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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 bring you for perspectives on some of the financial issues facing some of us Canadians. TD Wealth's Nicole Ewing is going to have a look at the issue of making sure you don't outlive your retirement nest egg.
Mindi Banach is going to take us to the tax considerations if you inherit a property or if you work at home remotely for an American company.
Pierre Letourneau will look at the best way for business owners to pay themselves.
Plus, MoneyTalk's Anthony Okolie is going to bring us a new provincial housing outlook from TD Economics.
Before I get to all that, let's get you an update on the markets. We will start her at home with the TSX Composite Index.
Down a fit of a percent or 30 points right now. Among the most actively traded names and notable movers today on the TSX include Manulife.
At $35.35, it is done a little more than 2%. And Capstone Copper, it was to the upside earlier the session, it's up almost 4%. Capstone has said their first saleable copper concentrate produced at its mine in Chile. It seems to be a positive development for Capstone. South of the border, the S&P 500 is up modestly, not a lot of activity here, you are up three points or just six takes. Friday, two days from now, we will get the PCE, the Fed's preferred gauge of inflation.
Investors are looking towards that, trying to find catalysts in the near term, not a lot of action there. Tech heavy NASDAQ, let's see how it's bearing against the broader market. Pretty much in line, about 14 points, about 1/10 of a percent.
Rivian automotive, we will tell you more about them later on the show, popping 26% today, multibillion dollar investment from VW. And that's a market update.
More Canadians than ever are living well into their 80s and their 90s and you may be concerned about whether your retirement nest egg is built to last that long.
Nicole Ewing, Dir. of tax and estate planning, at TD Wealth, joined Kim Parlee to discuss the importance of having a decumulation strategy so you can spend your savings in retirement with confidence.
>> You have market volatility, inflation, taxes, overspending, healthcare costs, perhaps we are funding our children's care or even their children, maybe our parents are living longer as well and we are funding them.
We could be having financial abuse, be vulnerable to that, so there are a lot of different potential ways that we have calls on our money in retirement both positive and potentially negative.
>> We have talked about decumulation and I want us to remind people what this means and also strategic decumulation, being thoughtful about how we get into those savings.
>> The mindful management into and spending of our retirement assets allows us to fund our retirement using money that we have saved, and we do this strategically. We want to ensure we are maximizing those resources to have them go as far as possible so that might include some income splitting ideas, we are looking at are CPP or old age security, we are withdrawing thoughtfully, and we are weighing out the difference can make to our bottom line, so doing it mindfully with a purpose to what you are spending for and ensuring that lasts as long as possible so that you can fund your retirement as long as possible.
>> What kind of things do need to think about when they are factoring in or what things do you need to factor into that decumulation strategy when you are doing it?
>> Of course, what your goals are and what you are funding.
Your assets, your income perhaps, your health care needs, both current and future, the longevity, how long you expect to live based on your family history, we might have some foreign tax obligations, we might have goals for our estate plans, so a lot of different factors to weigh and potentially some trade-offs to make as well.
>> Alright, let's get into the numbers.
We got a bit of time, we can dig into them.
So in this scenario, let's say someone is retiring at 65, they have $250,000 in retirement savings, $200,000 of this money is in a nonregistered account and $50,000 is in a TFSA. So take us through what this looks like if they had to say for 10 years or 20 years, 30 years or even 35 years.
>> And I will caveat this by saying that the assumptions we make here are really important. It really drives the math behind this.
So say that we have 200 and thousand and in a nonregistered account, that means that the income in that account is subject to tax and when you draw it out, it is subject to tax. We have $50,000 in a TFSA that is not going to be subject to tax and that we can draw out tax free and the order in which we do that is going to be important as well.
Assuming a rate of inflation of 2% and 5% return on those investments, we can look at, let's say an average tax rate of 25%, over 10 years, you would be able to spend $28,335 a year indexed annually before you run out of money. 20 years, that's going to be reduced to 15,000 545, 30 years, your down to 11,338 per year and at 35 years, with that same $250,000 nest egg, it's only going to allow you to use just over $10,000 a year. That does not include any pensions you might have or your CPP or your OAS entitlement but it does show you that your longevity, how long you are spending in retirement is a major, major factor in how much you can be spending in each of those years.
>> We talked about this before, what you spend in your early years retirement will likely be different from your later years.
When you're thinking about what you need verses may be what you have, what are some ways to help you close that funding gaps even get what you need?
>> Boosting any savings that you can, so before you are into retirement, making sure that you are saving is much as possible and prioritizing that saving, and then investing that in the most tax effective way possible because, as we just discussed, with that example, if you were to be have that same 250,000 completely in an RRSP or an our IFF or if it was in a TFSA, your tax situation is going to be much preferred than if it's in a nonregistered account so that tax efficiency of your savings is important and planning for the unexpected as well: the death of a spouse or not really counting on the inheritance that you might be receiving from your parents, making sure that you are factoring that in, perhaps you might be retiring later, perhaps you were looking at whether a house could provide for you, if you're lucky enough to have one, are you leveraging it? Selling it to downsize?
Perhaps renting out a portion of that or liquidating it to fund the retirement?
Lots of different things we can be thinking about including potentially working part-time in retirement and receiving additional income beyond what we would have already been saving for during our saving years.
>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.
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.
Shares of Alimentation Couche-Tard are in the spotlight today. The Circle K's convenience store chain owner is reporting a more than 30% drop in net earnings compared to the same period last year. It they say low income consumers are feeling the challenges of the high cost of living and that's weighing on its merchandise sale, and it's down a little shy of 3%.
I want to check in on FedEx. A multibillion-dollar cost-cutting plan appears to be bearing fruit. The global shipping giant beat expectations on the top and bottom lines for the most recent quarter. Tighter cost controls resulted in a 60% drop in capital spending compared to the same time last year.
FedEx on that news up almost 15%. Shares of electric vehicle maker really and also getting a boost today, fairly substantial, they are up to the tune of about 24%. This is on use of Volkswagen investing up to $5 billion in the company as part of a joint venture to share software and EV production platforms.
A quick check in on the markets. The TSX Composite Index, we will start your own Bay Street. Right now, you've got some modest negative… 32 points, a little more than a cent of a percent, nothing too dramatic. South of the border, the S&P 500 just sort of treading water on the breakeven line, of a whopping 2 1/4 point or just for ticks on that broader rate of the American market.
If you're a business owner or an incorporated professional, such as a doctor or dentist, is better to pay yourself a salary, in dividends or combination of both? Pierre Létourneau, business succession advisor, TD Wealth, joined Kim Parlee to dig into this and the tax considerations to keep in mind.
>> There are three potential strategies to consider. One is to take a salary from the Corporation, so receive dividend from the Corporation or do a mix of both, a hybrid strategy is the third option.
What we are going to be talking about today really applies to business owners that are carrying on and operating a business including professionals like doctors, dentists and lawyers.
And I think the first step really, before determining what strategy to use, is to figure out what you need to maintain your lifestyle needs and then from that determine what the best strategy is and probably just take what you need. There is a benefit to keeping those funds inside the Corporation.
>> Because it's not tax.
>> It's taxed at the corporate level but not personally so that offers you a tax deferral opportunity. The more you keep in the Corporation, the better for retirement.
>> Got it. Okay. Let's get into the options. I want to dig into each one. The first one is a salary.
Let's talk about what are the advantages, what might you get and what might you be sacrificing?
>> If you receive a salary, it's a corporation compensating you for the services provided to the Corporation.
There is a bit of paperwork, there certain steps that the Corporation is to take to be able to do that.
So first and foremost, the Corporation needs to register a payroll account with the CRA, they need to make source withholdings, so withholding deductions.
>> Like CPP?
>> Yes, CPP and income taxes they might need to pay on that salary.
Now, it's a deduction for the Corporation because that's an expense to the Corporation. It also has to file a T4 slip every year which he used to file your tax returns.
The main advantage for receiving a salary is that it creates RRSP contribution room which provides a tax deferral for the individual, a retirement vehicle, and it can provide for income splitting in the future with a spouse or common-law partner. You mention CPP. It's kind of a forced savings vehicle as well because you are required to participate in the Canada Pension Plan so that gives you a defined benefit pension plan when you are retired.
It also gives you access to certain credits and certain deductions… >> Steady income.
>> Yeah, but tax credits, tax benefits.
Tax credit experience, a deduction, like the childcare expense deduction, you need to be receiving a salary to be able to claim that. And then it also helps manage taxes as well because of those withholdings. You are paying taxes every time you receive a paycheck so you are not left with a surprise when you file your taxes.
>> Surprises and taxes don't go well together usually.
>> No.
>> I was thinking about when I said credit getting a mortgage. If you have more of a stable income, it's easier for banks to give you credit.
>> Generally, that's the case. It's easier to show the you've got sustain income so you are likely to receive the credit for a mortgage.
>> What about dividends?
>> So dividends are much simpler in a way, easier to administer. Essentially, what a dividend is is a corporation distributing it after tax income to its shareholders.
You have to be a shareholder to receive the income.
You need a corporate resolution that declares a dividend and then the corporation needs to file a T5 slip which is, again, just the tax reporting slip so that the shareholder can then report that income on their tax return. I think the major benefit of the dividend is that it's very simple, simple to just pay, declared dividend and paid out. Because there is no CPP withholding, you need less funds to get a certain after-tax amount that you require as a shareholder.
And also it's a lot more flexible. You don't have to withhold for taxes so that's good in the sense that you don't have to pay taxes right away but then that could lead to a surprise when tax time does come around or you may have a large tax bill and also you may have to pay instalments in the following taxation year.
>> I'm going to combine two things in one, what's more important, tax effective, and what avoids unintended tax consequences?
>> So there is that surprise potentially but in terms of tax effectiveness, it really depends. There is no clear-cut answer for this.
There are a lot of factors that could impact the tax consequences, the amount that you need, the province you live in, the type of income generated inside the corporation, so you have to balance all of that to determine which one is the best.
But generally it's very similar. We have the principle in our tax system which is the Prince bill of integration of what that principle states essentially is that the vehicle, the legal vehicle that you used to earn income should be tax neutral, so whether it's a corporation or you are receiving a salary, so dividends from the corporation or salary, it should be taxed similarly. That does not work perfectly, it really depends on your circumstances.
In terms of unintended consequences, the biggest pitfall I see is when people try to compensate family members through dividends or salaries. If you're paying a dividend to a family member that's also a shareholder, you have to be mindful on the tax income splitting rules. If those rules apply, you're paying the highest marginal tax rate on the dividend regardless of the marginal tax rate of the individual. If you are paying a salary that is not fair market value, that is reasonable for the services the family member provides, the corporation may not be able to deduct that salary, so that really offsets the benefits of income splitting.
>> So talk to somebody about your situation?
>> Absolutely. It's complex, it depends on your circumstances and an advisor can help with that.
>> That was Pierre Létourneau, business succession advisor at TD Wealth.
Now, let's get to our educational segment of the day.
If your investment holdings are generating an income, where broker can help you track where it may be headed. Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
>> I want to take everybody through how to track income on web broker. This has become an important topic more so lately because a lot of people are using GICs or bonds or even looking at dividend paying stocks, especially with interest rates being higher, GICs might be more attractive. As it will and web broker that many may not have seen before.
Unless you stumble upon it, you may have come across it. But if you haven't, it's a really useful tool for tracking things like your dividends and income.
We will jump into web broker and the place you would actually find this is you go under the accounts tab and you were going to see on the very left-hand side, you got balances, holdings, all these account details. You're going to look for projected income.
So there's nothing really in this to show you.
If I was in my own personal account, you can see all of my own stocks, dividends, GICs and is going to show you down below, it's going to show you the income you are receiving.
You can do this as well. If you go into this projected income, you're going to see your own stuff. If you're not sure what it would look like, you can click on this?
And that's going to pull up everything about this tool. You can see on the right hand side, it showing us overall it looks like. These greenline show you everything in your account, if you had bank stocks and some other, a pipeline stocks or something that pays a high dividend, GICs as well, it's going to show you the breakdown of every single month of how much income you're going to receive from all those different investments over a trailing 12 month period.
Sorry, a forward-looking 12 month period.
This would be the bar graph that shows let's say for example you're gonna get an average of around 200 and some dollars in income from all of your positions, it's gonna show you you can set a target, you can set a monthly target which is at the top here to say this is what I want to get to, I want to get to $1000 a month in terms of income from all my investments and then you can strategize around that and say, I've got GICs, I'm gonna look at the stocks and see how it works out in terms of the total. You scroll down, you can look at it by individual account or all of your accounts together and then as I go even further, this is what it looks like at the bottom generally.
These are a couple of examples stocks. It will show you the quantity that you hold and then it will show you a total and then it will also show an individual amount that's going to get paid on separate time frames. It could be quarterly for some socks, monthly for others. For GICs, it could be an annual basis. Otherwise, it's gonna level off and show you the monthly average that you're gonna get in income.
So take a look at that, check out the projected income tool and that's what you would look at and web broker to find information on an ongoing basis.
>> Our thanks to Bryan Rogers, Senior client education instructor with TD Direct Investing. And a reminder that June is Options Education Month at TD Direct Investing.
[music] And for more information, this QR code will navigate you to the Options Education Month webpage.
If you have inherited property, you may wonder what comes next.
Mindi Banach, tax and estate planner with TD Wealth join MoneyTalk's Kim Parlee to dig into the tax imprecations to keep in mind if you choose to move into the property, sell it or rent it out.
>> You've got to look out for all of the documents that you are going to need to gather all of the information that you need, the property deed, the will, any existing mortgage documents, the property taxes. Now, it can be challenging to find these documents. One suggestion is first look in the home that you just inherited.
Is there an office where the person stored there important documents or another place where you know the deceased stored there important documents? If that doesn't work, does the deceased have a safety deposit box in which they stored their important documents and? You might want to reach out to the deceased's lawyer or accountant for copies of these documents and lastly you want to look at the local courthouse were land registry office. After you understand at the document stage what your financial information is, the next step you've got to determine is what you going to do with this property now that you've inherited it?
Are you going to keep the property, are you going to sell the property, are you going to rent out the property?
It's really going to depend on each client's own unique factors and circumstances but those that are going to influence our your financial circumstances, your long-term investment goals and whether or not you have an emotional attachment to the property.
Ultimately, you want to gather enough information so that you can weigh all your options and make the right decision for you.
>> Let's go through some of the options available to people.
So you decide to keep the home and move into it and live in it, what of the tax implications?
>> I want to clarify a common misconception. That's when a beneficiary inherits assets, there's not going to be an immediate tax and location for the beneficiary.
You may need to look for the deceased's estate, there may be a tax implications there, specifically with the home, it could be dependent on how it the deceased used at home, whether or not the deceased used at home as their own principal residence. But if a beneficiary inherits a home, I want to highlight that there is no immediate tax and location when they inherit the home but there could be a tax application in the future, so when the beneficiary ends up selling the home or when the beneficiary passes away, if there is an appreciation on that home from the date they inherited the property, meaning the date that the deceased passed away until the date that the beneficiary sold the property or the beneficiary passed away, the beneficiary may be subject to any taxes on that gain unless the beneficiary can designate that home as their own principal residence eligible for the principal residence exemption.
>> Got it. Let's talk about what the beneficiary decides to do. I inherit home, I decide not to live in it, I decide to sell it.
What then?
>> When you inherit the home, no immediate tax and location but there could be a tax application when he sell the home. It's going to be dependent on whether or not the beneficiary, how they used that home between the timeframe of when they inherited the home, the date the deceased passed away, the date they sell the home, the way the beneficiary used at home, if they used it as a printable residence, they can shelter the gain under the Prince will residence exception, if they never used it as their principal residence, they will be subjected to taxes on that game.
>> Another scenario is that if you decide to keep the home, not sell it, not move into it but make it income-producing and rented out.
>> The rents that you receive, you will have to report that on your income tax return. There are certain deductions and expenses that you will be able to deduct but it's going to depend on your own contingent circumstances. You can typically deduct property manage fees, maintenance fees, property taxes, mortgage interest expenses but you really also need to look into the 2023 fall economic statement because the government did propose to deny certain expenses, including interest expenses, for expenses related to earning short-term rental income in provinces and municipalities that have prohibited short-term rentals.
>> Short-term rental, long-term rental, all things you need to be thinking about when you're doing this.
Probably someone is listening to this and frantically writing down everything you are saying but the bottom line is you need to speak to somebody professional, maybe a few professionals, to find out what makes sense for you.
>> Yes. There are a number of different professionals in various different fields that you may want to consider consulting.
A tax professional, a lawyer, an accountant, they can help advise you about legal requirements, tax benefits you may or may not have, a real estate lawyer who can help you transfer that legal title from the deceased party's name into your name, they can help you with the transfer and title changes, they can help you with tenant rental agreements and things of that nature and if you do decide to rent out your property, you may want to be consulting with a professional property management company. They can deal with the day-to-day management of tenants, collecting the rent for you, dealing with maintenance.
>> At a cost.
>> Yes, but still beneficial. You want to consult a number of different professionals so they can give you the tailored advice to help you make the right decision based on your unique circumstances.
>> That was Mindi Banach, tax and estate planner at TD Wealth.
Let's talk about the housing market here in Canada. It's been a quiet spring selling season.
Higher borrowing cost, uncertainty about with the Bank of Canada might do next putting would-be buyers on the sidelines.
If we get rate cuts that we might be getting this year we could see some traction in the second half.
MoneyTalk's Anthony Okolie is going to dig into a report on that.
>> TD Economics sees that the real estate market in Canada is expected to gain in the second half of the year but they have pulled back on their, the scale or pace of those gains since their previous outlook in March and that's because of a couple of things. One, they believe that borrowing costs are likely to come down less than previously thought. TD Economics expects one fewer cut by the Bank of Canada this year.
Secondly, the US Fed is likely to start cutting it later this year versus the summer and that spills over to the Canadian bond market with limited declines in Canadian bond yields for the rest of the year. Nationally, activity in 2024 was down due to pent-up demand waiting to be let loose at more meaningful rate really from the Bank of Canada. In 2025, the growth forecast for home sales and average prices have been lifting.
Let's take a look at the breakdown provincially. We will start here in Ontario and BC where average home prices are expected to benefit from the strongest sales gains in the country going forward.
That's because of pent-up demand is boosting activity from low levels.
Long-term, they believe that affordability challenges here in Ontario and BC will cap the pace of those gains going forward.
Take a look at the prairies, they are seeing strong population growth in the prairies. It also better affordability than we are seeing in Ontario and BC as well as strong economic performance so this factor should help boost activity in the Prairie provinces. Looking at Québec and the Atlantic provinces, again, relatively tight supply demand balances should keep prices on the rise in Québec and the Atlantic provinces, however, interprovincial migration has been slowing in the Atlantic provinces and that is weighing on a key source of ownership demand in the region. So to recap, downgraded activity in the second half of this year because we are not seeing really any meaningful reduction in borrowing costs, however, their outlook for 2025 remains pretty robust.
>> Interesting outlook there. What are the risks to that outlook?
>> One potential risk they see is an upside surprise to the housing price growth of bond yields continue to come down as they expect them to. On the downside, they do see federal government policies could cause a slowing and population growth in the coming quarters and that could weigh on rents and also meaningfully impact investor demand as well. Specifically, they point to a risk in Ontario. They see greater than expected listings in Ontario. That could put pressure on near-term prices, price growth, to a much larger degree than what was built into the model.
>> Interesting stuff. Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function giving us a view of the market movers. What is happening with the TSX 60 today? We are screening through price and volume.
You can see among some of the big telecom names that you got Telus down to the tune of almost 2%. If you look at the energy space, not a lot of green on the screen there, we can say the same of the financials. Manulife is down more than 2%.
A bit of green on the screen there, FM, First Quantum minerals, jumping up 6% today. The street seems to be more constructive on the name. South of the border, let's check in on the S&P 100. The market is looking for direction, waiting for the next catalyst, it could be Friday morning and we get the PCE, the US Federal Reserve's preferred gauge of inflation.
Inflation is such an important topic for us all these days as investors so it's a pretty mixed picture now on the S and P.
You got Amazon and Tesla making some gains, FedEx you were telling you earlier in the show, their cost-cutting program bearing fruit, and that stock jumping about 14%. Nvidia still taking up a lot of real estate on the screen when it comes to volume of trades.
If we dial back to Sessions ago, it dropped 2%.
Yesterday was up 6%. Today, it's down about 1%. We are seeing some moves in Nvidia.
Questions being asked by investors about their positions in the same. It's an interesting one.
Let's talk about if you're Canadian working for a US company and you're making a US salary. You may wonder what your tax filing obligations are. You have to pay taxes in both jurisdictions?
Mindi Banach, tax and estate planner at TD Wealth join MoneyTalk Kim Parlee with more.
>> It's tricky to navigate and there are always unique circumstances that arise that can alter standard guidance. I think it can be universally acknowledged that nobody wants to be in a position where they have to pay taxes twice on the same income.
There is a US Canada tax treaty that provides a framework to prevent double taxation and lets you know who contacts her income.
>> What is an individual need to file to make sure that happened?
>> As a Canadian, relative where you earn your income, in Canada or the US, regardless of how you are earning it, whether it's remotely or in person, as a Canadian resident, you are required to report your worldwide income, which includes any US income, on your Canadian T1 tax return. The next question then becomes what are, if any, your US income tax filing requirements, and that will be determined based on your US citizenship status. As a US citizen, all US citizens are required to file a US income tax return, the form is 1040, so if you are a US citizen residing here in Canada working remotely for a US company, you're going to have a filing obligation in both countries, both the United States and in Canada, but if you are not a US citizen, you might only need to file a Canadian income tax return but that doesn't mean that you're not going to have to file any US types or forms, there is a form, W8 PEN that you might need to file, you don't file it to the IRS but you give it to your US employer. The employee fills it out, gives it to the employer, it says I'm not a US person, I'm a Canadian, you should not withhold any taxes for my income.
There are the circumstances were a non-US citizen will still be required to file a US income tax return and if you fall under those circumstances, the form is form 1040. It's important to get the right guidance to figure out which forms you are going to be required to file.
>> Really important to get the right guidance because again, this is not something you want to get wrong.
>> No, it's not, and I have to tell you, too frequently at clients coming to me and saying my circumstances are super simple.
As soon as you add in any type of cost element, that adds complexity and it's really important that you consult with a tax professional that has special experience in international taxation, specifically want to contact a tax lawyer or tax accountant with experience in US and Canadian tax law to give you that tailored advice 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. Michael O'Brien, Managing Director and head of the core Canadian equity team at TD Asset Management will be our guest. He wants to take your questions about Canadian equities and even get those questions in ahead of time, just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching, we will see you tomorrow.
[theme music]
coming up on today's show, we are going to bring you for perspectives on some of the financial issues facing some of us Canadians. TD Wealth's Nicole Ewing is going to have a look at the issue of making sure you don't outlive your retirement nest egg.
Mindi Banach is going to take us to the tax considerations if you inherit a property or if you work at home remotely for an American company.
Pierre Letourneau will look at the best way for business owners to pay themselves.
Plus, MoneyTalk's Anthony Okolie is going to bring us a new provincial housing outlook from TD Economics.
Before I get to all that, let's get you an update on the markets. We will start her at home with the TSX Composite Index.
Down a fit of a percent or 30 points right now. Among the most actively traded names and notable movers today on the TSX include Manulife.
At $35.35, it is done a little more than 2%. And Capstone Copper, it was to the upside earlier the session, it's up almost 4%. Capstone has said their first saleable copper concentrate produced at its mine in Chile. It seems to be a positive development for Capstone. South of the border, the S&P 500 is up modestly, not a lot of activity here, you are up three points or just six takes. Friday, two days from now, we will get the PCE, the Fed's preferred gauge of inflation.
Investors are looking towards that, trying to find catalysts in the near term, not a lot of action there. Tech heavy NASDAQ, let's see how it's bearing against the broader market. Pretty much in line, about 14 points, about 1/10 of a percent.
Rivian automotive, we will tell you more about them later on the show, popping 26% today, multibillion dollar investment from VW. And that's a market update.
More Canadians than ever are living well into their 80s and their 90s and you may be concerned about whether your retirement nest egg is built to last that long.
Nicole Ewing, Dir. of tax and estate planning, at TD Wealth, joined Kim Parlee to discuss the importance of having a decumulation strategy so you can spend your savings in retirement with confidence.
>> You have market volatility, inflation, taxes, overspending, healthcare costs, perhaps we are funding our children's care or even their children, maybe our parents are living longer as well and we are funding them.
We could be having financial abuse, be vulnerable to that, so there are a lot of different potential ways that we have calls on our money in retirement both positive and potentially negative.
>> We have talked about decumulation and I want us to remind people what this means and also strategic decumulation, being thoughtful about how we get into those savings.
>> The mindful management into and spending of our retirement assets allows us to fund our retirement using money that we have saved, and we do this strategically. We want to ensure we are maximizing those resources to have them go as far as possible so that might include some income splitting ideas, we are looking at are CPP or old age security, we are withdrawing thoughtfully, and we are weighing out the difference can make to our bottom line, so doing it mindfully with a purpose to what you are spending for and ensuring that lasts as long as possible so that you can fund your retirement as long as possible.
>> What kind of things do need to think about when they are factoring in or what things do you need to factor into that decumulation strategy when you are doing it?
>> Of course, what your goals are and what you are funding.
Your assets, your income perhaps, your health care needs, both current and future, the longevity, how long you expect to live based on your family history, we might have some foreign tax obligations, we might have goals for our estate plans, so a lot of different factors to weigh and potentially some trade-offs to make as well.
>> Alright, let's get into the numbers.
We got a bit of time, we can dig into them.
So in this scenario, let's say someone is retiring at 65, they have $250,000 in retirement savings, $200,000 of this money is in a nonregistered account and $50,000 is in a TFSA. So take us through what this looks like if they had to say for 10 years or 20 years, 30 years or even 35 years.
>> And I will caveat this by saying that the assumptions we make here are really important. It really drives the math behind this.
So say that we have 200 and thousand and in a nonregistered account, that means that the income in that account is subject to tax and when you draw it out, it is subject to tax. We have $50,000 in a TFSA that is not going to be subject to tax and that we can draw out tax free and the order in which we do that is going to be important as well.
Assuming a rate of inflation of 2% and 5% return on those investments, we can look at, let's say an average tax rate of 25%, over 10 years, you would be able to spend $28,335 a year indexed annually before you run out of money. 20 years, that's going to be reduced to 15,000 545, 30 years, your down to 11,338 per year and at 35 years, with that same $250,000 nest egg, it's only going to allow you to use just over $10,000 a year. That does not include any pensions you might have or your CPP or your OAS entitlement but it does show you that your longevity, how long you are spending in retirement is a major, major factor in how much you can be spending in each of those years.
>> We talked about this before, what you spend in your early years retirement will likely be different from your later years.
When you're thinking about what you need verses may be what you have, what are some ways to help you close that funding gaps even get what you need?
>> Boosting any savings that you can, so before you are into retirement, making sure that you are saving is much as possible and prioritizing that saving, and then investing that in the most tax effective way possible because, as we just discussed, with that example, if you were to be have that same 250,000 completely in an RRSP or an our IFF or if it was in a TFSA, your tax situation is going to be much preferred than if it's in a nonregistered account so that tax efficiency of your savings is important and planning for the unexpected as well: the death of a spouse or not really counting on the inheritance that you might be receiving from your parents, making sure that you are factoring that in, perhaps you might be retiring later, perhaps you were looking at whether a house could provide for you, if you're lucky enough to have one, are you leveraging it? Selling it to downsize?
Perhaps renting out a portion of that or liquidating it to fund the retirement?
Lots of different things we can be thinking about including potentially working part-time in retirement and receiving additional income beyond what we would have already been saving for during our saving years.
>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.
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.
Shares of Alimentation Couche-Tard are in the spotlight today. The Circle K's convenience store chain owner is reporting a more than 30% drop in net earnings compared to the same period last year. It they say low income consumers are feeling the challenges of the high cost of living and that's weighing on its merchandise sale, and it's down a little shy of 3%.
I want to check in on FedEx. A multibillion-dollar cost-cutting plan appears to be bearing fruit. The global shipping giant beat expectations on the top and bottom lines for the most recent quarter. Tighter cost controls resulted in a 60% drop in capital spending compared to the same time last year.
FedEx on that news up almost 15%. Shares of electric vehicle maker really and also getting a boost today, fairly substantial, they are up to the tune of about 24%. This is on use of Volkswagen investing up to $5 billion in the company as part of a joint venture to share software and EV production platforms.
A quick check in on the markets. The TSX Composite Index, we will start your own Bay Street. Right now, you've got some modest negative… 32 points, a little more than a cent of a percent, nothing too dramatic. South of the border, the S&P 500 just sort of treading water on the breakeven line, of a whopping 2 1/4 point or just for ticks on that broader rate of the American market.
If you're a business owner or an incorporated professional, such as a doctor or dentist, is better to pay yourself a salary, in dividends or combination of both? Pierre Létourneau, business succession advisor, TD Wealth, joined Kim Parlee to dig into this and the tax considerations to keep in mind.
>> There are three potential strategies to consider. One is to take a salary from the Corporation, so receive dividend from the Corporation or do a mix of both, a hybrid strategy is the third option.
What we are going to be talking about today really applies to business owners that are carrying on and operating a business including professionals like doctors, dentists and lawyers.
And I think the first step really, before determining what strategy to use, is to figure out what you need to maintain your lifestyle needs and then from that determine what the best strategy is and probably just take what you need. There is a benefit to keeping those funds inside the Corporation.
>> Because it's not tax.
>> It's taxed at the corporate level but not personally so that offers you a tax deferral opportunity. The more you keep in the Corporation, the better for retirement.
>> Got it. Okay. Let's get into the options. I want to dig into each one. The first one is a salary.
Let's talk about what are the advantages, what might you get and what might you be sacrificing?
>> If you receive a salary, it's a corporation compensating you for the services provided to the Corporation.
There is a bit of paperwork, there certain steps that the Corporation is to take to be able to do that.
So first and foremost, the Corporation needs to register a payroll account with the CRA, they need to make source withholdings, so withholding deductions.
>> Like CPP?
>> Yes, CPP and income taxes they might need to pay on that salary.
Now, it's a deduction for the Corporation because that's an expense to the Corporation. It also has to file a T4 slip every year which he used to file your tax returns.
The main advantage for receiving a salary is that it creates RRSP contribution room which provides a tax deferral for the individual, a retirement vehicle, and it can provide for income splitting in the future with a spouse or common-law partner. You mention CPP. It's kind of a forced savings vehicle as well because you are required to participate in the Canada Pension Plan so that gives you a defined benefit pension plan when you are retired.
It also gives you access to certain credits and certain deductions… >> Steady income.
>> Yeah, but tax credits, tax benefits.
Tax credit experience, a deduction, like the childcare expense deduction, you need to be receiving a salary to be able to claim that. And then it also helps manage taxes as well because of those withholdings. You are paying taxes every time you receive a paycheck so you are not left with a surprise when you file your taxes.
>> Surprises and taxes don't go well together usually.
>> No.
>> I was thinking about when I said credit getting a mortgage. If you have more of a stable income, it's easier for banks to give you credit.
>> Generally, that's the case. It's easier to show the you've got sustain income so you are likely to receive the credit for a mortgage.
>> What about dividends?
>> So dividends are much simpler in a way, easier to administer. Essentially, what a dividend is is a corporation distributing it after tax income to its shareholders.
You have to be a shareholder to receive the income.
You need a corporate resolution that declares a dividend and then the corporation needs to file a T5 slip which is, again, just the tax reporting slip so that the shareholder can then report that income on their tax return. I think the major benefit of the dividend is that it's very simple, simple to just pay, declared dividend and paid out. Because there is no CPP withholding, you need less funds to get a certain after-tax amount that you require as a shareholder.
And also it's a lot more flexible. You don't have to withhold for taxes so that's good in the sense that you don't have to pay taxes right away but then that could lead to a surprise when tax time does come around or you may have a large tax bill and also you may have to pay instalments in the following taxation year.
>> I'm going to combine two things in one, what's more important, tax effective, and what avoids unintended tax consequences?
>> So there is that surprise potentially but in terms of tax effectiveness, it really depends. There is no clear-cut answer for this.
There are a lot of factors that could impact the tax consequences, the amount that you need, the province you live in, the type of income generated inside the corporation, so you have to balance all of that to determine which one is the best.
But generally it's very similar. We have the principle in our tax system which is the Prince bill of integration of what that principle states essentially is that the vehicle, the legal vehicle that you used to earn income should be tax neutral, so whether it's a corporation or you are receiving a salary, so dividends from the corporation or salary, it should be taxed similarly. That does not work perfectly, it really depends on your circumstances.
In terms of unintended consequences, the biggest pitfall I see is when people try to compensate family members through dividends or salaries. If you're paying a dividend to a family member that's also a shareholder, you have to be mindful on the tax income splitting rules. If those rules apply, you're paying the highest marginal tax rate on the dividend regardless of the marginal tax rate of the individual. If you are paying a salary that is not fair market value, that is reasonable for the services the family member provides, the corporation may not be able to deduct that salary, so that really offsets the benefits of income splitting.
>> So talk to somebody about your situation?
>> Absolutely. It's complex, it depends on your circumstances and an advisor can help with that.
>> That was Pierre Létourneau, business succession advisor at TD Wealth.
Now, let's get to our educational segment of the day.
If your investment holdings are generating an income, where broker can help you track where it may be headed. Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
>> I want to take everybody through how to track income on web broker. This has become an important topic more so lately because a lot of people are using GICs or bonds or even looking at dividend paying stocks, especially with interest rates being higher, GICs might be more attractive. As it will and web broker that many may not have seen before.
Unless you stumble upon it, you may have come across it. But if you haven't, it's a really useful tool for tracking things like your dividends and income.
We will jump into web broker and the place you would actually find this is you go under the accounts tab and you were going to see on the very left-hand side, you got balances, holdings, all these account details. You're going to look for projected income.
So there's nothing really in this to show you.
If I was in my own personal account, you can see all of my own stocks, dividends, GICs and is going to show you down below, it's going to show you the income you are receiving.
You can do this as well. If you go into this projected income, you're going to see your own stuff. If you're not sure what it would look like, you can click on this?
And that's going to pull up everything about this tool. You can see on the right hand side, it showing us overall it looks like. These greenline show you everything in your account, if you had bank stocks and some other, a pipeline stocks or something that pays a high dividend, GICs as well, it's going to show you the breakdown of every single month of how much income you're going to receive from all those different investments over a trailing 12 month period.
Sorry, a forward-looking 12 month period.
This would be the bar graph that shows let's say for example you're gonna get an average of around 200 and some dollars in income from all of your positions, it's gonna show you you can set a target, you can set a monthly target which is at the top here to say this is what I want to get to, I want to get to $1000 a month in terms of income from all my investments and then you can strategize around that and say, I've got GICs, I'm gonna look at the stocks and see how it works out in terms of the total. You scroll down, you can look at it by individual account or all of your accounts together and then as I go even further, this is what it looks like at the bottom generally.
These are a couple of examples stocks. It will show you the quantity that you hold and then it will show you a total and then it will also show an individual amount that's going to get paid on separate time frames. It could be quarterly for some socks, monthly for others. For GICs, it could be an annual basis. Otherwise, it's gonna level off and show you the monthly average that you're gonna get in income.
So take a look at that, check out the projected income tool and that's what you would look at and web broker to find information on an ongoing basis.
>> Our thanks to Bryan Rogers, Senior client education instructor with TD Direct Investing. And a reminder that June is Options Education Month at TD Direct Investing.
[music] And for more information, this QR code will navigate you to the Options Education Month webpage.
If you have inherited property, you may wonder what comes next.
Mindi Banach, tax and estate planner with TD Wealth join MoneyTalk's Kim Parlee to dig into the tax imprecations to keep in mind if you choose to move into the property, sell it or rent it out.
>> You've got to look out for all of the documents that you are going to need to gather all of the information that you need, the property deed, the will, any existing mortgage documents, the property taxes. Now, it can be challenging to find these documents. One suggestion is first look in the home that you just inherited.
Is there an office where the person stored there important documents or another place where you know the deceased stored there important documents? If that doesn't work, does the deceased have a safety deposit box in which they stored their important documents and? You might want to reach out to the deceased's lawyer or accountant for copies of these documents and lastly you want to look at the local courthouse were land registry office. After you understand at the document stage what your financial information is, the next step you've got to determine is what you going to do with this property now that you've inherited it?
Are you going to keep the property, are you going to sell the property, are you going to rent out the property?
It's really going to depend on each client's own unique factors and circumstances but those that are going to influence our your financial circumstances, your long-term investment goals and whether or not you have an emotional attachment to the property.
Ultimately, you want to gather enough information so that you can weigh all your options and make the right decision for you.
>> Let's go through some of the options available to people.
So you decide to keep the home and move into it and live in it, what of the tax implications?
>> I want to clarify a common misconception. That's when a beneficiary inherits assets, there's not going to be an immediate tax and location for the beneficiary.
You may need to look for the deceased's estate, there may be a tax implications there, specifically with the home, it could be dependent on how it the deceased used at home, whether or not the deceased used at home as their own principal residence. But if a beneficiary inherits a home, I want to highlight that there is no immediate tax and location when they inherit the home but there could be a tax application in the future, so when the beneficiary ends up selling the home or when the beneficiary passes away, if there is an appreciation on that home from the date they inherited the property, meaning the date that the deceased passed away until the date that the beneficiary sold the property or the beneficiary passed away, the beneficiary may be subject to any taxes on that gain unless the beneficiary can designate that home as their own principal residence eligible for the principal residence exemption.
>> Got it. Let's talk about what the beneficiary decides to do. I inherit home, I decide not to live in it, I decide to sell it.
What then?
>> When you inherit the home, no immediate tax and location but there could be a tax application when he sell the home. It's going to be dependent on whether or not the beneficiary, how they used that home between the timeframe of when they inherited the home, the date the deceased passed away, the date they sell the home, the way the beneficiary used at home, if they used it as a printable residence, they can shelter the gain under the Prince will residence exception, if they never used it as their principal residence, they will be subjected to taxes on that game.
>> Another scenario is that if you decide to keep the home, not sell it, not move into it but make it income-producing and rented out.
>> The rents that you receive, you will have to report that on your income tax return. There are certain deductions and expenses that you will be able to deduct but it's going to depend on your own contingent circumstances. You can typically deduct property manage fees, maintenance fees, property taxes, mortgage interest expenses but you really also need to look into the 2023 fall economic statement because the government did propose to deny certain expenses, including interest expenses, for expenses related to earning short-term rental income in provinces and municipalities that have prohibited short-term rentals.
>> Short-term rental, long-term rental, all things you need to be thinking about when you're doing this.
Probably someone is listening to this and frantically writing down everything you are saying but the bottom line is you need to speak to somebody professional, maybe a few professionals, to find out what makes sense for you.
>> Yes. There are a number of different professionals in various different fields that you may want to consider consulting.
A tax professional, a lawyer, an accountant, they can help advise you about legal requirements, tax benefits you may or may not have, a real estate lawyer who can help you transfer that legal title from the deceased party's name into your name, they can help you with the transfer and title changes, they can help you with tenant rental agreements and things of that nature and if you do decide to rent out your property, you may want to be consulting with a professional property management company. They can deal with the day-to-day management of tenants, collecting the rent for you, dealing with maintenance.
>> At a cost.
>> Yes, but still beneficial. You want to consult a number of different professionals so they can give you the tailored advice to help you make the right decision based on your unique circumstances.
>> That was Mindi Banach, tax and estate planner at TD Wealth.
Let's talk about the housing market here in Canada. It's been a quiet spring selling season.
Higher borrowing cost, uncertainty about with the Bank of Canada might do next putting would-be buyers on the sidelines.
If we get rate cuts that we might be getting this year we could see some traction in the second half.
MoneyTalk's Anthony Okolie is going to dig into a report on that.
>> TD Economics sees that the real estate market in Canada is expected to gain in the second half of the year but they have pulled back on their, the scale or pace of those gains since their previous outlook in March and that's because of a couple of things. One, they believe that borrowing costs are likely to come down less than previously thought. TD Economics expects one fewer cut by the Bank of Canada this year.
Secondly, the US Fed is likely to start cutting it later this year versus the summer and that spills over to the Canadian bond market with limited declines in Canadian bond yields for the rest of the year. Nationally, activity in 2024 was down due to pent-up demand waiting to be let loose at more meaningful rate really from the Bank of Canada. In 2025, the growth forecast for home sales and average prices have been lifting.
Let's take a look at the breakdown provincially. We will start here in Ontario and BC where average home prices are expected to benefit from the strongest sales gains in the country going forward.
That's because of pent-up demand is boosting activity from low levels.
Long-term, they believe that affordability challenges here in Ontario and BC will cap the pace of those gains going forward.
Take a look at the prairies, they are seeing strong population growth in the prairies. It also better affordability than we are seeing in Ontario and BC as well as strong economic performance so this factor should help boost activity in the Prairie provinces. Looking at Québec and the Atlantic provinces, again, relatively tight supply demand balances should keep prices on the rise in Québec and the Atlantic provinces, however, interprovincial migration has been slowing in the Atlantic provinces and that is weighing on a key source of ownership demand in the region. So to recap, downgraded activity in the second half of this year because we are not seeing really any meaningful reduction in borrowing costs, however, their outlook for 2025 remains pretty robust.
>> Interesting outlook there. What are the risks to that outlook?
>> One potential risk they see is an upside surprise to the housing price growth of bond yields continue to come down as they expect them to. On the downside, they do see federal government policies could cause a slowing and population growth in the coming quarters and that could weigh on rents and also meaningfully impact investor demand as well. Specifically, they point to a risk in Ontario. They see greater than expected listings in Ontario. That could put pressure on near-term prices, price growth, to a much larger degree than what was built into the model.
>> Interesting stuff. Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function giving us a view of the market movers. What is happening with the TSX 60 today? We are screening through price and volume.
You can see among some of the big telecom names that you got Telus down to the tune of almost 2%. If you look at the energy space, not a lot of green on the screen there, we can say the same of the financials. Manulife is down more than 2%.
A bit of green on the screen there, FM, First Quantum minerals, jumping up 6% today. The street seems to be more constructive on the name. South of the border, let's check in on the S&P 100. The market is looking for direction, waiting for the next catalyst, it could be Friday morning and we get the PCE, the US Federal Reserve's preferred gauge of inflation.
Inflation is such an important topic for us all these days as investors so it's a pretty mixed picture now on the S and P.
You got Amazon and Tesla making some gains, FedEx you were telling you earlier in the show, their cost-cutting program bearing fruit, and that stock jumping about 14%. Nvidia still taking up a lot of real estate on the screen when it comes to volume of trades.
If we dial back to Sessions ago, it dropped 2%.
Yesterday was up 6%. Today, it's down about 1%. We are seeing some moves in Nvidia.
Questions being asked by investors about their positions in the same. It's an interesting one.
Let's talk about if you're Canadian working for a US company and you're making a US salary. You may wonder what your tax filing obligations are. You have to pay taxes in both jurisdictions?
Mindi Banach, tax and estate planner at TD Wealth join MoneyTalk Kim Parlee with more.
>> It's tricky to navigate and there are always unique circumstances that arise that can alter standard guidance. I think it can be universally acknowledged that nobody wants to be in a position where they have to pay taxes twice on the same income.
There is a US Canada tax treaty that provides a framework to prevent double taxation and lets you know who contacts her income.
>> What is an individual need to file to make sure that happened?
>> As a Canadian, relative where you earn your income, in Canada or the US, regardless of how you are earning it, whether it's remotely or in person, as a Canadian resident, you are required to report your worldwide income, which includes any US income, on your Canadian T1 tax return. The next question then becomes what are, if any, your US income tax filing requirements, and that will be determined based on your US citizenship status. As a US citizen, all US citizens are required to file a US income tax return, the form is 1040, so if you are a US citizen residing here in Canada working remotely for a US company, you're going to have a filing obligation in both countries, both the United States and in Canada, but if you are not a US citizen, you might only need to file a Canadian income tax return but that doesn't mean that you're not going to have to file any US types or forms, there is a form, W8 PEN that you might need to file, you don't file it to the IRS but you give it to your US employer. The employee fills it out, gives it to the employer, it says I'm not a US person, I'm a Canadian, you should not withhold any taxes for my income.
There are the circumstances were a non-US citizen will still be required to file a US income tax return and if you fall under those circumstances, the form is form 1040. It's important to get the right guidance to figure out which forms you are going to be required to file.
>> Really important to get the right guidance because again, this is not something you want to get wrong.
>> No, it's not, and I have to tell you, too frequently at clients coming to me and saying my circumstances are super simple.
As soon as you add in any type of cost element, that adds complexity and it's really important that you consult with a tax professional that has special experience in international taxation, specifically want to contact a tax lawyer or tax accountant with experience in US and Canadian tax law to give you that tailored advice 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. Michael O'Brien, Managing Director and head of the core Canadian equity team at TD Asset Management will be our guest. He wants to take your questions about Canadian equities and even get those questions in ahead of time, just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching, we will see you tomorrow.
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