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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
coming up on today's show, we are going to get perspectives on some personal finance issues that are facing Canadians. Nicole Ewing and Pierre Letourneau will have a look at how the new capital gains tax changes or proposed changes could impact families and businesses. Mindi Banach will have a look at how an investment loss in a TFSA impacts contribution room. And MoneyTalk sent and equally will take us with the key economic data coming up this week on both sides of the border. That's ahead of June when both central banks have rate decisions. Plus, in today's education segment, Jason Hnatyk will have a look at some of the ways you can customize Advanced Dashboard.
Before you get all of that, let's get you an update on the markets. The Americans I have the memorial holiday weekend. They are not trading today. Volumes are muted.
Some modest green on the screen in Toronto, 50 points, about 1/5 of a percent.
Among notable movers today include some of the mining names. They were getting a bit earlier on the session. I want to check out B2Gold. At $3.89 per share, it's up a little shy 4%. Noticing some energy names getting a bid as well. Baytex is up a little more than 2%.
South of the border, it is memorial day holiday.
Let's see where we have been over the last year. Of course, as we saw rates rising through last fall, remember that, at the 10 year treasury was over 5%.
Coming off those lows of early October and November, it's been off to the races for the S&P 500.
We will see what the week holds when they get back to training tomorrow. And that's your market update.
We are in the last Week of May but we have some important economic data coming in ahead of June when the Federal Reserve and the Bank of Canada deliver rate decisions.
MoneyTalk's Anthony Okolie is here to tell us what to expect.
>> Inflation is going to be key. We do get the US PCE inflation index on Friday for April and TD Securities estimates that the core measurer will be slightly down from what we saw in March. They expect the headline to come in at the same rate as well. Super core inflation, where they exclude housing and zoom in on prices, services, they expect that to cool. We also get a look at the strength of the labour market as well.
We get the weekly jobless claims. The week of May 23, we saw claims for unemployment benefits fell for two straight weeks pointing to some strength in the labour market and that could provide some strength for the US economy there.
Here in Canada, of course, we get first-quarter GDP and TD Security sees it coming in pretty strong rebound of +2.4% quarter over quarter. Again, a sharp rebound from the second half of 2023.
They believe that household consumption will drive growth with a bit of a drag on nonresidential investing and inventory drawdown. Again, some key reports coming up this week.
>> The US equity market in particular has been so sensitive to every data point as they are trying to figure out is the Fed going to cut this fall. Some people are now saying is a 2025 story. It's unclear with the Fed. Next week, we are going to have our central bank, the Bank of Canada, and in terms of market pricing, it's a bit of a coin toss as to whether the BOC is ready to cut rates.
>> Here in Canada, we are seeing inflation, particularly the Bank of Canada's core inflation has been cooling in April and so but however TD Security believes that they are going to use the June meeting to tee up a potential rate cut in July. They think it's a little premature for a June cut but it's going to be a tossup so it will be interesting to watch.
>> Slow start to the week with the Americans on holiday but some important data coming up that's really going to shape how we see June and get through June. Thanks Ricky down.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Elon Musk's $56 billion pay packages back in the headlines. Over the weekend, proxy advisory firm Glass Lewis recommended that Tesla shareholders should reject that 10 year deal, and if it was passed, it would be the largest pay package for a US CEO.
Earlier this year, a Delaware court voided the original deal and, in response, musk said he'd move Tesla state of incorporation from Delaware to Texas.
China is planning another multibillion dollar investment in its semiconductor industry. According to government filings, 1/3 state back microchip investment fund will earmark the equivalent of $47 billion US to bolster domestic Chinese chip production. These moves, amid several US measures over the years to control chip exports to China.
Alibaba has a new pitch man for its e-commerce business. You may have heard of him before, English soccer star David Beckham is going to act as a brand ambassador for Ali Express as the Chinese company looks to build its global business.
Ali Express is also a sponsor of the year 2024 tournament, which starts next month.
Quick check in on the markets. We are trading here on Bay Street. The Americans are off, volumes are muted. We do have some green on the screen, we are up 50 points, a little shy of 1/4 of a percent.
In the states, it's been quite a nice run since the lows of last fall.
We will see as we resume tomorrow with all of these inflation concerns and where the Fed might be headed, what we get on Wall Street.
Let's get to some of our personal finance discussions for the show. The federal government's proposed capital gains tax hike is top of mind for many Canadians right now and if you own a cottage, investment properties, have a family trust set up or invest in nonregistered accounts, you could be impacted. Nicole Ewing, Dir., tax and estate planning, TD Wealth joined MoneyTalk's Kim Parlee to discuss.
>> The current inclusion rate for capital gains is 50%. That means if you sell a capital property, you need to include 50% of the gain and that will be subject to your marginal rate. What is changed is that the inclusion rate is different as of June 25, 2024.
For trusts and corporations, immediately, we are looking at a new two thirds inclusion rate. For individuals, the first $250,000 will continue to be subject to a 50% inclusion rate, but over that amount, you are now going to subjected to a two thirds inclusion rate. We don't have the legislation yet but we assume the same rule will apply on death with a deemed disposition.
>> So let's get into some of the examples.
You put together some really instructive ones for us.
Let's bring up the chart that you have given us, Nicole. This is a cottage example.
>> This is likely where some people might get impacted where they otherwise wouldn't.
You may have a capital property that you are selling this going to bump you into that higher income year. If you're looking at a cottage that has a cost basis of $1 million, sale proceeds of $2 million, under the current rules, you are looking at a 50% inclusion rate and taxable capital gain of $500,000.
Looking at tax payable, 267, $650.
As of June 25, that same sale, you are looking at purchasing the property for a million, sold for 2 million, a capital gain of $1 million, and the taxable capital gain will increase to $625,000, that is a difference of 66, $113 versus if you are selling the same property now or selling that property after June 25, 2024.
>> That is not an insignificant amount of money and I think people, that's why we are hearing about it so much right now. I want to go to the next example.
You are looking at when someone passes away, what happens to non-principal residences or investment properties in the context of these changes.
>> When we think about on death we are deemed to have disposed of all of our assets at fair market value, that means our capital property is deemed to have been sold and if it's not your principal residence, that capital property, if it's a cottage, is going to be included and subject to tax in your year of death and we have to assume, as we don't have legislation, we have to assume that the same new rules will apply. Under 250,000, you are looking at a 50% inclusion rate and over 250,000, you have a new two thirds rate.
People are thinking about what they should do.
If at your death you have the automatic rollover to a surviving spouse or tax-free, people might be electing out of that in the future perhaps on the first hundred and $50,000 to realize those gains in the hands of the deceased individual and then carry forward the excess amount to the surviving spouse. We might be thinking about transferring that same cottage over a number of years, so perhaps transferring 20% over five years, and getting to that hundred percent, see you are only realizing a little bit at a time.
We need to look at that for rental properties as well.
The capital cost allowance that you would have been claiming is going to be included, fully recaptured in your year of death or deemed disposition, but major improvements that have not otherwise been written off as rental expenses will be able to be added to your cost basis, potentially increasing that and reducing your overall gain. So receipts are going to be even more important going forward.
>> I want to get a couple more and hereto because we talked about trusts being impacted and also nonregistered investments. Maybe give us a quick one on each one of those two.
>> Trusts are going to be included. Trusts immediately are going to be impacted by the two thirds rate. So assuming that same example of the cottage, we would be looking at a difference of $89,234 for that game to be realized in that trust post June 25, 2024.
We might be thinking about rolling that property out, having it taxed in multiple beneficiaries hands as opposed to it being taxed in your trust where it subject to the highest marginal rates. You might be thinking about rolling it out to multiple beneficiaries and have them each claim a portion of it.
Some strategies to think about there.
When it comes to the nonregistered investment accounts, it's really important, there might be that temptation to crystallize your gains before June but that needs to be thought of in a broader context. An example here would be if I sold my million dollars in capital gains and I have that extra $267,650 of tax that I'm now going to need to include in my income tax for next year, I'm going to be subject to that tax.
If I did not accelerate that tax and I kept it invested and I allowed it to grow, at 2%, we are looking at a 13 year breakeven point, at 3%, net of taxes and fees, we are looking at nine years. So that deferred advantage continues to apply. If you are realizing gain simply because you are nervous about that higher potential rate, you really need to do the math, look at your own personal circumstances, look at your goals, what are you trying to achieve and whether or not it makes sense to accelerate those gains, that will really be up to each individual in their particular cases.
>> I know we always say this, but we really mean it on this one, this is where you need to talk to an advisor to figure out your own personal situation and what the best path is on this.
>> Absolutely. This is where they can model out some scenarios for you, look at the difference between a 2%, 3%, 5%, depending on what you're talking to receive for you. And looking at whether or not there need to be changes to your overall investment strategy and how you're holding those assets, whether you are holding title in multiple names, there are a lot of potential considerations and strategies that could be implanted but again, really case specific.
>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.
Now, those proposed changes also have a potential impact on businesses. Pierre Létourneau, business succession advisor with TD Wealth join MoneyTalk's Kim Parlee to discuss.
>> So what happened here is that the capital gains inclusion rate increased from 50% to two thirds, and essentially what that means for business owners is they will now be paying more taxes on capital gains they earn inside the corporation starting June 25.
>> Right.
>> With individuals, there is a threshold that needs to be met before the new inclusion rate applies and that's 150,000.
That does not apply to corporations.
All capital gains will be subject to the new inclusion rate.
>> Which is a lot.
>> Yes. We have an example to show you.
This is an Ontario corporation that bought property, capital assets at $1 million and sold it at $2 million, generating a capital gain of $1 million. Under the current rules, only 50% of that capital gain is included as income, slits 500,000, so in corporate tax rates in Ontario on taxable capital gains is just around 50%, so you're looking at taxes of about $250,000.
Under the new rules, two thirds of that capital gain is included as income so when you apply that same tax rate, you are now looking at almost $335,000 of taxes payable, that's a difference of almost $84,000 in this example.
>> Which is big.
>> It is a big number.
Yeah.
It also will have an impact on the capital dividend count which attracts tax-free amounts that or corporation receives and then allows those corporations to pay tax-free capital dividends to shareholders.
With the capital gain, the tax-free component is added to the CDA. With the higher inclusion rate, that means loss of the percentage of the capital gain is tax-free is so that is going to provide less opportunity for business owners.
>> Medical professionals have been quite vocal about this in terms of what it means.
How might these changes affect them?
>> Many medical professionals and other professionals like lawyers and accountants, they operate their practices through professional corporations and one of the reasons they do that is there is a tax benefit to doing that, if the tax deferral benefit. For any income that they don't need personally, they can keep it inside the corporation and pay less tax because they only pay corporate tax and it allows them to build a retirement nest egg. A lot of these professionals don't have employer paid pensions so this is really how they save for retirement.
They invest those funds. Part of the income generated from those investments are capital gains. That will be taxed at a higher rate, that will mean less for them for retirement.
>> Which is big. That's a big one for them.
Do you think it could actually, and we did hear this, deter people about thinking these professional corporations, tech workers, a lot of people use these corporations.
>> I think it can have an impact. The theory behind lower tax rates for capital gains is that it would provide an incentive to entrepreneurs to invest in businesses and take on that risk that you're taking on when you're starting a business.
If that incentive is reduced, you may not want to take on that risk.
So I think you would maybe want to allocate that capital in a different way.
>> I know that in the budget there was discussion that part of it could be to offset… This is the lifetime capital gains exception. What happened there and doesn't provide an offset?
>> What happened there is increased the exemption, it's just over $1 million no so they are increasing it to 1.25 million.
It's nice to see that but it's not something that will offset the inclusion rate because this is only available in specific circumstances and for business owners, that's when they sell shares of a private company but not just any private company. It has to be shares of a qualified small business corporation.
To meet that test, a corporation needs to, can't have too much passive assets, there are a lot of tests that need to be met.
When a business owner sells the business, they are not necessarily going to be able to sell the shares. Sometimes they sell the assets of this exemption may not be available. There is also the Canadian entrepreneurs incentive that was proposed.
Again, nice to see, but very limited in terms of the circumstances that this will be used.
It won't fully offset because it is quite restrictive.
>> So the capital gains tax inclusion rate was brought in and these are very specific and that's kind of the offset.
Business owners who are listening to this right now thinking, okay, I should go do something right now to make sure that we do something before that date, but you are saying just wait.
>> Yes! Don't rush.
But there could be a tax planning opportunity here and I think the government has given you a bit of time to sort of digest this that may be react but yes, I think some business owners are going to look at accelerating capital gains.
They are thinking more taxes now but they can lock in the lower inclusion rate.
There's a lot of pros and cons of doing that. With business owners, you have to be mindful because if you are triggering capital gains, you are increasing your passive investment income which may impact your small business induction if you are generating active business income. A small business deduction is a preferential tax rate available on the first $500,000 of active business income. You might be doing something that's good from a passive investment income standpoint but you may inadvertently be triggering taxes on active business income so you got to wait that out.
>> I'm sure your phone has been ringing.
>> It has. It's been busy.
>> This is a customized situation.
>> Exactly. You need to run the model, look at different scenarios and we don't have all the information also. That's a good point to make because there still legislation to be released and so we think working closely with someone will help identify when that legislation has, and we know exactly how this is going to work.
>> That was Pierre Létourneau, business succession advisor with TD Wealth.
Now, let's get our educational segment of the day.
In today's segment, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. Jason Natyk, Senior client education instructor with TD Direct Investing joins us now. You are going to show us how you can customize the platform to better suit your needs.
Let's start with charts. Take us through.
>> Yeah, let's talk charts. We have talked charts in web broker plenty of times so let's jump into the charts in Advanced Dashboard because it has a more robust capability. One of the nice things is we have partnered with 1/3 party vendor to bring in some exceptional charts that are included in the package.
You can find charts under the aptly named charts tab at the top of the screen. It comes preloaded with a watchlist on the left-hand side and your chart is going to be on the right. I'm going to go full-screen on the chart to make it bigger for the audience. These charts about so much going on. There is over 100 indicators, let's walk through how we can make it our own. We got our symbol of the top left-hand corner. We can go ahead and enter that or trigger it from the watchlist. To the right of the symbol, we've got this here which is the indicator of the frequency of the chart we are looking at. I am looking at a one-day chart. If I want to zoom in on something happening a little bit more short-term I can select a five-minute candle and up on the screen you got that activity.
If you are looking to look at different time periods, that will be housed at the bottom of the screen. You can see we've got a one-day indicator all the way up to five years and you can zoom out further from there.
Let's go back to your today. Comparisons, if you are looking to compare companies to their closest competitors or a major in DC or broad-based ETF, you can click on compare and get that done.
Before we get into the indicators, let's move on to a couple of different notifications we can put on the chart.
Looking in the top left-hand corner, we got these three lines, we call this the hamburger menu. Lots going on in this menu.
We go ahead and select that. What I want to show the audience is show events. This is where we can show earnings, dividends and splits. Let's choose dividends. You will notice at the bottom of the screen the blue D is now indicated. You can go ahead and click on it and get all the particulars you need to make sure you are trading with the information that is up-to-date. One other quick customization visually is on the bottom left, we got this icon. I'm not sure how you describe that but just look for this gear looking thing.
We select that and what I want to highlight is lines and labels.
We can highlight the high and low prices.
There these horizontal lines. If you want to put more indicators right on the price line, under labels, that's our opportunity to go and really make these more visually stimulating with what's going on.
To get some indicators on the chart, you can go ahead and put in whatever studies are near and dear to your heart but just to show and give everyone a lay of the land, I'm using the indicators button at the top the screen. You can scroll through the extensive list of studies that are here or you can type in whatever suits you and find in the list. Maybe I want to add in a couple of different X financial moving averages. I go and click this twice and will notice on the top left-hand corner of my chart, those two EMA's are added.
It's at the default so I might want to change those two different lengths. I will change the length of the average 260 and 200, popular averages that many analysts are using out there in the market. So those are upper studies. Real quick and easy. Let's look at a couple of lower studies to see how that can be accomplished.
It's very similar to what we did with the moving averages there. Maybe we want to add a Mac deed to the chart. We can go ahead and search for that. Added on. Just like we did with our moving average, if we want to change settings on this particular indicator, we can go ahead and choose the gear.
That's just a quick way to customize it.
If you want to learn more about the charts here in advance >> For, click on the learned button at the top of the page, it will bring you to some educational videos and you will get great support there.
>> Now we know how to customize the chart in Advanced Dashboard. Delay on technical indicators, it means that an investor might be doing their homework.
They get to the point where they want to do some action on that research. Can you trade right from the chart?
>> You sure can. The jumping quickly so I can show you how easily that can be accomplished.
It can be done in just a click.
There are two ways to do this in the chart. The main we should do this in the chart, if we go ahead and move our most to where we are looking to buy, we right click, I clicked off that, if we go ahead and click on the chart, we can go ahead and see where the plus button is here to left-hand side. We are able to click on that and create our order. It's going to pop up on the screen. It's quick and easy like that and additionally if you don't want to interact directly with the chart, there are also buy and sell buttons. No need to fumble around and go to specific order tickets or deal with any manual order entry, it's quick and easy right from the chart. You don't need to navigate elsewhere. Your orders will show up on the chart to make sure you are always visually kept informed of what's going on.
>> Great stuff as always. Thanks for that.
>> My pleasure.
>> Jason Natyk, Senior client education instructor with TD Direct Investing. For more educational resources, check out the learning centre and web broker. There is also a QR code that you can navigate to that will take you to TD Direct Investing's YouTube page. Once you are there, you will find more informative videos.
Let's talk about retirement. When you retire, maximizing your savings may become a priority. It Nicole Ewing, director of tax and estate planning a TD Wealth joined MoneyTalk's Kim Parlee with five ideas that can help lower your tax bill at retirement.
>> When we think about spousal RRSPs, we are doing is having the higher income earning spouse essentially income split with the lower income earning spouse and it's giving them a contribution to their RRSP to help grow their retirement savings. This allows the contributing spouse, the higher income spouse, to use that deduction for the contribution against their own income and then, in retirement, this will equalize the income streams a little bit between the higher and lower income earning spouse so that we have income going into the hands of each of them and taxed at their marginal rate.
So rather than having all of that income flowing out to the higher income earning spouse in retirement, we are able to reduce their overall tax bill, put some of that income into the hands of the lower income earning spouse and have it taxed at their lower marginal rate.
Overall, we have lower tax in the family over time.
>> Number two, is planning the order in which you draw from your income sources in retirement, this is the de accumulation people talk about, but it matters order in which it happens. Take us through what is optimal.
>> It does.
What's optimal will depend on what your goals are, what your personal circumstances are. There is no one-size-fits-all for the optimal D accumulation strategy but there are some things you want to think about.
If you want to reduce taxation in retirement, maybe you want to pull out of your TFSA which you can receive tax free.
If you want reduce future tax, it would be a different strategy.
If we are looking at growing our investments is much as we can, even though we are in retirement, we want to see that growth, then maybe we are wanting to think about keeping our investments in their registered form as long as possible, may be accelerating our Canada Pension Plan and OAS, taking them earlier rather than later.
If we are thinking about our estate value and how to maximize that, perhaps we are thinking about drawing down on our registered accounts first which are fully taxable. If you were to pass away having balance in your RRSP or your RIFF, that will be fully included in your income at death and taxed at the higher rate. It depends on what your overall goals are, depending on your cash flow and liabilities, whether or not you are taking from your registered plans first and which ones or whether you are claiming your CPP earlier or later really will depend on your personal circumstances.
>> I love that. Number three.
You say make effective use of your surplus assets. I want to start by saying I hope everyone is blessed by having surplus assets. What are those?
>> They are beyond what you need to fund your lifestyle in retirement.
Put your own mask on first, make sure that you have the investments and cash flow that you need to fund your retirement but to the extent that you do have surplus assets, depending on what your goals are, there might be some things you can do. If we are thinking about, if you have income producing assets, for example, maybe we want to accelerate the inheritance and be giving some of that to the next generation now as opposed to continuing to have those income producing assets included in your income and tax at your high rate. Maybe you are looking at a philanthropic strategy where we are doing an overall plan including your charitable intentions and maximizing options like securities that have gains, being able to make those gifts in kind to a charity and wiping out the capital gain entirely which is very effective. Maybe you are thinking about realizing a private giving foundation which allows you to really have a planned giving strategy to reduce your taxes yearly but also in your state. It we can think about real property transferring if we have cottages or recreational property, perhaps you want to think about advancing those to next-generation or ultimate beneficiaries over a period of time and so we are seeing the change to the capital gains rate, some strategies may be implanted here were we are making that transfer over a number of years to maximize that $250,000 threshold that allows us to use our lower 50% inclusion rate or maybe we are lending money to a trust to purchase these assets from us and then again realizing those gains over time, so there some strategies that can be done.
>> Number four is make use of the TFSA in retirement.
>> Yes, the TFSA is wonderful. It does not have a maximum age omit on its he can continue to be earning income tax free in your account throughout your retirement.
Perhaps if you are receiving RIF proceeds which are required to be paid out, you can put those right back into a tax-sheltered environment and have them go into your TFSA. Perhaps we want to think about funding a spouses TFSA as well so you can give them money. They are able to contribute that to their own TFSA and because this is a tax free environment, those attribution rules that I talk so much about would not be applicable in this situation.
And it's really important that your tax-free savings account and withdrawals from that are not going to impact your old age Security entitlement. I know there's a lot of sensitivity around the OAS clawback.
If you are finding from your TFSA, it will allow you to Maximus the overall value of that.
>> Last point, these are all fantastic, I got about a minute left, take advantage of tax credits and deductions as you think about planning for your next year's tax season.
>> Absolutely. Familiarize yourself with which options are available and if you are going to be doing things like renovations to your home to make them more accessible so you can age in place, familiarize yourself with the home accessibility tax credit, understand what the requirements there are, familiarize yourself again with the medical expense credit which can really apply to many more things than people typically think about, the disability tax credit is another one that many people in retirement should consider whether or not they can qualify for.
This is a very underused credit that could be available to many people to help reduce some of the costs that are associated with aging and physical challenges as well. The Canada caregiver credit, again, available in retirement. Something that might not hit the radar is the use of the first home savings account. Even though we do have a maximum age limit of 71, if you are in retirement earlier than that and you have not been a homeowner in the previous number of years and you qualify for that first home savings account, consider whether or not it makes sense to make some contributions which can be moved over into an RRSP tax-free. So there are some planning strategies that might be available for that as well.
>> That was Nicole Ewing, director of tax and estate planning with TD Wealth.
Now, for an update on the markets.
Let's jump into advance >> And, we are taking a look at the heat map function, gives us a view of the market movers.
It's Memorial Day weekend south of the border. There is no trading on Wall Street but we are trading on Bay Street.
Given the fact that the Americans are on holiday, volumes are not robust. We do have some green on the screen today, particularly among some of the mining stocks. We've got Barrick Gold, ABX, up a little more than a full percent.
More of a mixed picture in the financial space. We are getting more bang earnings out of Canadian institutions this week.
Across the board, energy is mixed, and technology is slightly up. The Americans are not trading so it tends to be muted here on Bay Street.
On a recent ask MoneyTalk segment, we answered a question we've been hearing around losses in your TFSA. Mindi Banach, tax and estate planner, TD Wealth, joins MoneyTalk's Kim Parlee to weigh in.
>> Losses in your TFSA do not affect your TFSA contribution room. What does affected our withdrawals from your TFSA. It won't affect this year's conservation room but it will affect next year's contribution room. What's interesting to note is that you cannot claim those losses on your tax return but on the flipside, if you have again within your TFSA account, you don't have to report that gain on your tax return so losses do not affect contribution room but it will affect your overall investment strategy within your TFSA.
>> That is an understatement. Can we get into an example of what happens if you have a gain or a loss in your TFSA? Walk us through it.
>> If you are Canadian resident and you just turned 18 this year, let's call him Justin. Justin turns 18 this year, in 2024, in his TFSA limit is $7000. Let's say he invests the $7000 in a TFSA, he loses $2000, he then has $5000 left.
If he decides to withdraw the full $5000 from his TFSA account, for 2024, Justin would have zero contribution available to his TFSA. He maxed it out when he originally computed his $7000.
However for next year in 2025, Justin would be able to re-contribute the $5000 that he withdrew in 2024 in addition to being able to contribute the 2025 TFSA annual contribution dollar limit.
Let's change up the example. If instead of having a $2000 loss, he has a $2000 gain.
Now he's going to have a $9000 account balance. He interviewed $7000, he is a gain of $2000, he now has a balance of $9000.
If Justin decides to withdraw this year the full $9000, similar to the scenario when I talked about loss, for 2024, Justin is going to have zero contribution ability because he already contributed the full $7000 but for 2025, Justin is going to be able to re-contribute the full $9000 that he withdrew, and added benefit there, in addition to his 2025 TFSA contribution limit.
>> Confirming once again that gains are better than losses in all sorts of ways.
That's great.
Now you cannot deduct losses with your TFSA on your tax return.
But are there options people can consider so that losses feel less painful?
>> While it may unfortunately seem painful that you cannot deduct losses within your TFSA, I think it's really more important to focus on making smart investment choices. We tend to see that some clients panic and end up selling at the wrong time or cash out when the market dips and it's important to be a little bit patient and seek the right advice because ultimately, making a smart investment choices going to allow you to minimize those losses within your TFSA and grow your savings in the long run.
>> So talk to somebody, right?
>> Yes, absolutely talk to somebody. Talk to a tax professional. They will be the ones that can provide you tailored guidance based on your own unique circumstances.
>> That was Mindi Banach, tax and estate planner at TD Wealth.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Ben Gossack is going to be here, managing director and portfolio manager at TD Asset Management, he will be our guest taking your questions about global stocks. Ben brings the charts usually.
I'll make sure he's got some charts for us.
You can get a head start with your questions. Just email moneytalklive@td.com. That's all the time we have show today. Thanks for watching.
We will see you tomorrow.
[theme music]
coming up on today's show, we are going to get perspectives on some personal finance issues that are facing Canadians. Nicole Ewing and Pierre Letourneau will have a look at how the new capital gains tax changes or proposed changes could impact families and businesses. Mindi Banach will have a look at how an investment loss in a TFSA impacts contribution room. And MoneyTalk sent and equally will take us with the key economic data coming up this week on both sides of the border. That's ahead of June when both central banks have rate decisions. Plus, in today's education segment, Jason Hnatyk will have a look at some of the ways you can customize Advanced Dashboard.
Before you get all of that, let's get you an update on the markets. The Americans I have the memorial holiday weekend. They are not trading today. Volumes are muted.
Some modest green on the screen in Toronto, 50 points, about 1/5 of a percent.
Among notable movers today include some of the mining names. They were getting a bit earlier on the session. I want to check out B2Gold. At $3.89 per share, it's up a little shy 4%. Noticing some energy names getting a bid as well. Baytex is up a little more than 2%.
South of the border, it is memorial day holiday.
Let's see where we have been over the last year. Of course, as we saw rates rising through last fall, remember that, at the 10 year treasury was over 5%.
Coming off those lows of early October and November, it's been off to the races for the S&P 500.
We will see what the week holds when they get back to training tomorrow. And that's your market update.
We are in the last Week of May but we have some important economic data coming in ahead of June when the Federal Reserve and the Bank of Canada deliver rate decisions.
MoneyTalk's Anthony Okolie is here to tell us what to expect.
>> Inflation is going to be key. We do get the US PCE inflation index on Friday for April and TD Securities estimates that the core measurer will be slightly down from what we saw in March. They expect the headline to come in at the same rate as well. Super core inflation, where they exclude housing and zoom in on prices, services, they expect that to cool. We also get a look at the strength of the labour market as well.
We get the weekly jobless claims. The week of May 23, we saw claims for unemployment benefits fell for two straight weeks pointing to some strength in the labour market and that could provide some strength for the US economy there.
Here in Canada, of course, we get first-quarter GDP and TD Security sees it coming in pretty strong rebound of +2.4% quarter over quarter. Again, a sharp rebound from the second half of 2023.
They believe that household consumption will drive growth with a bit of a drag on nonresidential investing and inventory drawdown. Again, some key reports coming up this week.
>> The US equity market in particular has been so sensitive to every data point as they are trying to figure out is the Fed going to cut this fall. Some people are now saying is a 2025 story. It's unclear with the Fed. Next week, we are going to have our central bank, the Bank of Canada, and in terms of market pricing, it's a bit of a coin toss as to whether the BOC is ready to cut rates.
>> Here in Canada, we are seeing inflation, particularly the Bank of Canada's core inflation has been cooling in April and so but however TD Security believes that they are going to use the June meeting to tee up a potential rate cut in July. They think it's a little premature for a June cut but it's going to be a tossup so it will be interesting to watch.
>> Slow start to the week with the Americans on holiday but some important data coming up that's really going to shape how we see June and get through June. Thanks Ricky down.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Elon Musk's $56 billion pay packages back in the headlines. Over the weekend, proxy advisory firm Glass Lewis recommended that Tesla shareholders should reject that 10 year deal, and if it was passed, it would be the largest pay package for a US CEO.
Earlier this year, a Delaware court voided the original deal and, in response, musk said he'd move Tesla state of incorporation from Delaware to Texas.
China is planning another multibillion dollar investment in its semiconductor industry. According to government filings, 1/3 state back microchip investment fund will earmark the equivalent of $47 billion US to bolster domestic Chinese chip production. These moves, amid several US measures over the years to control chip exports to China.
Alibaba has a new pitch man for its e-commerce business. You may have heard of him before, English soccer star David Beckham is going to act as a brand ambassador for Ali Express as the Chinese company looks to build its global business.
Ali Express is also a sponsor of the year 2024 tournament, which starts next month.
Quick check in on the markets. We are trading here on Bay Street. The Americans are off, volumes are muted. We do have some green on the screen, we are up 50 points, a little shy of 1/4 of a percent.
In the states, it's been quite a nice run since the lows of last fall.
We will see as we resume tomorrow with all of these inflation concerns and where the Fed might be headed, what we get on Wall Street.
Let's get to some of our personal finance discussions for the show. The federal government's proposed capital gains tax hike is top of mind for many Canadians right now and if you own a cottage, investment properties, have a family trust set up or invest in nonregistered accounts, you could be impacted. Nicole Ewing, Dir., tax and estate planning, TD Wealth joined MoneyTalk's Kim Parlee to discuss.
>> The current inclusion rate for capital gains is 50%. That means if you sell a capital property, you need to include 50% of the gain and that will be subject to your marginal rate. What is changed is that the inclusion rate is different as of June 25, 2024.
For trusts and corporations, immediately, we are looking at a new two thirds inclusion rate. For individuals, the first $250,000 will continue to be subject to a 50% inclusion rate, but over that amount, you are now going to subjected to a two thirds inclusion rate. We don't have the legislation yet but we assume the same rule will apply on death with a deemed disposition.
>> So let's get into some of the examples.
You put together some really instructive ones for us.
Let's bring up the chart that you have given us, Nicole. This is a cottage example.
>> This is likely where some people might get impacted where they otherwise wouldn't.
You may have a capital property that you are selling this going to bump you into that higher income year. If you're looking at a cottage that has a cost basis of $1 million, sale proceeds of $2 million, under the current rules, you are looking at a 50% inclusion rate and taxable capital gain of $500,000.
Looking at tax payable, 267, $650.
As of June 25, that same sale, you are looking at purchasing the property for a million, sold for 2 million, a capital gain of $1 million, and the taxable capital gain will increase to $625,000, that is a difference of 66, $113 versus if you are selling the same property now or selling that property after June 25, 2024.
>> That is not an insignificant amount of money and I think people, that's why we are hearing about it so much right now. I want to go to the next example.
You are looking at when someone passes away, what happens to non-principal residences or investment properties in the context of these changes.
>> When we think about on death we are deemed to have disposed of all of our assets at fair market value, that means our capital property is deemed to have been sold and if it's not your principal residence, that capital property, if it's a cottage, is going to be included and subject to tax in your year of death and we have to assume, as we don't have legislation, we have to assume that the same new rules will apply. Under 250,000, you are looking at a 50% inclusion rate and over 250,000, you have a new two thirds rate.
People are thinking about what they should do.
If at your death you have the automatic rollover to a surviving spouse or tax-free, people might be electing out of that in the future perhaps on the first hundred and $50,000 to realize those gains in the hands of the deceased individual and then carry forward the excess amount to the surviving spouse. We might be thinking about transferring that same cottage over a number of years, so perhaps transferring 20% over five years, and getting to that hundred percent, see you are only realizing a little bit at a time.
We need to look at that for rental properties as well.
The capital cost allowance that you would have been claiming is going to be included, fully recaptured in your year of death or deemed disposition, but major improvements that have not otherwise been written off as rental expenses will be able to be added to your cost basis, potentially increasing that and reducing your overall gain. So receipts are going to be even more important going forward.
>> I want to get a couple more and hereto because we talked about trusts being impacted and also nonregistered investments. Maybe give us a quick one on each one of those two.
>> Trusts are going to be included. Trusts immediately are going to be impacted by the two thirds rate. So assuming that same example of the cottage, we would be looking at a difference of $89,234 for that game to be realized in that trust post June 25, 2024.
We might be thinking about rolling that property out, having it taxed in multiple beneficiaries hands as opposed to it being taxed in your trust where it subject to the highest marginal rates. You might be thinking about rolling it out to multiple beneficiaries and have them each claim a portion of it.
Some strategies to think about there.
When it comes to the nonregistered investment accounts, it's really important, there might be that temptation to crystallize your gains before June but that needs to be thought of in a broader context. An example here would be if I sold my million dollars in capital gains and I have that extra $267,650 of tax that I'm now going to need to include in my income tax for next year, I'm going to be subject to that tax.
If I did not accelerate that tax and I kept it invested and I allowed it to grow, at 2%, we are looking at a 13 year breakeven point, at 3%, net of taxes and fees, we are looking at nine years. So that deferred advantage continues to apply. If you are realizing gain simply because you are nervous about that higher potential rate, you really need to do the math, look at your own personal circumstances, look at your goals, what are you trying to achieve and whether or not it makes sense to accelerate those gains, that will really be up to each individual in their particular cases.
>> I know we always say this, but we really mean it on this one, this is where you need to talk to an advisor to figure out your own personal situation and what the best path is on this.
>> Absolutely. This is where they can model out some scenarios for you, look at the difference between a 2%, 3%, 5%, depending on what you're talking to receive for you. And looking at whether or not there need to be changes to your overall investment strategy and how you're holding those assets, whether you are holding title in multiple names, there are a lot of potential considerations and strategies that could be implanted but again, really case specific.
>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.
Now, those proposed changes also have a potential impact on businesses. Pierre Létourneau, business succession advisor with TD Wealth join MoneyTalk's Kim Parlee to discuss.
>> So what happened here is that the capital gains inclusion rate increased from 50% to two thirds, and essentially what that means for business owners is they will now be paying more taxes on capital gains they earn inside the corporation starting June 25.
>> Right.
>> With individuals, there is a threshold that needs to be met before the new inclusion rate applies and that's 150,000.
That does not apply to corporations.
All capital gains will be subject to the new inclusion rate.
>> Which is a lot.
>> Yes. We have an example to show you.
This is an Ontario corporation that bought property, capital assets at $1 million and sold it at $2 million, generating a capital gain of $1 million. Under the current rules, only 50% of that capital gain is included as income, slits 500,000, so in corporate tax rates in Ontario on taxable capital gains is just around 50%, so you're looking at taxes of about $250,000.
Under the new rules, two thirds of that capital gain is included as income so when you apply that same tax rate, you are now looking at almost $335,000 of taxes payable, that's a difference of almost $84,000 in this example.
>> Which is big.
>> It is a big number.
Yeah.
It also will have an impact on the capital dividend count which attracts tax-free amounts that or corporation receives and then allows those corporations to pay tax-free capital dividends to shareholders.
With the capital gain, the tax-free component is added to the CDA. With the higher inclusion rate, that means loss of the percentage of the capital gain is tax-free is so that is going to provide less opportunity for business owners.
>> Medical professionals have been quite vocal about this in terms of what it means.
How might these changes affect them?
>> Many medical professionals and other professionals like lawyers and accountants, they operate their practices through professional corporations and one of the reasons they do that is there is a tax benefit to doing that, if the tax deferral benefit. For any income that they don't need personally, they can keep it inside the corporation and pay less tax because they only pay corporate tax and it allows them to build a retirement nest egg. A lot of these professionals don't have employer paid pensions so this is really how they save for retirement.
They invest those funds. Part of the income generated from those investments are capital gains. That will be taxed at a higher rate, that will mean less for them for retirement.
>> Which is big. That's a big one for them.
Do you think it could actually, and we did hear this, deter people about thinking these professional corporations, tech workers, a lot of people use these corporations.
>> I think it can have an impact. The theory behind lower tax rates for capital gains is that it would provide an incentive to entrepreneurs to invest in businesses and take on that risk that you're taking on when you're starting a business.
If that incentive is reduced, you may not want to take on that risk.
So I think you would maybe want to allocate that capital in a different way.
>> I know that in the budget there was discussion that part of it could be to offset… This is the lifetime capital gains exception. What happened there and doesn't provide an offset?
>> What happened there is increased the exemption, it's just over $1 million no so they are increasing it to 1.25 million.
It's nice to see that but it's not something that will offset the inclusion rate because this is only available in specific circumstances and for business owners, that's when they sell shares of a private company but not just any private company. It has to be shares of a qualified small business corporation.
To meet that test, a corporation needs to, can't have too much passive assets, there are a lot of tests that need to be met.
When a business owner sells the business, they are not necessarily going to be able to sell the shares. Sometimes they sell the assets of this exemption may not be available. There is also the Canadian entrepreneurs incentive that was proposed.
Again, nice to see, but very limited in terms of the circumstances that this will be used.
It won't fully offset because it is quite restrictive.
>> So the capital gains tax inclusion rate was brought in and these are very specific and that's kind of the offset.
Business owners who are listening to this right now thinking, okay, I should go do something right now to make sure that we do something before that date, but you are saying just wait.
>> Yes! Don't rush.
But there could be a tax planning opportunity here and I think the government has given you a bit of time to sort of digest this that may be react but yes, I think some business owners are going to look at accelerating capital gains.
They are thinking more taxes now but they can lock in the lower inclusion rate.
There's a lot of pros and cons of doing that. With business owners, you have to be mindful because if you are triggering capital gains, you are increasing your passive investment income which may impact your small business induction if you are generating active business income. A small business deduction is a preferential tax rate available on the first $500,000 of active business income. You might be doing something that's good from a passive investment income standpoint but you may inadvertently be triggering taxes on active business income so you got to wait that out.
>> I'm sure your phone has been ringing.
>> It has. It's been busy.
>> This is a customized situation.
>> Exactly. You need to run the model, look at different scenarios and we don't have all the information also. That's a good point to make because there still legislation to be released and so we think working closely with someone will help identify when that legislation has, and we know exactly how this is going to work.
>> That was Pierre Létourneau, business succession advisor with TD Wealth.
Now, let's get our educational segment of the day.
In today's segment, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. Jason Natyk, Senior client education instructor with TD Direct Investing joins us now. You are going to show us how you can customize the platform to better suit your needs.
Let's start with charts. Take us through.
>> Yeah, let's talk charts. We have talked charts in web broker plenty of times so let's jump into the charts in Advanced Dashboard because it has a more robust capability. One of the nice things is we have partnered with 1/3 party vendor to bring in some exceptional charts that are included in the package.
You can find charts under the aptly named charts tab at the top of the screen. It comes preloaded with a watchlist on the left-hand side and your chart is going to be on the right. I'm going to go full-screen on the chart to make it bigger for the audience. These charts about so much going on. There is over 100 indicators, let's walk through how we can make it our own. We got our symbol of the top left-hand corner. We can go ahead and enter that or trigger it from the watchlist. To the right of the symbol, we've got this here which is the indicator of the frequency of the chart we are looking at. I am looking at a one-day chart. If I want to zoom in on something happening a little bit more short-term I can select a five-minute candle and up on the screen you got that activity.
If you are looking to look at different time periods, that will be housed at the bottom of the screen. You can see we've got a one-day indicator all the way up to five years and you can zoom out further from there.
Let's go back to your today. Comparisons, if you are looking to compare companies to their closest competitors or a major in DC or broad-based ETF, you can click on compare and get that done.
Before we get into the indicators, let's move on to a couple of different notifications we can put on the chart.
Looking in the top left-hand corner, we got these three lines, we call this the hamburger menu. Lots going on in this menu.
We go ahead and select that. What I want to show the audience is show events. This is where we can show earnings, dividends and splits. Let's choose dividends. You will notice at the bottom of the screen the blue D is now indicated. You can go ahead and click on it and get all the particulars you need to make sure you are trading with the information that is up-to-date. One other quick customization visually is on the bottom left, we got this icon. I'm not sure how you describe that but just look for this gear looking thing.
We select that and what I want to highlight is lines and labels.
We can highlight the high and low prices.
There these horizontal lines. If you want to put more indicators right on the price line, under labels, that's our opportunity to go and really make these more visually stimulating with what's going on.
To get some indicators on the chart, you can go ahead and put in whatever studies are near and dear to your heart but just to show and give everyone a lay of the land, I'm using the indicators button at the top the screen. You can scroll through the extensive list of studies that are here or you can type in whatever suits you and find in the list. Maybe I want to add in a couple of different X financial moving averages. I go and click this twice and will notice on the top left-hand corner of my chart, those two EMA's are added.
It's at the default so I might want to change those two different lengths. I will change the length of the average 260 and 200, popular averages that many analysts are using out there in the market. So those are upper studies. Real quick and easy. Let's look at a couple of lower studies to see how that can be accomplished.
It's very similar to what we did with the moving averages there. Maybe we want to add a Mac deed to the chart. We can go ahead and search for that. Added on. Just like we did with our moving average, if we want to change settings on this particular indicator, we can go ahead and choose the gear.
That's just a quick way to customize it.
If you want to learn more about the charts here in advance >> For, click on the learned button at the top of the page, it will bring you to some educational videos and you will get great support there.
>> Now we know how to customize the chart in Advanced Dashboard. Delay on technical indicators, it means that an investor might be doing their homework.
They get to the point where they want to do some action on that research. Can you trade right from the chart?
>> You sure can. The jumping quickly so I can show you how easily that can be accomplished.
It can be done in just a click.
There are two ways to do this in the chart. The main we should do this in the chart, if we go ahead and move our most to where we are looking to buy, we right click, I clicked off that, if we go ahead and click on the chart, we can go ahead and see where the plus button is here to left-hand side. We are able to click on that and create our order. It's going to pop up on the screen. It's quick and easy like that and additionally if you don't want to interact directly with the chart, there are also buy and sell buttons. No need to fumble around and go to specific order tickets or deal with any manual order entry, it's quick and easy right from the chart. You don't need to navigate elsewhere. Your orders will show up on the chart to make sure you are always visually kept informed of what's going on.
>> Great stuff as always. Thanks for that.
>> My pleasure.
>> Jason Natyk, Senior client education instructor with TD Direct Investing. For more educational resources, check out the learning centre and web broker. There is also a QR code that you can navigate to that will take you to TD Direct Investing's YouTube page. Once you are there, you will find more informative videos.
Let's talk about retirement. When you retire, maximizing your savings may become a priority. It Nicole Ewing, director of tax and estate planning a TD Wealth joined MoneyTalk's Kim Parlee with five ideas that can help lower your tax bill at retirement.
>> When we think about spousal RRSPs, we are doing is having the higher income earning spouse essentially income split with the lower income earning spouse and it's giving them a contribution to their RRSP to help grow their retirement savings. This allows the contributing spouse, the higher income spouse, to use that deduction for the contribution against their own income and then, in retirement, this will equalize the income streams a little bit between the higher and lower income earning spouse so that we have income going into the hands of each of them and taxed at their marginal rate.
So rather than having all of that income flowing out to the higher income earning spouse in retirement, we are able to reduce their overall tax bill, put some of that income into the hands of the lower income earning spouse and have it taxed at their lower marginal rate.
Overall, we have lower tax in the family over time.
>> Number two, is planning the order in which you draw from your income sources in retirement, this is the de accumulation people talk about, but it matters order in which it happens. Take us through what is optimal.
>> It does.
What's optimal will depend on what your goals are, what your personal circumstances are. There is no one-size-fits-all for the optimal D accumulation strategy but there are some things you want to think about.
If you want to reduce taxation in retirement, maybe you want to pull out of your TFSA which you can receive tax free.
If you want reduce future tax, it would be a different strategy.
If we are looking at growing our investments is much as we can, even though we are in retirement, we want to see that growth, then maybe we are wanting to think about keeping our investments in their registered form as long as possible, may be accelerating our Canada Pension Plan and OAS, taking them earlier rather than later.
If we are thinking about our estate value and how to maximize that, perhaps we are thinking about drawing down on our registered accounts first which are fully taxable. If you were to pass away having balance in your RRSP or your RIFF, that will be fully included in your income at death and taxed at the higher rate. It depends on what your overall goals are, depending on your cash flow and liabilities, whether or not you are taking from your registered plans first and which ones or whether you are claiming your CPP earlier or later really will depend on your personal circumstances.
>> I love that. Number three.
You say make effective use of your surplus assets. I want to start by saying I hope everyone is blessed by having surplus assets. What are those?
>> They are beyond what you need to fund your lifestyle in retirement.
Put your own mask on first, make sure that you have the investments and cash flow that you need to fund your retirement but to the extent that you do have surplus assets, depending on what your goals are, there might be some things you can do. If we are thinking about, if you have income producing assets, for example, maybe we want to accelerate the inheritance and be giving some of that to the next generation now as opposed to continuing to have those income producing assets included in your income and tax at your high rate. Maybe you are looking at a philanthropic strategy where we are doing an overall plan including your charitable intentions and maximizing options like securities that have gains, being able to make those gifts in kind to a charity and wiping out the capital gain entirely which is very effective. Maybe you are thinking about realizing a private giving foundation which allows you to really have a planned giving strategy to reduce your taxes yearly but also in your state. It we can think about real property transferring if we have cottages or recreational property, perhaps you want to think about advancing those to next-generation or ultimate beneficiaries over a period of time and so we are seeing the change to the capital gains rate, some strategies may be implanted here were we are making that transfer over a number of years to maximize that $250,000 threshold that allows us to use our lower 50% inclusion rate or maybe we are lending money to a trust to purchase these assets from us and then again realizing those gains over time, so there some strategies that can be done.
>> Number four is make use of the TFSA in retirement.
>> Yes, the TFSA is wonderful. It does not have a maximum age omit on its he can continue to be earning income tax free in your account throughout your retirement.
Perhaps if you are receiving RIF proceeds which are required to be paid out, you can put those right back into a tax-sheltered environment and have them go into your TFSA. Perhaps we want to think about funding a spouses TFSA as well so you can give them money. They are able to contribute that to their own TFSA and because this is a tax free environment, those attribution rules that I talk so much about would not be applicable in this situation.
And it's really important that your tax-free savings account and withdrawals from that are not going to impact your old age Security entitlement. I know there's a lot of sensitivity around the OAS clawback.
If you are finding from your TFSA, it will allow you to Maximus the overall value of that.
>> Last point, these are all fantastic, I got about a minute left, take advantage of tax credits and deductions as you think about planning for your next year's tax season.
>> Absolutely. Familiarize yourself with which options are available and if you are going to be doing things like renovations to your home to make them more accessible so you can age in place, familiarize yourself with the home accessibility tax credit, understand what the requirements there are, familiarize yourself again with the medical expense credit which can really apply to many more things than people typically think about, the disability tax credit is another one that many people in retirement should consider whether or not they can qualify for.
This is a very underused credit that could be available to many people to help reduce some of the costs that are associated with aging and physical challenges as well. The Canada caregiver credit, again, available in retirement. Something that might not hit the radar is the use of the first home savings account. Even though we do have a maximum age limit of 71, if you are in retirement earlier than that and you have not been a homeowner in the previous number of years and you qualify for that first home savings account, consider whether or not it makes sense to make some contributions which can be moved over into an RRSP tax-free. So there are some planning strategies that might be available for that as well.
>> That was Nicole Ewing, director of tax and estate planning with TD Wealth.
Now, for an update on the markets.
Let's jump into advance >> And, we are taking a look at the heat map function, gives us a view of the market movers.
It's Memorial Day weekend south of the border. There is no trading on Wall Street but we are trading on Bay Street.
Given the fact that the Americans are on holiday, volumes are not robust. We do have some green on the screen today, particularly among some of the mining stocks. We've got Barrick Gold, ABX, up a little more than a full percent.
More of a mixed picture in the financial space. We are getting more bang earnings out of Canadian institutions this week.
Across the board, energy is mixed, and technology is slightly up. The Americans are not trading so it tends to be muted here on Bay Street.
On a recent ask MoneyTalk segment, we answered a question we've been hearing around losses in your TFSA. Mindi Banach, tax and estate planner, TD Wealth, joins MoneyTalk's Kim Parlee to weigh in.
>> Losses in your TFSA do not affect your TFSA contribution room. What does affected our withdrawals from your TFSA. It won't affect this year's conservation room but it will affect next year's contribution room. What's interesting to note is that you cannot claim those losses on your tax return but on the flipside, if you have again within your TFSA account, you don't have to report that gain on your tax return so losses do not affect contribution room but it will affect your overall investment strategy within your TFSA.
>> That is an understatement. Can we get into an example of what happens if you have a gain or a loss in your TFSA? Walk us through it.
>> If you are Canadian resident and you just turned 18 this year, let's call him Justin. Justin turns 18 this year, in 2024, in his TFSA limit is $7000. Let's say he invests the $7000 in a TFSA, he loses $2000, he then has $5000 left.
If he decides to withdraw the full $5000 from his TFSA account, for 2024, Justin would have zero contribution available to his TFSA. He maxed it out when he originally computed his $7000.
However for next year in 2025, Justin would be able to re-contribute the $5000 that he withdrew in 2024 in addition to being able to contribute the 2025 TFSA annual contribution dollar limit.
Let's change up the example. If instead of having a $2000 loss, he has a $2000 gain.
Now he's going to have a $9000 account balance. He interviewed $7000, he is a gain of $2000, he now has a balance of $9000.
If Justin decides to withdraw this year the full $9000, similar to the scenario when I talked about loss, for 2024, Justin is going to have zero contribution ability because he already contributed the full $7000 but for 2025, Justin is going to be able to re-contribute the full $9000 that he withdrew, and added benefit there, in addition to his 2025 TFSA contribution limit.
>> Confirming once again that gains are better than losses in all sorts of ways.
That's great.
Now you cannot deduct losses with your TFSA on your tax return.
But are there options people can consider so that losses feel less painful?
>> While it may unfortunately seem painful that you cannot deduct losses within your TFSA, I think it's really more important to focus on making smart investment choices. We tend to see that some clients panic and end up selling at the wrong time or cash out when the market dips and it's important to be a little bit patient and seek the right advice because ultimately, making a smart investment choices going to allow you to minimize those losses within your TFSA and grow your savings in the long run.
>> So talk to somebody, right?
>> Yes, absolutely talk to somebody. Talk to a tax professional. They will be the ones that can provide you tailored guidance based on your own unique circumstances.
>> That was Mindi Banach, tax and estate planner at TD Wealth.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Ben Gossack is going to be here, managing director and portfolio manager at TD Asset Management, he will be our guest taking your questions about global stocks. Ben brings the charts usually.
I'll make sure he's got some charts for us.
You can get a head start with your questions. Just email moneytalklive@td.com. That's all the time we have show today. Thanks for watching.
We will see you tomorrow.
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