How to save tax as a couple?

You can’t escape paying tax on income, but you may be able to split some of your income with your spouse. And if your spouse is in a lower tax bracket, you’ll pay less tax as a couple. Here are three scenarios that illustrate some of the tax-saving strategies available through income splitting.

Kim and Henry

Kim, an executive at a health care firm, is the couple’s primary income earner, and Henry is a self-employed photographer. The couple saves tax in several ways, all involving investments.

If Kim simply gave money to Henry to invest, as a way to pay less tax on income and returns, attribution rules would pass the tax bill back to Kim. But she uses a prescribed rate loan. Kim loans $100,000 to Henry that she received as an inheritance. She charges Henry interest at the government’s prescribed rate, currently 2%, and investment income is taxable to Henry at his lower rate. It takes a large loan like this and a significant difference in marginal tax rates for the strategy to be worthwhile.

In addition, the couple uses an easy and effective investment technique. Kim covers household bills and expenses so Henry can use his earnings to invest in a non-registered account – again, benefiting from his lower tax rate.

Kim also gives money to Henry that he contributes to his Tax-Free Savings Account (TFSA), which attribution rules allow.

Mark and Laura

Mark owns an event planning business. His wife, Laura, has been working part-time to bring in new business, largely through social media. She is paid by the company with dividends taxed at her personal rate. But when the new Tax on Split Income (TOSI) rules took effect on January 1, 2018, their previously acceptable income-splitting arrangement was in jeopardy. Laura worked fewer than 20 hours per week, which subjects her dividends to tax at the highest marginal rate.

The couple had a decision to make – switch payment to salary, which is not subject to the TOSI rules, or meet the new requirements. They prefer the relative simplicity of dividends over the paperwork that salary involves. So Laura now works a minimum of 20 hours per week and continues to receive tax-friendly dividends. The couple still benefits from income splitting and Laura keeps time records to demonstrate they are onside of TOSI rules.

Amelia and Hasan

A retired couple, Amelia and Hasan are making the most of their retirement income by paying less tax where possible. Hasan had been the higher-income earner and he established a Spousal Registered Retirement Savings Plan (RRSP), now a Spousal Registered Retirement Income Fund (RRIF). Amelia withdraws funds from the Spousal RRIF to help support the couple’s lifestyle, which is taxable at her lower rate.

Hasan takes the minimum required withdrawals from his RRIF and splits half of his RRIF income with Amelia. This strategy saves tax and helps Hasan prevent Old Age Security (OAS) clawback by lowering his net income.

The couple also shares their Canada Pension Plan (CPP) benefits. The government uses a formula to determine the exact split, based on giving Amelia and Hasan an equal share of the combined pension they earned while living together.

Early spousal RRSP withdrawals

Here’s a strategy especially effective during a period when one spouse has little or no earned income. For several years, the spouse earning the higher income contributes the maximum allowable amount to the spousal RRSP. Then the higher-income spouse stops these contributions and begins contributing to his or her own RRSP for two calendar years after the year of the last spousal RRSP contribution.

Now the lower-income spouse withdraws funds from the spousal RRSP. If withdrawals had been made earlier, during the two- to three-year waiting period, they would be taxable to the higher-income earner. But these withdrawals are taxable at the lower-income spouse’s favourable rate. The withdrawn funds can be used as contributions to the higher-income earner’s RRSP or to the couple’s TFSAs.

This strategy can be used once or repeatedly – and should only be carried out with guidance from your advisor. It offers the tax advantage of the higher-income spouse receiving an RRSP tax deduction at a higher rate, while funds are withdrawn from the spousal RRSP at a lower tax rate. And the withdrawals can be invested to gain further tax benefits.

Quick, name your most valuable asset

Did you name your house? Your Registered Retirement Savings Plan (RRSP)? An investment account? Your most valuable asset is arguably what funds everything else – your income. It stands to reason, therefore, that your income should be protected. That’s where disability insurance enters the picture. In fact, disability insurance is often referred to as income protection insurance.

Disability insurance provides a monthly benefit when an illness or injury prevents you from working. The most common long-term disability claims in Canada are related to musculoskeletal conditions, mental health and cancer. Musculoskeletal conditions include back pain and arthritic ailments involving pain, flexibility or mobility issues. Other common causes of claims are heart disease and injuries. A Statistics Canada survey shows that one in five working-age Canadians has a disability that limits their performance of daily activities, with 43% classifying their disability as severe or very severe.1

Assessing group disability insurance

Long-term disability insurance provided through your employer may suit you perfectly, but for some people’s needs, group disability insurance has gaps. Perhaps the waiting period before benefits begin is longer than desired. The maximum period during which you receive benefits is not long enough. Or maybe the maximum monthly benefit falls short of your cost of living.

A common gap involves the definition of disability. The best coverage is “own occupation” coverage, which means that you receive benefits if the disability prevents you from performing the duties of your regular job. If you have “any occupation” coverage, you receive benefits only if the disability prevents you from working at any job.

If you do want more comprehensive disability coverage, you can supplement group coverage with an individual disability insurance policy. For example, someone whose group plan offers own occupation coverage, but only for a two-year benefit period, may purchase individual disability insurance with a two-year waiting period that provides own occupation coverage until age 65.

Please contact us if you would like us to assess your disability insurance needs or evaluate your current disability coverage.

Protection for business owners

As a small business owner or a self-employed professional, you likely have disability insurance for its traditional use of replacing lost income if an illness or injury prevents you from working. But please consult with us if you might also have a need for any of these additional types of disability coverage. Overhead expense insurance, a form of disability coverage, helps cover such costs as employee salaries, rent and utilities during the period you are disabled. You can also cover the cost of an individual disability insurance policy to attract and retain a key employee. If you’re in a partnership, disability insurance can fund a buy-sell agreement that enables a partner to purchase the disabled partner’s business interest.

Teaching your children to manage money

Today’s youth may prefer to pick up information online, but when it comes to learning about financial life, parents still have some influence. Here are a few teaching moments.

Younger ages

One day your children believe money comes from the tooth fairy, and later discover they’ve got to earn it. Quite a journey, and you’re the guide.

Lessons from allowance

Allowance gives you great flexibility to teach any lessons of your choice. When children are in their tweens, you could tie allowance to either doing household chores or completing special tasks, so they gain an appreciation of work. If allowance is regular spending money, children can learn to budget their dollars until next payday or choose to save.

Communicate with your children

When you share financial information, your tweens or teens can learn a lot about the financial world. Tell them about your mortgage payments, explaining the concept of principal and interest. Teach them about the Registered Education Savings Plan (RESP) that’s in their name. Show them the water bill and tell them water’s not free.

Consider a debit card

During high school, a debit card can be an effective tool to teach children about money management. If the funds are the child’s own earnings from a part-time or summer job, she or he may develop an appreciation for spending on needs versus wants. If you’re funding the debit card, you have an opportunity to teach your child about sticking to a budget.

College and university years

These are the bridge years, when your child assumes greater financial responsibility, but remains very much in the learning stage.

Keeping a budget

Using a budgeting app could be an effective way for your child to get started on tracking expenses. All that’s needed is a monthly report of where money was spent by category – including food, cell phone, transportation, education costs, entertainment, rent, and others. This report might show that financial life is on track, shed light on expenses to be cut back, or demonstrate the possible need for more funding.

Investing basics

If you have your child open a Tax-Free Savings Account (TFSA) upon reaching 18 (or 19 in British Columbia, Newfoundland, New Brunswick and Nova Scotia), you can gift funds that your child contributes. Ideally, the arrangement is that your child learns some investment basics in return for the gift, either from you, or online, or you can ask us to help out. The basics would be to acquire general knowledge of stocks and bonds, risk, diversification and time horizon.

Filing tax returns

Your child isn’t obligated to file a return unless tax is payable but filing offers several benefits even if your child has little or no income. Filing enables the student to claim the tuition tax credit to use now or carry forward. At 19, your child may qualify for the GST/HST credit, payable four times per year. Reporting income creates Registered Retirement Savings Plan (RRSP) contribution room to use later. If income tax was deducted from paycheques, your child may receive a refund.

Managing money is a learning process, so don’t worry if your children make a mistake or two along the way. Praise them when they’re doing well, and encourage your children on the path to becoming financially responsible.

Credit card do’s and don’ts

College and university students may encounter credit card sales representatives on campus. Students can get their own card at age 18 in Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Prince Edward Island, and at 19 in other provinces. If your child follows these guidelines, hopefully the card won’t be seen as free money.

The do’s:
  • Aim to limit purchases to what you can pay at the end of the month, to avoid interest charges.
  • If you’re unable to pay the entire balance, at least make your payment on time.
  • Keep track online of what you owe to avoid an unwelcome surprise at month’s end.
The don’ts:
  • Don’t continually make only the minimum monthly payment as this practice can lead to a debt you find insurmountable.
  • Don’t treat your credit limit as an allowable amount to owe – the goal is to spend wisely, not spend whatever you can.
  • Don’t use your credit card to withdraw cash because interest charges begin right away.

Estate planning during COVID-19

The current COVID-19 pandemic has resulted in many pausing to reflect on their estate and incapacity planning. The barrage of news headlines about the health crisis and forced time at home have understandably led individuals to more thoughtfully consider the plans they have in place or plans they would like to implement. Legal professionals throughout Canada have noticed an increased interest in estate planning in recent weeks.

General requirements for signing formal wills and powers of attorney or protective mandates

Generally, formal wills and powers of attorney in most provinces throughout Canada require an individual to sign their documents in the presence of one or two witnesses who are physically present at the same time. In Quebec, formal wills and protective mandates are generally signed before a notary or in the presence of witnesses. The physical distancing measures imposed have made it more difficult to meet these requirements and complicated the execution of formal wills, powers of attorney and protective mandates. Some provincial legislatures and many estate planning professionals have come up with innovative ways to overcome the hurdles that have arisen as a result of this pandemic.

Signing wills, powers of attorney or protective mandates in our current climate

On April 7, an Emergency Order in Council was issued by the Ontario government authorizing the virtual witnessing of wills and powers of attorney for property and personal care during the declared state of emergency. In Saskatchewan, virtual witnessing was authorized on March 25 with respect to enduring powers of attorney, and on April 16 in relation to wills. Similarly, on May 14, Manitoba passed The Emergency Measures Act which temporarily permits the execution of wills, powers of attorney and health care directives with virtual witnesses, provided certain conditions are met. All of the emergency measures passed by these three provinces require the involvement of a lawyer or paralegal (Ontario only) in the witnessing process.

The Quebec government has temporarily permitted notaries, beginning April 1st, to sign notarial acts (including Wills and Protective Mandates) remotely through electronic means.

Provinces such as British Columbia, Alberta, Nova Scotia and New Brunswick, have not at this time invoked legislative changes to address the issues with executing Wills and Powers of Attorneys that have arisen. In some of these provinces, the legislation governing formal Wills and Powers of Attorney already include curative provisions that may be relied upon for such documents that do not comply with all legal requirements, including those surrounding witnessing. However, a court application to obtain an order or declaration may be necessary in order to validate such Wills or Powers of Attorney.

Handwritten wills

Wills completed entirely in the handwriting of an individual without the requirement of witnesses (holographic wills) may be considered by those who live in provinces in which they are recognized (e.g., Alberta, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Newfoundland and Saskatchewan). While holographic wills may be effectively executed during these difficult times of physical distancing, they may not be suitable for everyone, especially those with complex estate plans. Holographic wills should be undertaken with the guidance and oversight of a knowledgeable legal professional.

What should individuals do?

Given the continuously changing nature of the response to the pandemic, and the variety of approaches taken by legislatures and practitioners, anyone contemplating changes to their estate documents should consult with their trusted legal professional to determine the correct approach for them to finalize their estate documents. Although these difficult times present unique challenges for the execution of estate documents, rest assured that it is possible to move forward with estate planning without delay.


How much does it cost to sell your home?

If you’re selling your home, be sure to budget for the added costs involved. That way you’ll be ready when the time comes to close the deal.

Is your starter home becoming a tight fit for your growing family? Are you longing for a bigger kitchen or more closet space? Is the commute to your new job taking so long that you’re thinking of moving closer? Do you want to downsize after 30 or 40 years at the same address? Or upsize to make space for your elderly in-laws?

Should you downsize your home in retirement?

You may be selling your home for the first time, or for the first time in a very long time. Either way, you may not be ready for all the costs involved in making the sale. That’s especially important if you’re using the money from the sale to buy another home. Here are some expenses to prepare for:

How much commission do realtors charge?

These can run anywhere between 3% and 7%, depending on where you live and what you negotiate with your agent. A 4% real estate commission on a house that sells for $500,000 will set you back $20,000. In a hot market, you may be able to avoid this fee by selling your own home. But it’s still wise to hire an appraiser (starting at around $400) to put a value on your home. You’ll also need a real estate lawyer to draw up the paperwork.

Should you sell your own home?

How much will you pay in legal fees when you sell your home?
Budget for at least $1,500. It could be more if your deal is complex.

How much does home staging cost?

What will it take to make your home appeal to potential buyers? If you were selling 30 years ago, tidying up and painting would probably have been enough. Today, if you look at real estate listings, you’ll see that sellers do a lot more. Painting, yes, but also moving out most of your furniture and even renting art. The cost can range from several hundred to several thousand dollars, depending on how much fixing up your place needs. You may be able to save by doing the staging yourself. But prepare to pay for things like storage space. Some real estate agents provide staging as part of their services.

How much is land or property transfer tax?

If you’re buying a new home, land transfer tax can easily be a significant expense. The tax is a percentage of the purchase price of the home. It varies by city and province, ranging from .1% to 2.1% of the total property value.

How much does it cost to move?

Your bill will depend on where you’re moving and how much stuff you have to shift. But you’ll likely need to factor in at least a few hundred dollars for moving expenses. That is, of course, unless you have your own truck and friends who will work for pizza and beer.

Do you need mortgage protection insurance?

Are you taking on a bigger mortgage? Make sure your mortgage protection insurance (life insurance and critical illness insurance) will cover your additional needs. And be sure to update your homeowner’s insurance policy. If your new home is bigger than your old one, be prepared for your home insurance premiums to increase.

Click on the following link to read the Sunlife’s article:

Registered retirement income fund (RRIF)

Convert your savings into flexible retirement income
Access your money when you need it, for whatever you need it for in retirement.

What is a RRIF?
It’s like a Registered Retirement Savings Plan (RRSP) in reverse. An RRSP helps you save for retirement through annual contributions. A RRIF does the opposite, requiring you to take minimum annual withdrawals from your savings to help fund your retirement.

How does it work?

  • Convert your RRSP to a RRIF at any time, before Dec. 31 of the year you turn 71.
  • Choose how you’ll invest your money.
  • The government determines the minimum amount you must take out each year.
  • However, you have flexibility on how much you withdraw over the minimum amount and when you’ll receive it.
  • All your RRIF withdrawals are taxable as employment income.
  • Use our handy calculator to see how much income you’ll get from your retirement savings.

Click on the link for more details :



Opinion of Chief Macro Economist Frances Donald

Frances Donald – Chief Macro Economist

I try not to focus on headlines, but rather on economic data itself. That being said, inflation will take the mainstage for many years to come and I am happy to share my opinion:

Click on the link:

We are not big believers in material inflation: in general, we expect U.S. inflation to stabilize in the 2%-3% range over a multi-year period. However, we believe the market will become particularly concerned about rising inflation in the coming weeks. First, there will be a second-derivative turn in most inflation metrics as base effects drop out of year-over-year price levels. Second, there is a clear reflationary impulse evident in the commodities complex. Third, a weaker USD will support some mild inflation. Fourth, we’re seeing price levels creeping higher in several components that contribute to the measurement of inflation, in particular in segments that have been expose to supply chain disruptions and ongoing pressures in health care costs. Fifth, the Fed’s widely expected announcement in August/September that it will target 2% inflation “more symmetrically” —meaning it’ll tolerate a persistent overshoot of 2% inflation—will exacerbate this concern.

Market Implication: A stagflation scare may tactically push up nominal U.S. yields to the upper end of their recent range, particularly at the long-end. We expect various forms of assets with inflation protection qualities, like gold, to continue to do well. Longer-term, we don’t foresee a prolonged period of reflation, but we recognize there could be tactical opportunities for the reflation trade.

When to review your estate plan

It’s easy to think you can put off changes to an estate plan – the plan doesn’t even take effect during your lifetime. But it’s important to react in good time because many changes call for strategies best implemented sooner rather than later. Also, you make estate planning changes now for the same reason you made a will and purchased life insurance: to benefit your loved ones if you pass away prematurely.

Life changes calling for a review

Typically, you should review an estate plan whenever a new situation arises that potentially calls for an update. But if several years have passed without looking over your plan, it’s a good idea to conduct a review anyway.

Keep in mind that although a will is central to estate planning, much more is involved. Assets could be distributed outside of the will, through such means as life insurance and registered savings plans. Certain family situations may call for the establishment of a trust. Estate planning also includes powers of attorney for both financial matters and personal care. And you may require tax planning to help preserve the value of estate assets.

Here are key financial and life changes that are reason to review your estate plan.

Change in appointed individuals

In the process of estate planning, you name individuals as beneficiaries, attorney (for power of attorney), executor and possibly trustee. If your executor, alternate executor, trustee or alternate trustee passes away, moves out of province or is no longer capable or interested, you’ll need to name a replacement. You may also find that your estate has become more complex to administer, now requiring the services of a corporate executor.

If a beneficiary suffers a serious illness or disability, you may consider establishing a trust. You may also wish to add beneficiaries, such as grandchildren.

Marital or family status changes

You have quite a few changes to make in the event of separation or divorce, or a new marriage or common-law relationship. There’s the larger picture of revising the financial aspect of your estate plan and the details of changing beneficiary designations – from your will to a life insurance policy. If you’re newly married with a blended family, you may want to explore estate planning strategies to help provide for your new spouse and children from a previous marriage. You also need to update your will and estate plan upon the birth or adoption of a child, and may need to make changes when a child reaches the age of majority.

Developments in your financial life

There’s no need to update your will and estate plan every time there’s a routine change in your net worth. But you should review your plan if a major change affects distributions from your estate or calls for a new tax strategy. Such changes include receiving a significant inheritance, purchasing vacation or rental income property or any major business-related change – buying or selling a business, or deciding to hand over the business to your children.

If assets appreciate considerably, you may need to implement a tax strategy to manage capital gains tax payable by your estate. Also, consider digital assets. Assign your executor or another person the responsibility for online financial accounts and their passwords, any digital content on websites and social media, and related digital property.

If you’re in retirement and plan to leave a large balance in your registered retirement savings, without a spousal rollover opportunity, you may need to plan how the estate will cover the tax liability.

Changing distribution of assets

A variety of scenarios may arise when you want to change the way you allocate estate assets among beneficiaries. For example, say that vacation property was to be handed down to both children, but now one child moved out of province. Perhaps one child will inherit the property, and the other child will be made beneficiary of a permanent life insurance policy. Another example is if you decide to make a charity one of the beneficiaries of your will.

The timing of distributions can change. Instead of giving a beneficiary one lump sum, you might now have reason to make smaller distributions over time.

Help with your review

You’ll make many of these changes with us, and others with your lawyer, but please feel free to contact us to discuss any or all possible changes to your estate plan.

Unknowns – Known and Unknown

The world is full of surprises or unknowns, some of which we can anticipate, while others are harder to foresee. “Known unknowns” are uncertainties and issues of which we are aware, but do not know the outcome. An example is this year’s U.S. presidential election. “Unknown unknowns” are events that we do not expect or have never happened before, such as the COVID-19 pandemic.

The COVID-19 pandemic has brought a new set of known unknowns. We know the virus exists, but do not know when and how the economy will recover, how many people will be infected, when a vaccine will be available, and how safe and effective the vaccine will be. The significant support to economies and capital markets from central bank interventions and government spending have eased some of these concerns. Just as we have not yet won the war against the virus, the long-term effects of its economic consequences remain to be seen.

Quantitative easing in the time of COVID-19

Quantitative easing (the increase of money supply in the economy from central banks) is not a new tool. It was first designed to combat the global financial crisis in 2009. From 2009 to 2015, the U.S. Federal Reserve injected $3.5 trillion into the economy, which led to asset inflation. To avoid a dramatic economic shock, the Fed retracted these measures very slowly. Over the course of approximately four years, the money supply shrank by about $0.8 trillion.

The Fed is using this same tool to fight the economic consequences of the pandemic, but with unprecedented speed. In just three months, $3 trillion was added to the economy. In that same time, cash went from being king (when markets were volatile) to trash (as supply increased). While quantitative easing has inflated asset prices, it has consequences – in other words, new known unknowns.

It is not certain how long this situation will last. It is estimated that the Fed’s balance sheet will be extended to $10 trillion and, if the past is any guide, will take three decades to return to pre-pandemic levels. If that is the case, asset prices will remain elevated as cash is devalued (30 years is effectively permanent). Asset holders will benefit the most, while savers suffer. This could amplify another growing issue – the wealth gap, a problem central banks have ignored in the past. Can they continue to ignore it for the next decade or even three?

Forever indebted?

In addition to quantitative easing, another by product of this pandemic was government spending in the form of subsidies to individuals and businesses. These totalled approximately 15% of gross domestic product (GDP) in both Canada and U.S. The challenge is not the subsidies themselves, but that both governments were running deficits prior to this and the extra burden adds uncertainty to how the debts will be repaid. Raising taxes is an obvious solution but could further weaken the economy and is politically unpopular. The only other solution is higher debt and larger deficits for longer – so long that many will see it as permanent. Large debt balances are only affordable if interest rates are zero, and who is going to save at zero interest?

The “new” new normal

The term a “new normal” was created after the financial crisis to describe a world where money supply is above trend and interest rates are below normal. After this pandemic, we will enter a “new new normal” where money supply is likely to be even more above trend and rates are close to zero for a decade, or decades. The unknowns in economies and human behaviour will continue to evolve in the next several years. Over the long term, there are very good odds stock markets will broadly outperform bonds, as yields are so low. Over the short term, there will be a tug-of-war between those who believe we will return to the “new normal” established in 2009 and those who believe we are headed to the “new new normal”. Either way, there is sure to be volatility, opportunities and challenges.

Combine top 15 equity holdings as of June 30, 2020 of the Evolution 40i60e Standard portfolio with Alpha-style exposure:


The market developments

Dear friends,

I hope you are your family are continuing to stay well. I am writing to update you on some of the key economic, market and pandemic-related developments for the week.

Macroeconomic and market developments

  • The number of confirmed COVID-19 cases worldwide surpassed 15 million. The U.S. continued to struggle to contain the spread of the virus, with California taking over from New York as the state with the highest number of infections. Other global hotspots include Brazil and India. Restrictions on gathering and business activity continued to be relaxed in many regions of Canada based on low infection rates.
  • North American equity markets moved marginally higher as companies reported mixed earnings results and various coronavirus vaccine trials in the U.K., Germany and Canada reported continued progress, but fell later in the week as confidence in the economic recovery stalled.
  • The U.S. government said it was considering a program to provide unemployment assistance for workers for the rest of the year on a reduced basis. In Canada, the government extended wage subsidies for employers still struggling with the business impacts of the pandemic to the end of December.
  • The annual inflation rate in Canada was 0.7% in June, exceeding market expectations.

What does this mean for my investments?

The markets’ rebound from the depths of the mid-March pandemic-driven drawdown reflects optimism that businesses will continue to recover and that as a global society we will find ways to contain the spread of COVID-19. At the same time, government and fiscal support measures for households and businesses continue to provide a strong tailwind for many parts of the market, particularly equity and corporate bond markets. Nevertheless, economic activity remains below pre-pandemic levels and significant adjustments are still needed for many businesses to recover, presenting significant risks to the outlook.

Given recent unprecedented circumstances, it makes sense to remain true to your well-established investment plan that takes your goals and tolerance for risk into account, and to continue to invest using the expertise of professional investment managers. They have the knowledge and experience to take advantage of investment opportunities as they arise and limit risks that be unappreciated by the market as a whole.

In closing, I would like to remind you that my team and I are here to help. Should you have any questions about your investments, I would be happy to discuss them with you.


Michel Prévost