children under 6.
- $5,765 per year ($480.41 per month) for children between 6 and 17.
If your 2020 AFNI is:
- less than $32,028, you will receive the maximum benefit.
- between $32,028 and $69,395, your benefit will be reduced by 7% of your income over $32,028
- more than $69,395, your benefit will be reduced by $2,616 plus 3.2% of your income over $69,395.
To find out exactly how much you should receive, use the Child and family benefits calculator at Canada.ca. You can find the Canada Child Benefit application form online.
CCB Young Child Supplement
To provide extra support during the COVID-19 pandemic, the Canadian government introduced the CCB young child supplement (CCBYCS) in 2021. A family’s net income must be $120,000 or less to qualify for the full 2021 CCBYCS. Families who qualify will receive four additional payments of up to $300 per child younger than 6 over the course of the year. Families with a net income of more than $120,000 will receive half that amount, or $150, for each child under age 6. Families do not have to apply for the CCBYCS separately, but they must have filed their 2019 and 2020 tax returns.
The CCB is tax-free money with no strings attached for parents raising children in Canada. If you think you might be eligible, it’s worth applying. In addition, some provinces and territories may offer additional resources to help you raise your family. The benefits may be added to the CCB or paid out separately. Visit the CRA website to find out more.
Contact us today at firstname.lastname@example.org or 647.349.7070 to get the conversation started.
Where there’s a will, there’s usually at least one executor – a critical role whose mandate is, as the title suggests, to execute your instructions on the distribution of your property after you die. This blog post is by no means intended to be legal advice but merely a call to use common sense when deciding on the future of your assets.
To be an executor is a serious and time-consuming undertaking that comes with fiduciary responsibilities and legal liabilities. Yet many people don’t take the time to truly consider if the person –or persons – they’ve chosen has what it takes to take on the consequential demands of the role. Is the person willing and able to perform the duties you are asking for?
Making the wrong choice for an executor may be a mistake you won’t live to regret. But the beneficiaries of your estate – and perhaps even your appointed executors – will most certainly wish you had made a better selection.
It starts with understanding
Most people know the general definition of the executor role and those who don’t have Google to help fill in the blanks. Few people really know what it takes to be an executor. What a lot of people don’t realize is the number of tasks and moving parts associated with being an executor. For example, there will be paperwork – a lot of it – because your executor is responsible for submitting your will for probate, accounting for your assets and debts, and filing your outstanding taxes. Your executor will also need to consult and coordinate with your accountant, lawyer and other advisors. Your executor may even be called upon to resolve disputes between your heirs.
Educate yourself (and the family) then identify the best candidates
Your eldest child may have done a great job of organizing family dinners and smoothing over sibling rivalries. Then there’s your business partner – an upstanding colleague with smarts and integrity. But before you start naming them as executors, ask your lawyer for an executor job description that details every possible task under this role. Then identify the skills, knowledge and character traits needed to carry out each task. You’ll find that many of the tasks require a level of financial literacy while others require careful attention to detail. Qualities such as good reasoning, sound judgment and fairness are also critical in this role, as is the ability to communicate and mediate between parties. As you match desired qualifications to your executor’s job description, you’ll likely start to make a shortlist of suitable candidates and perhaps scratch off a few of the names you originally had in mind.
Make sure you’ve got the right mix
If you’re appointing more than one executor, make sure you’ve got the right mix of people. This means ensuring your executor team will have the ability to talk through disagreements and bring a fair and united approach to ensuring your wishes are carried out. It’s also a good idea to set down some rules of engagement and decision-making. For example, will decisions have to be made unanimously, or will majority rule? Will one executor have veto powers? As you consider these points, you should also think about potential candidates for back-up executors in case the ones on your top list decline or are simply not available to take on this responsibility.
It can take years – and potentially a lot of stress – to carry out the duties of an executor. While your appointees may consider it an honour to be entrusted with such an important responsibility, they’ll likely also appreciate some financial compensation for their time and effort. Talk to your lawyer about paying your executors, keeping in mind that compensation typically ranges within 2.5 per cent to five percent of your estate’s total value. This is especially critical if the size and makeup of your assets, or your family structure and dynamic, could make the distribution of your property complicated and challenging.
No matter what, have the talk
Yes, talking about your impending death can seem morbid and might cause pain for you and your family. But not discussing your estate plans today can bring even more pain for your heirs tomorrow. So have the talk with the people who stand to inherit your property, as well as with those you’d like to entrust with the responsibility of executing the terms of your will. This will give you a chance to explain why you’re making certain decisions for your estate, and to hear any concerns your family and appointed executors may have. You may be surprised by what you learn from these conversations and how these new insights can help ensure you’re taking care of the people you love, in exactly the way you want.
It’s taken you a long time to build your assets, and you may still have many years left to keep growing your wealth. Don’t let all your hard work go to waste when you’re gone. Don’t risk the harmony in your family. Take the time to ensure your estate plan is built on a solid framework that includes the right executor and all the required conversations. Not talking about the problem, will definitely not make the problem go away.
Let’s start the conversation. Contact us today at email@example.com or 647.349.7070 to get the conversation started.
Financial advisor Elke Rubach, right, enjoys beach time with Emily Strike. Rubach mentors Strike, whom she met through Fashion Heals for Sick Kids. Photo by Christopher Lawson
Elke Rubach was a successful lawyer when she discovered her passion for helping people understand finances
Elke Rubach was determined to do things the right way from the get-go when she set her sights on a career in the financial advisory business. Already an established lawyer, she spent a full year talking to experts to learn about the industry, including the products it has to offer and what they can do for clients, and about client-advisor relationships.
Rubach is the founder and president of Rubach Wealth, a “holistic” family advisory firm in Toronto. Over the past nine years, she built a practice that serves 280 professional clients of all ages and stages of their careers. As a result, their investable assets range from about $500,000 for young professionals to $3 million–$5 million for established families, and can be in excess of $35 million for business owners.
“I am responsible for my clients’ spouse and children too,” Rubach said. “At the very minimum, if Dad dies or Mom dies, I need to be able to look [the survivors] in the eye and say, ‘I’m really sorry this happened. But Dad or Mom did the right thing in looking out for you, and I’m here for you, too.’”
Rubach’s strong work ethic and empathy toward others originated early in her life. A native of Mexico City, Rubach was only 15 when her father, Karl, died. Her mother, Clara, was left with four children and a whole new set of responsibilities for raising the family.
“Mom had to go from not working while she had the four kids to having to figure out how to make a living,” Rubach said. “Watching how she made it work, I think, gave me grit.”
Rubach, who is fluent in English, French, Spanish and German, graduated law school at the Instituto Tecnológico Autónomo de México. She was called to the bar in 2000, and began her career at the law firm Ritch Mueller Heather y Nicolau SC in Mexico City.
In 2001, Rubach relocated to the U.K. to study at the London School of Economics and Political Science on a Chevening Scholarship, earning her master’s degree in law the following year. She subsequently was hired as an associate in the London office of McCarthy Tétrault LLP.
One of the key files Rubach worked on concerned Argentina’s severe debt crisis and involved her firm’s Latin America team in Toronto. In 2002, McCarthy Tétrault asked Rubach to transfer to its Toronto office for a year.
“Nineteen years and three kids later, I’m still here,” she said.
Rubach left McCarthy Tétrault in 2005 to work for Bank of Nova Scotia. While working for Scotiabank’s compliance department, she discovered her passion for helping people control their finances.
This discovery sowed the seeds for a career change. “I loved spending time explaining to people what they were getting into and how everything is connected,” Rubach said. “I saw that people often go through life busy — building careers, looking after people — but in their financial affairs there’s absolutely zero clarity. That’s where I said, ‘There’s a niche for that,’ and decided to open up my own business.”
Rubach burnished her credentials by earning her certified financial planner and chartered life underwriter designations during the early years of her practice. She added the family enterprise advisor designation in 2020.
Rubach believes the trusting relationships she has established with her clients is her biggest success. “It’s a collaboration,” she said. “There is professional respect both ways. In my conversations with clients, I say, ‘Let’s take a long-term outlook — invest time and put a proper plan in place. And let’s invest in the relationship.’”
Rubach encourages clients to ask as many questions as they need to feel comfortable. And she isn’t afraid to ask her clients tough questions.
For example, if a client has a family business and three children, Rubach will ask questions such as: “Have you talked to the children about your business? Do they want to take it over? If you give this business to your eldest son, what’s going to happen with the other two children? Does your son know how to run the business?”
Answering those and many more questions is necessary to develop a practical plan that will provide peace of mind for the clients. “It gets emotional, but I love the intermediation of those intergenerational transfers,” Rubach said.
Rubach Wealth has five employees, including an associate and three marketing and administration staff. “I’m the partner,” Rubach said, “but I’ve always told my colleagues that nobody works for me. We all work together.”
Rubach takes pride in her ethical standards. “We strive to deliver value in our advice that far exceeds the cost,” she said. “I firmly believe that a mis-sold insurance policy can destroy a family. I am very conscious of that.”
She also levels with clients and prospective clients regarding expected returns on investments. “We do not guarantee rates of return,” she said, “and I am honest about that.”
One thing Rubach has learned is to temper her enthusiasm when a new financial product or service catches her eye, and not to rush to offer new ideas to clients. “I’m someone who is super-passionate about things,” she said. “Although passion is contagious, if you go too fast in business with a product or a strategy — and don’t follow the client’s pace — you risk losing the client.”
Rubach has been a member of the Ontario Ministry of the Attorney General’s Investment Advisory Committee of the Public Guardian and Trustee since 2019. She is serving a three-year term as one of nine voting members, whose role is to advise the Public Guardian and Trustee on how to invest the money of people who are incapable of making such decisions.
“This role further reminds me of the too often overlooked importance of having a will and powers of attorney,” she said.
Rubach, a mother of two sons and a daughter between the ages of 10 and 14, loves travelling, cycling and golf, although she admits the last is a “work in progress.”
Rubach also is an active volunteer. She is a member of the advisory board for TransPod Inc., which is developing affordable and sustainable ultra high-speed transportation in Canada. She also has been a board member of Lycée Francais de Toronto, a private school, for the past seven years.
Rubach holds several voluntary positions with Hospital for Sick Children in Toronto, including co-founder and chair of Fashion Heals for Sick Kids, a fundraising fashion show in which the models are kids, researchers, doctors and others connected to the hospital. Models are professionally styled for the night, according to Rubach.
“For the kids, and for us, it’s the experience of a lifetime,” Rubach said. “Through fashion, they’re telling you their story — the resilience and courage that these kids have. We keep in touch with most of our models and have seen them grow from kids to inspiring young adults.”
She also speaks frequently at events, especially about topics affecting women’s financial health and well-being.
“I’m really passionate about empowering women,” Rubach said, “financially, socially, and professionally.”
Making financial advice a family matter
Even with careful planning and diligent saving, some parts of retirement planning are out of your control. Factors like longevity, rising medical costs and the ups and downs of the market can have an impact on your savings. But while you can’t plan for the unexpected per se, there are ways you can manage these risks and protect your retirement income. Here’s a look at four common retirement risks and how to address them.
- Longer life expectancy
People are living longer now than ever before. The average life expectancy in Canada is around 80 years for men and 84 years for women. That’s about 10 years longer than people were living in the 1960s.
There are many benefits to living longer, but it also means carefully considering strategies to avoid outliving your savings. One way to combat this is to delay the age you start collecting your Canada Pension Plan (CPP) benefits. You are eligible to start collecting your benefits at age 60, but the longer you wait, the greater your benefit will be. If you can hold out until age 70, you’ll receive the maximum monthly amount.
You may also want to consider other sources of regular income, such as annuities to supplement CPP benefits and withdrawals from retirement accounts. You typically purchase annuities with a lump sum, and the annuity then makes regular payments to you over a fixed period of time. That said, annuities come with unique trade-offs and risks. For example, it’s possible inflation could rise higher than an annuity’s guaranteed rate. What’s more, annuities are generally illiquid investments, meaning your money will be tied up for a set period and you won’t be able to access it without facing stiff penalties. Discuss annuity options with a financial advisor before adding one to your portfolio.
- Medical costs and long-term care
Another implication of living longer is increased health care costs, including long-term care services. Long-term care refers to assistance needed for daily activities, like eating, bathing or dressing. This type of care can be provided at home or an assisted living facility like a nursing home. About 7 percent of Canadians age 65 and older live in some sort of assisted living facility, and the average cost of a private room in these facilities is about $33,349.
Even if you don’t anticipate needing long-term care anytime soon, it may be worth considering long-term care insurance now in case you need these services in the future. Consider purchasing coverage well before you retire as it typically becomes more expensive as you age.
- Market risk
Market fluctuations are a natural part of the market cycle, yet a downward turn right before retirement can lower the value of your investments just when you need them most. As you near retirement, consider rebalancing your portfolio to include more lower-risk investments, like bonds, that are less likely to be affected when stock markets head south.
- Rising inflation
Inflation reduces your spending power and can have a big effect over a 30-year (or longer) retirement. There isn’t much you can do to stop inflation, but you can invest in assets that protect against some of its effects. Property prices tend to rise with inflation, making real estate investments a good inflation-protected option. You may also consider inflation-linked bonds (ILBs), which offer a fixed interest rate, but their principal is adjusted for inflation.
Understanding these risks to retirement can help you know how to address them and keep your savings on track. Contact us today at firstname.lastname@example.org or 647.349.7070 to get the conversation started.