Canadian Personal Finance Blog

So I started writing this Blog 15 years ago (March 17, 2005). It has been interesting and thanks to it, I have met many wonderful writers and personalities. I have also had many kind comments and queries, and for that, I thank my readers as well. It is an auspicious day to be celebrating given the current Pandemic conditions and it being St. Patty’s day.

I think I have learned a great deal about SEO (mostly what not to do), a fair amount about money and investing (mostly I don’t know what I am doing, and need help) and mostly about life. I have written through:

• Me being laid off
• The Great Credit Crisis of 2008 (I was laid off during it)
• The Demise of Nortel
• Autism and my son’s diagnosis
  • The Disability Tax Credit
  • Registered Disability Savings Plans
• My daughters passing through University
  • Registered Education Savings Plans
• And a myriad of rants about
  • Pay Day Loans
  • Free Banking and Bank Fees
  • Guest Posts and why I usually don’t let them happen
• My Eventual Retirement and Planning
  • Pensions
  • RRSPs and Spousal RRSPs
  • KIPPERs and Kids at home
• Financial Advice in General
  • From my Father
• My Most Popular Post
  • The CPP and EI maximums for 2020 and other years? I have no idea why this is so popular, but it is staggering how many people find this on Search Engines.

It has been an interesting 15 years, and I don’t think I am going anywhere, I will keep writing. I am meaning to write more, but we shall see whether I ever return to writing 5 articles a week.

Thank you all for reading along, and all my best.

My daughter offered to write an article about the COVID-19 and its impact on her life. She is a self-employed Chiropractor, so she is directly affected by this Pandemic. Small businesses and entrepreneurs will be impacted by this harshly. She is also at risk due to asthma and lung issues. I offer this for your consideration.

COVID-19 From the Self-Employed and Small Business Perspective

Work from home if you can! No sick notes needed! Waived week long waiting period for E.I. applications! Relief funding for those unable to work due to closures! The Canadian Government is stepping in to pledge 1 billion dollars to help with the repercussions of the current COVID-19 crisis. I am self-employed as a chiropractor and my business will be affected by COVID-19, even if I don’t contract the virus. Somewhere down the line, there may be some relief funding specifically for small businesses and the self-employed, but I am not holding my breath that it will be any time soon. 

Currently in Ottawa, we have 10 confirmed cases. Schools, libraries, museums, and city recreation complexes, are all closed as of March 16th and will stay closed until at least the beginning of April. Private health clinics have not been given any guidance (as of March 15th) on whether to stay open or close. Hourly, we are checking multiple sources and updating our policies based on our best judgement of what is safe for our clinic but also protects our livelihood. 

Social distancing is effective, no argument on that one. I fully support trying to “flatten the curve”, and as an individual who would most likely end up very sick if she contracted this virus, I am happy to limit my social outings. However, being within a metre of other people is a part of my job. Touching people is my job. I sit in a difficult situation trying to balance having an income, and protecting mine and my patients’ (sub customer/ client/ consumer for other small businesses) health.

As a health care practitioner, I have always washed my hands between patients, my equipment and room has always been cleaned according to health regulations. Lately, I’ve upped my game, as much as possible, to keep my patients safe and my businesses going. I can’t get hand sanitizer, disinfecting wipes are at a premium and I am continually being asked if it’s safe to come to our clinic. Even if we do stay open, there is no guarantee patients will feel safe and comfortable coming to the office to be treated. 

Financially, I feel lucky to have parents who have tolerated me living in their house since I graduated 18 months ago. I don’t have a mortgage or children. I also don’t have a spouse with benefits or a salaried income. I do have a load of student debt and am grateful for the Bank of Canada’s recent interest rate cuts. As an independent contractor I get paid based on the number of patients I treat. Full stop. Not salaried, no benefits, no E.I.. Working from home is not an option. Small businesses will feel the hurt from this situation for the next 6 months to 1 year. We are stressed. Yes, an emergency fund is vital. Most financial folks say 3-6 months worth of expenses is what you should have put away. There are people much more qualified than I am to comment on that factor.

Now that I have sufficiently indulged in standing on my soapbox and yelling my problems at the internet, here are some tips to continue to support small businesses if you are healthy, not self-isolating and able:

1. That local coffee shop you frequent on the weekend or before work, continue to go if you are healthy and not at risk. Get some of their beans/ tea leaves/ product to use in your own home. Buy a gift card to boost their income and help them float until things return to normal.
2. See if take-out or delivery is an option for your favourite local restaurant. 
3. Keep your appointments with your health care professional/ hair-dresser/ personal trainer/ etc etc. If you are not able to keep your appointment, reschedule for a few weeks time rather than flat out cancelling. 
4. If your gym/ yoga studio/ health clinic of choice has closed as a result of COVID-19, make a mental promise to yourself to go back, put a reminder in your calendar a month from now to get yourself back into your routine. 
5. Stress has you online shopping? Need to buy gifts for a birthday? Choose a Canadian small business that has an online store.
6. Ask if there is an opportunity online or phone interaction with professionals that have that capability like your accountant or nutritionist. 
7. Monitor information channels that are giving accurate information on the current state of affairs rather than relying on social media or other social channels that tend to spark fear and panic.
8. Educate yourself on the actual symptoms of COVID-19, and how the spread can be prevented. I am not writing this from a health care practitioner point of view, so I won’t give any advice.
9. Save your advice on financial planning in case of an emergency for 6 months from now. The last thing a person in my position wants to hear is advice, however well meaning, on how they could have prevented getting into this awful position. Once we are recovering, that is the time to offer help on that subject. 
10. Be Kind. We are all trying to make our way through this situation the best we can. Being angry, greedy or selfish will get you no further in life than being kind, patient and fair.

So before you start investing in toilet paper stocks, complaining you have to deal with your kids for 3 weeks, hoarding hand sanitizer or making jokes about the person sneezing in a coffee shop, think of the people in your life who are self-employed. Reach out, ask them how you can help support them, stop the spread of misinformation, and wash your damn hands. 

I guess this is topical for these days (written during the COVID-19 pandemic), but let’s do a quick wander through what your Financial Disaster Plan might need to include.

Will and Power of Attorney

Doesn’t matter if you think this will not affect you, you need to have these documents in place. If you are single, OK it isn’t urgent, but if you have a spouse or more, do this first. Plenty of easy on line sites to do it with, or call a lawyer or notary.

For the Power of Attorney, different provinces have different rules, so make sure you set that up correctly too. I have learned too much about Quebec’s rules lately, thanks to a loved one still living there (and their POA).

Insurance

If you have a family you should have life insurance. It should at least pay out to leave your family debt free should you die. It would be better to leave them more money to help out given the loss of your income. No, not full life or any stuff like that, TERM life insurance (5 or 10 year terms) is fine.

Disability insurance should be considered as well, especially if you are the sole income earner for your family.

House insurance, Apartment Insurance and Car Insurance you should have as well (should have those things, of course).

Cash

A certain amount of actual cash available to you would not hurt. No I am not saying have $10,000 in cash hidden in your house, but a couple of hundred couldn’t hurt having around. Maybe a little US Cash too? If you live near the border, never a bad idea

Toilet Paper?

Dear Lord, why do people hoard toilet paper during a crisis? You are assuming there will be toilets (or something like that) during this crisis? Maybe some canned food, and some water would make sense, but bum wad? Really? COVID-19 is a respiratory sickness (i.e. your lungs not your bum).

List of Critical Information

What if you become incapacitated, how will your designated helper do things without the hundreds of passwords needed to do your banking, or anything else? Who will scrub clean your Google and Search logs?

Somewhere, somehow but securely you will need to have that information available to the people you trust, to act for you. A list inside a safety deposit box? An encrypted Word document somewhere?

What about all of your insurance policy numbers, your pension information, and anything else loved ones might need should you find your untimely demise? How do they get at the “safety blanket” you left for them?

Debts and Emergency Funds

Yes, you should be paying down debt and have an emergency fund or plan on how to deal with your finances during an emergency.

Keep Calm and Plan

We are currently in an emergency, but if you are at home with not much to do, maybe it is time to start planning?

Understanding the tax consequences of RESP withdrawals

By Gerry Vittoratos, UFile

Registered Education Savings Plans (RESPs) are a great vehicle to save money for your children’s post-secondary education in a tax efficient way. This article will explain the tax treatment of withdrawing from this plan.

Basics of RESPs

Before we get into the tax treatment of RESP withdrawals, we need to understand certain fundamental concepts of the plan.

Contributions

Contributions to the plan are made by a subscriber (parent of the child or children) to a promoter (financial institution) for the benefit of the beneficiary (child or children). The plans can be individual plans (single beneficiary) or family plans (multiple beneficiaries).

Contributions into the plan are not tax deductible; however, the earnings within the plan accumulate on a tax-free basis. The contributions and accumulated earnings can stay in the account for up to 35 years after the plan is established.

The lifetime contribution limit per child is $50,000.

Canada Education Savings Grants (CESGs)

Apart from the tax deferral of earnings, another major benefit of contributing to the RESPs is the Canada Education Savings Grant (CESG). In simple terms, the CESG is an additional amount the Federal government adds to every dollar contributed into the RESP. The basic grant is 20% of the current year contributions up to a maximum of $500 per beneficiary. This translates to a yearly contribution maximum of $2,500. The lifetime CESG is $7,200. An additional grant of 10% or 20% is given to low income families. The table below summarizes the grant amount:

Source: RC4092 guide

Depending on the province you live in, you can get an additional grant on top of the CESG.

Canada Learning Bond (CLB)

On top of the CESG above, the Federal government provides an additional amount for low-income families in the form of the Canada Learning Bond (CLB). The difference with the CESG is that fact that no contribution is requires to get the CLB; it is deposited directly into the RESP account. An initial payment of $500 is made for the first year the child is eligible; then $100 is deposited for each additional year of eligibility, up to age 15, for a maximum of $2,000. For 2019-2020, the income eligibility threshold is $47,630 for up to 3 children and increases for every additional child.

Tax treatment of withdrawals

Now to the question at hand: what is the tax treatment of these withdrawals?

Contributions

Since the contributions do not benefit from a tax deduction (in other words, after-tax dollars were contributed), the contributions can be withdrawn tax free to the subscriber (parent or grandparent of the child or children) or beneficiary (child or children). These are called “refund of contributions”.

Education Assistance Payments (EAP)

Payment of the Canada Education Savings Grant, Canada Learning Bond and accumulated earnings are called Education Assistance Payments (EAP) and are payed to beneficiaries (children). These payments are taxable in the tax return of the beneficiary.

In order to receive an EAP, the recipient must be enrolled in a qualifying educational program, which is an educational program at post-secondary school level, that lasts at least three consecutive weeks, and that requires a student to spend no less than 10 hours per week on courses. The recipient must also be at least 16 years old.

Although the income received by the student is taxable, remember that it is likely that this student has little to no other income to declare while attending school full-time; therefore, these payments will be subject to a low income tax rate.

Accumulated Income Payments (AIPs)

These are payments made from Canada Education Savings Grant, Canada Learning Bond and accumulated earnings to subscribers (parents). These are possible under 3 conditions:

• the payment is made after the year that includes the 9th anniversary of the RESP and each individual (other than a deceased individual) who is or was a beneficiary has reached 21 years of age and is not currently eligible to receive an EAP (see above)
• the payment is made in the year that includes the 35th anniversary of the RESP
• all the beneficiaries under the RESP are deceased when the payment is made

In this case, the income will be taxed in the subscriber’s tax return (income tax rate based on all income), and an additional 20% tax is added as well. Subscribers can reduce both the income tax and the additional 20% by transferring the AIP into an RRSP, provided the subscriber has enough contribution room to do so.  The limit of this transfer is set at $50,000.

Gerry Vittoratos is the national tax specialist at tax software provider UFile, which has been helping millions of Canadian taxpayers file smart for the past 20 years.