Category Archives: Personal finance

More Saskatchewan residents living pay cheque to pay cheque

By Sheryl Smolkin

SHUTTERSTOCK

More working Canadians and Saskatchewan residents are living pay cheque to pay cheque, As a result they are saving less and falling further behind in meeting their retirement goals according to the sixth annual National Payroll Week Research Survey, conducted by the Canadian Payroll Association (CPA). 

Nationally, more than half of employees (51%) report that it would be difficult to meet their financial obligations if their pay cheque was delayed by a single week. In Saskatchewan, the percentage is even higher – 56% say they are living pay cheque to pay cheque, up from an average of 52% over the previous three years.

Another finding confirms that more than a quarter of those surveyed are living very close to the edge. A total of 26% say they probably could not pull together $2,000 over the next month if an emergency expense arose. In Saskatchewan, 28% would be hard pressed to come up with the funds.

The low savings rate has become even more prevalent this year. Half of all employees nationally (57% in Saskatchewan) are putting away just 5% or less of their pay, up from an average of 47% of employees over the past three years (41% in Saskatchewan). Financial planning experts generally recommend a retirement savings rate of 10% of net pay.

Part of the reason for low savings is that 44% of employees nationally, and 54% of employees in Saskatchewan, are spending all, or more than, their net pay. Among the top reasons for increased spending, the survey identifies: children, home renovations and education.

“Those who are trying to save but finding it hard to succeed should consider directing a portion of net pay into a separate savings account and/or a retirement savings program,” says CPA President and CEO, Patrick Culhane. “They can speak to their organization’s payroll practitioner to arrange this.” 

Retiring older and needing more retirement savings 

Fully 79% of Canadian employees and 75% of Saskatchewan employees expect to delay retirement until age 60 or older – up from 70% and 57% respectively over the past three years. The number one reason cited for retiring later in life is that employees are not able to save enough money.

Employees continue to raise the bar in terms of what they think they will need to retire comfortably:

  • Fewer now feel that savings under $500,000 will be sufficient (10% in Saskatchewan, down from an average of 11% over the past three years; 18% nationally, down from an average of 21% over the past three years).
  • Many think between $500,000 and $2 million will be required (71% in Saskatchewan, down 1 % from an average of 72% over the past three years; 68% nationally, up from an average of 60% over the past three years).

Yet despite upward adjustments in perceptions of what constitutes an adequate nest-egg, the vast majority of employees are nowhere near reaching their goals – 75% nationally and 74% in Saskatchewan say they have put aside less than a quarter of what they will need in retirement (up from an average of 73% and 70% respectively over the past three years). And even among employees closer to retirement (50 and older), a disturbing 47% of employees nationally (and 43% of employees provincially) are still less than a quarter of the way there, indicating a significant retirement savings gap, according to Culhane.

Debt overwhelms many

Over one-third of employees (39% nationally and 34% in Saskatchewan) say they feel overwhelmed by their level of debt (up from an average of 32% and 29% respectively over the past two years). Nationally, 1 % of respondents this year indicate they do not think they will ever be debt free, and one-third say their debt has increased from last year.

The number one step that employees believe they can take to improve their financial situation is to earn more (27%), while spending less dropped to second place from last year and decreasing debt remained flat. “Earning more is not always feasible,” says Culhane. The CPA suggests that automatic savings through payroll is the best strategy for financial well-being.

The Saskatchewan Pension Plan allows members to contribute up to $2,500/year to their SPP account using a credit card online, through online banking, automatic debit from their bank account or credit card or by sending a cheque. Up to $10,000/year can also be transferred to SPP from a personal RRSP.

Companies can also set up SPP in the workplace and employee contributions can be made by payroll deduction.

 

 

 

 

Living to 100: The four keys to longevity

By Sheryl Smolkin

SHUTTERSTOCK
SHUTTERSTOCK

Living to 100: The four keys to longevity” is a fascinating report issued in July 2014 by the BMO Wealth Institute. According to the study, by 2061 it is estimated that there will be more than 78,000 centenarians living in Canada, up from about 6,000 reported in the 2011 census.

If you are a baby boomer on a quest to improve your odds of living longer than previous generations, the research suggests their are four keys to unlock the door to longevity: body, mind, social and financial.

Key 1: The body

Good health is one of the basic elements to achieve long life. A program of healthy eating, exercise and stress reduction can not only reverse the aging process, it may slow down the aging process at the genetic level.

According to the BMO report, other aspects of good health should include:

  • Adequate sleep (7 to 8 hours per night, and naps as needed).
  • Regular stretching and deep breathing to keep your joints flexible and your body oxygenated.
  • Physical activity that includes both high- and low-impact exercise at least 3 times a week.
  • Drink at least 8 glasses of water daily.
  • Generous amounts of dark leafy vegetables, fresh fruits and whole grains in your daily diet.
  • Eliminating or reducing the amount of unhealthy fats, processed sugars and preservatives in your diet.
  • Consuming a moderate amount of alcohol (e.g., just a glass of red wine with dinner).

Key 2: The mind

Living your best life depends on a healthy brain. A recent article cited in the BMO report explores the best ways to improve your brain power for life.[1] This article reveals that functioning to our fullest capacity is directly linked to the health of our brains. The article suggests that you incorporate these four fundamental lifestyle changes to boost your brain power.

  • Cognitive training: Memory, reasoning, and speed-of processing exercises create a winning combination for cognition.
  • Aerobic exercise: People who exercise moderately to vigorously just once a week are 30 percent more likely to maintain their cognitive function than those who do not exercise at all.
  • Don’t smoke: Non-smokers are nearly twice as likely to stay sharp in old age as those who smoke.
  • Maintain social networks: People who work, volunteer and maintain close-knit human bonds are 24% more likely to preserve cognitive function in late life.

The study results revealed that loss of mental ability was the biggest concern that respondents had about living to 100 and beyond.

Key 3: Social

The popularity of personal bucket lists has ignited a passion in seniors to take up new hobbies, write their life stories, or develop new careers. Senior wanderlust knows no boundaries when it comes to fulfilling dreams after raising a family and retiring from a dedicated career.

Study results suggest there are a plethora of new activities respondents are interested in incorporating into their daily lives after retirement. Spending more time on hobbies and starting part-time jobs were both shown to be highly desirable new activities on the list for many survey respondents and this is widely seen as a positive outcome.

Researchers at the Institute of Economic Affairs in the U.K.[2] recently identified a range of substantially negative effects on health after retirement. Their study found retirement to be associated with a significant increase in clinical depression and a decline in self-assessed health. These effects were shown to grow as the number of years people spent in retirement increased.

If you’re looking to boost your level of social interaction, to supplement your income, or are seeking a productive way to fill your time, you may want to consider taking on a part-time job.

Canadians participating in the BMO survey gave the following reasons for working during retirement:

  • 52%: Keep mentally sharp.
  • 46%: To get out of the house
  • 42%: To socialize
  • 40%: To earn money to improve lifestyle
  • 35%: Need the money
  • 32%: To stay physically fit
  • 28%: To do something I like
  • 16%: To learn new skills

Key 4: Financial

Canadians clearly understand that an important component of successful longevity is having a sense of financial security. Although financial security was cited as a lower priority than maintaining a social network of family and friends for the majority of Canadians surveyed, financial security gains importance with age and as personal assets increase over a lifetime.

The BMO Survey results showed that those with the highest income levels expressed the greatest concern over their finances after retirement. The wealthiest plan to preserve their financial security by  enjoying personal pursuits, socializing, exercising and maintaining a healthy lifestyle.

Overall, the majority of survey respondents anticipate the financial impact of health-care expenses to be significant as they age, even with government provided health care. In fact, the Canadians surveyed expected to spend an average of $5,391 a year on out-of-pocket medical costs after the age of 65.

Surprisingly, even with provincial health care coverage – Canadians foresee medical and health costs to be the single largest expense for old age (74%). Other significant expenses include food, clothing and day-to-day essentials (57%) and housing (56%).

Putting aside money in Tax Free Savings Accounts and purchasing Long Term care insurance are suggested ways to defray future retiree medical costs.

A final thought

The compelling findings of the BMO study speak to the need for all of us to have a better overall plan when it comes to the four key components of longevity: body, mind, social and financial.

Many challenges that may arise in our later years can be both anticipated, and properly planned for, by making smart decisions focused on the ultimate goal of successful longevity.

[1] What Is the Best Way To Improve Your Brain Power For Life? Bergland, Christoper. Psychology Today. January 21, 2014. (accessed June 2014).

[2] Work longer, live healthier, Sahlgren GH. Institute of Economic Affairs, May 2013.

Manage your retirement expectations

By Sheryl Smolkin

18-Sept-Takecontrolofyourretirement

A CIBC poll conducted by Nielsen reveals that younger Canadians are more optimistic about their retirement and ability to save but they are less likely to be taking action. The poll also found that expectations of older Canadians fall dramatically.

Thirty per cent of Canadians aged 18-24 say they expect to live better in retirement than they do today but the number falls to 17% for 25-34 year olds and continues to drop to three percent of those aged 55-64.

Despite their optimism, younger Canadians are less likely to have started saving. Forty percent of 18-24 year olds and 23% of 25-34 year olds say they have not yet started saving for retirement, compared to just 16% of Canadians overall.

The poll results suggest that although younger Canadians are positive about their future retirement plans, they may be relying too much on time to meet their retirement goals and not taking necessary actions now that could help them realize their goals.

“Time is on the side of younger Canadians who have many years to retirement, but that’s only an advantage if you take action and use those years to start accumulating savings,” says Christina Kramer, Executive Vice President, Retail and Business Banking, CIBC. “While it’s not surprising that younger Canadians are optimistic about how they expect to retire, the fact that so many people nearing retirement aren’t as hopeful speaks to the importance of having a financial plan in place earlier on.”

The poll also revealed that the majority of Canadians (58%) believe it is still possible to put money away each month and retire in their 60s, particularly 18-24 year olds (71%), and to a similar extent, 25-34 year olds (68%).

This is a positive finding, according to Kramer. “Considering how often we hear talk of the increasing cost of living, it’s good news that so many Canadians, especially younger people, still think saving for retirement is achievable,” she says. “The key is to make a plan and take steps to begin saving – the sooner you start putting money aside and earmarking it for your retirement, the longer you’ll have for your money to grow.”

Advice for focusing on retirement savings

  • Talk to an advisor: Meet with an advisor to understand your options, and work with them to develop a plan that can help you in managing multiple financial priorities and staying on track over the long term.
  • Contribute regularly: Set up a regular investment plan to automatically withdraw smaller amounts throughout the year, rather than trying to find the funds for a large lump payment at the deadline.
  • Save at work: Many employers offer group retirement savings plans, defined contribution plans or the Saskatchewan Pension Plan to their employees and top up employee contributions by a specified amount. Save at work and take advantage of this free money.
  • Don’t lose sight of the longer term: While it is important to address immediate financial needs such as debt reduction or saving for a large purchase, it is equally important to keep future goals such as retirement in sight. 

The Saskatchewan Pension Plan is a defined contribution retirement savings plan open to all Canadians. If you have RRSP contribution room, you can save $2,500/year or transfer in $10,000 from another RRSP. In 2013 the SPP balanced fund earned 15.8% and this fund has average a return of 8.1% since it started in 1986. For more details about the plan and how to enrol, see the SPP website.

Financing Post-Secondary Education: It’s a family affair

By Sheryl Smolkin

21Aug-packingforcollege

Before your child heads off to university or college this year, you need to have a frank discussion about how much it will cost and how much you can afford to contribute to his or her tuition and living costs.

If you opened a registered educational savings plan (RESP) when Janice or Jasper was much younger, that nest egg will be a big help. Some young people have also had summer or part-time jobs for many years and have a healthy balance in their savings account.

But with the escalating costs of post-secondary education, chances are that most students will be looking to “the Bank of Mom and Dad” for some assistance, even if that only means living rent free while going to school in their home city.

According to the D+H Student Index survey of 752 Canadian high-school and post-secondary students, when talking to their parents about the cost of school, one in three students say the conversation revealed a gap between the cost of post-secondary education and the financial support their parents could offer. Students only realized the need to line up other sources of financing after having these family conversations.

Fortunately, it’s not taboo for Canadian families to talk about money. Four in five students (80%) say they don’t have any difficulty talking to their parents about money. For the majority of students (55%), the family discussion on how to finance post-secondary education happens in grade 11 or 12.

Reflecting on these conversations, Canadian students say if they could do it again, they would go in with a more realistic idea of the cost of post-secondary education (36%) and have the conversation earlier (26%).

According to Statistics Canada, on average, undergraduate students paid $5,772 in tuition fees in 2013-2014. Over four years, that is more than $20,000 for tuition, before considering other expenses such as books and additional academic fees or any living expenses.

Canadian students usually line up a variety of sources to cover the cost. The top five sources of funding are:

  • 43%: Parents are paying
  • 43%: Student savings
  • 41%: Government federal and/or provincial loans
  • 41%: Summer jobs
  • 39%: Scholarship money or grants

When parents offered financial support over 1/3 of students said the support was unconditional. However in some cases students were required to get good grades (41%); work in the summer (39%); and/or work part-time during the school year (19%)

Three-quarters of students who took out student loans say they could not afford post-secondary education without one. Nine in ten (89%) say the loans helped them pursue their education and career goals.

A recent CBC article reports that Canadians graduate with an average student debt load of $25,000. But for many others the amount is much higher, particularly if they study for professions like law, medicine or engineering.

High debt loads are not only a financial stress but can delay the time it takes individuals or couples to reach certain milestones, such as having children, getting married or owning property.

Therefore, the sooner parents and children talk about and begin saving for post-secondary education, the better. To the extent possible, students should also be encouraged to select a field of study leading to jobs where there is a healthy demand for new graduates.

 

Crystal ball gazing: Jobs 2030

By Sheryl Smolkin

26Jun-newjobscrystalball

January 2014 figures reveal that although the national youth unemployment rate was 13.9%, Saskatchewan’s youth unemployment rate of 7% was the lowest in the country.

Nevertheless, young people realize that selecting a course of post-secondary study and a future career are critical decisions that will impact their job satisfaction and family lifestyle for many years to come.

Jobs like web designer, social media specialist and computer game designer did not exist 35 or 40 years ago when new grads were faced with similar decisions. And it is all but impossible to predict what novel opportunities will be available in future and how to train for these new roles.

Nevertheless, the registered educational savings plan company Canadian Scholarship Trust partnered with 40+ leading experts across Canada to collect their insights on the future of their industries and worked with foresight strategists to create hypothetical job descriptions for positions that may be available 15+ years from now.

The Inspired Minds initiative is a “digital job fair” for the year 2030 that imagines a series of jobs you have never heard of but may be available sooner than you think. Here are five of those jobs I find the most interesting, plus the kind of training you may need for these positions.

  1. Nostalgist
    The nostalgist will be an interior designer specializing in recreating memories for retired people. The wealthy elderly of 2030 will have the luxury of living in a space inspired by their favourite decade. Nostalgists will recreate the setting of their preferred time and place for seniors wishing to relive their past, from a small-town 1970s living room to a 1980s university dorm room.A degree in social science would provide a good background for this job, because knowing how people work and the conditions that enable success will be vital. Training in systems thinking and administrative procedures will also be important, so some courses in management sciences will be valuable.
  2. Tele-surgeon
    Using a combination of robotic surgery tools, scanning and sensing technologies and high-speed networks, tele-surgeons will operate on people in faraway locations.Most communities will have a small surgical team in the local medical centre, but in emergency cases drones (pilotless flying devices) will be used to airdrop a tele-surgery unit into villages or seasonal camps, as this can be faster than moving a patient by helicopter.Tele-surgeons will need traditional medical and surgical training, but expand their skills to include robotic surgical assistants. They will have be familiar with robotic technology and comfortable performing surgeries through a variety of different video systems
  3. Rewilder
    The old name for this job was ‘farmer’. However, the role of the rewilder will not be to raise food crops, as this will be done more and more in highly efficient skyscraper-like greenhouses known as vertical farms. The rewilder’s job will be to undo environmental damage to the countryside caused by people, factories, cars, and intensive one crop monoculture farming (which occurs when only crop is planted over a large area of land).All the traditional requirements of farming will be needed for this role, including managing land and crops, but managing wildlife will also be a necessary skill. Rewilders will be paid not for how successful their crops are, but according to the diversity and health of their land. Degrees in wildlife management, agriculture and environmental sciences will all be relevant.
  4. Garbage designer
    Environmental damage and the build-up of landfills (places where garbage is dumped) have made recycling a norm. However, recycling relies on the idea that the things that we make will inevitably create waste. A new form of recycling that will likely become popular in 2030 is ‘upcycling’.Upcycling is the practice of turning waste into better quality products; for example, old toothbrushes into bracelets, or old magazines into woven place mats or pots for plants. Garbage designers will be key to ensuring the success of upcycling.Garbage designers will need a strong background in materials science and engineering. An interest in industrial design will also be ideal. Familiarity with manufacturing practices and trade will help them identify key points where they can make the most impact.
  5. Healthcare navigator
    A health care navigator knows how hospitals work and they are trained to help patients and their families cope. The navigator teaches patients and their loved ones about the ins and outs of a complicated medical system. The navigator also helps people to manage their contact with the medical system with the least amount of stress and delay.Most navigators are former nurses, but a new generation of navigators is on the rise. These navigators will combine their knowledge of the healthcare system with the skills of a social worker. A good navigator will be able to match the patient’s family with the right people at the right time — whether it’s a doctor, pharmacist, home-care worker or a nurse.

For information about the full list of 2030 job descriptions developed as part of the Inspired Minds project, take a look at the CST careers website.

It remains to be seen which of these career options will actually become a reality. However, the aging workforce, climate change, global mobility and digital technology will certainly mean that young people entering the workforce in 2014 will have a host of new opportunities we can only imagine in the decades to come.

CPP post-retirement benefits a good deal

By Sheryl Smolkin

SHUTTERSTOCK
SHUTTERSTOCK

If you decide to start collecting CPP at age 60 but have to continue paying into the plan because you go back to work, your additional post-retirement contributions can significantly increase the amount of monthly pension you receive even while you are still working.

Since 2012, CPP recipients over age 60 who earn employment income must still contribute to the plan until age 65 and may voluntarily make contributions between ages 65-70 if they are earning an income.

Between age 60 and 70 your contributions will generate additional CPP benefits called post-retirement benefits. You don’t need to apply for these additional benefits. They will automatically be added to your monthly cheque following each year after age 60 you contribute.

A sample calculation prepared by Government Benefits Consultant Doug Runchey who worked for 32 years with Human Resources and Skills Development Canada illustrates how post-retirement contributions can add up.

His example is based on a person who in 2014 at age 60 starts collecting a maximum CPP pension of $702 ($1,038 minus the early retirement reduction of 32.4 per cent).

However in January 2015, this individual decides to go back to work. He subsequently earns the maximum pensionable amount of $52,500 (2014 figures) for the next five years before he stops working completely. Using the 2014 maximum CPP contribution level, between ages 60 and 65 he will be required to contribute $2,425.50 each year to the plan (a total of $12,127.50).

Beginning in 2015 at age 61, his pension will be increased each year by an annual, cumulative post-retirement benefit that adds up to $1,350 by age 65.

As a result, his pension of $702 per month at age 60 will increase in yearly increments to $814 monthly at age 65. Therefore, he will receive approximately $2,490 in CPP post-retirement benefits between age 60 and 65. If he lives for another 20 years until age 85, the post-retirement benefit will put an additional $27,000 in his pocket.

“By accruing additional CPP post-retirement benefits of $1,350 per year between age 60 and 65, the person in this example will earn an 11.13 per cent return on the $12,127 in contributions he made for the period,” Runchey says.

He also says that the notional return on post-retirement CPP contributions by a taxpayer earning the CPP maximum pensionable amount each year who chooses to work and contribute to CPP until age 70 will be even higher.

However, Runchey notes that if this taxpayer was self-employed and required to pay both the annual employer and employee contributions ($4,850) from age 60 to 65, the total return on his five years of post-retirement contributions will be cut in half, to 5.56 per cent.

Post-retirement benefits earned in one year are added to benefits beginning in January of the following year, but eligible contributors may not receive the payment until April or May with a retroactive payment to the beginning of the year.

The amount of CPP post-retirement benefits that you can earn between ages 60 and 70 depends on your earnings and the number of years you continue to work and contribute. A Service Canada PRB Calculator will help you calculate how contributing after you begin receiving CPP benefits but before you stop working will increase your CPP benefits at retirement.

If you are over 65 and want to stop contributing to the CPP, you must complete the CPT30 form and give a copy to your employer. If you are self-employed, you must complete the appropriate section of the CRA CPP contributions on Self-Employment and Other Earnings and file it with your income tax return.

You can change your mind and begin contributing to the CPP again but you are allowed only one change per calendar year.

Also read:
Working and aged 60 or older
Canada Pension Plan Post-Retirement Benefit – Born in 1950
CPP Post Retirement Benefits – DR Pensions Consulting

Splitting your pension on marriage breakdown

By Sheryl Smolkin

SHUTTERSTOCK
SHUTTERSTOCK

 

When a family splits up, pensions accrued by one or both spouses (including the Canada Pension Plan) and the family home may be the most valuable family assets. This blog discusses the Saskatchewan rules for pension credit-splitting of non-government pensions.

If both partners live in Saskatchewan their pensions (including the balance in their Saskatchewan Pension Plan) form part of family property. The Family Property Act establishes as a general rule that each legally married spouse, common-law spouse and same-sex spouse is entitled to an equal share of their family property, subject to various exceptions, exemptions and equitable considerations set out in the legislation. For example, property acquired before the commencement of the relationship is exempt from distribution.

The court may divide the family property or may order that one spouse pay the other spouse enough money to equalize their shares. Alternatively, the spouses may make an agreement about how to divide their property. The agreement will be binding if it is in writing and each spouse has received independent legal advice.  If a member has named the soon to be former spouse as a beneficiary, that person will continue to be the beneficiary unless the member files a change with the plan.

Under the Saskatchewan Pension Benefits Act, pensions can be divided in a number of ways:1

  • If the member of a defined benefit (DB) pension plan is not yet receiving a pension and is not eligible for an unreduced benefit, the other spouse can have a lump sum transferred from the plan to a locked-in retirement vehicle like a locked-in registered retirement savings plan or another registered pension plan. The lump sum is calculated by assuming the member terminates membership in the pension plan. This calculation typically results in a very low value for the pension (ignoring possible early retirement benefits, future increases, etc.).2
  • If the member of a DB pension plan is not yet receiving a pension and is eligible for an unreduced benefit, the non-member spouse can either take an immediate lump sum transfer (see 1 above) or he/she can defer the division and the non-member can also receive a pension when the member retires.
  • If the plan member spouse is receiving benefits from a DB plan or an annuity from the SPP, the non-member spouse will receive his/her portion of the pension payment directly from the administrator. By default this pension is only paid in accordance with the form of pension elected by the member at retirement (i.e. life only, joint and survivor benefit) and therefore may not continue after the member’s death. However, the plan has the option of converting the spouse’s share to a pension payable on his/her life (not all plans offer this option). In addition, the plan may offer the non-member spouse the option to take his/her portion as a lump sum.
  • RRSPs (both locked-in and not locked-in) and defined contribution (DC) pension plans (including the Saskatchewan Pension Plan) do not need to be valued on marriage breakdown.

This is because, unlike with a DB plan, RRSPs and DC pensions are simply tax-deferred investment accounts and so the value at any point in time is equal to the account balance. For this reason, a valuation is not necessary to determine the pre-tax value for these assets.

However, in many cases, a proper income tax adjustment should be calculated. For more details on the reason for the income tax adjustment, see the question ‘Does the value of a pension have to be adjusted to reflect income tax?’ pension valuation frequently asked questions on the BCH Actuarial Services Inc. website.

Locked-in DC plan balances are subject to the same transfer restrictions as lump sum transfers from a DB plan described in 1 and 2 above.

During separation or divorce, either you or your spouse can transfer existing RRSPs to the other, without being subject to tax, provided that:

  • You are living apart when property and assets are settled; and
  • You have a written separation agreement or a court order.

Note that federally regulated pension plans (i.e. banks, airlines, rail) may not divide the pension in the same manner as mentioned above and may only allow the division options available under the federal Pension Benefits Standards Act.

Under the federal Pension Benefits Standards Act, up to 100% of the benefits earned during the relationship can be assigned to the spouse. If a portion of the member’s pension benefits are assigned to the spouse, the non-member spouse is deemed to have been a member of the pension plan and have terminated their membership in the plan.

Most federal pension plans have established administrative policies as to how the non-member spouse can receive their share of the pension, however, typically they will have the choice of an immediate lump sum transfer or a deferred pension in the plan if the member is not retired and they will receive a pension from the plan if the member is retired  (the plan may offer a lump sum option and they may convert the spouse’s pension to one payable for their lifetime). For more information, click here.

Federal government pensions are divided in accordance with Pension Benefits Division Act which only allows an immediate lump sum transfer from the pension plan to the non-member spouse. For more information, click here.

1. This blog is based in part on information provided on the website of BCH Actuarial Services Inc. and the material is reprinted with permission. In all cases of marriage breakdown you should consult with a family lawyer and/or an independent actuary who will advise you regarding the laws and actuarial valuations that apply to your situation.

2. A division of a pension on marriage breakdown must not reduce the member’s commuted value to less than 50% of the member’s commuted value prior to the division.

Why some employee benefits are worth more than others

By Sheryl Smolkin

SHUTTERSTOCK

You just got a job offer and in addition to a hefty salary increase you are getting all kinds of new perks like life insurance, free parking and a cell phone. The company even has a subsidized cafeteria where you buy lunch and pick up dinner- to-go for the family.

But not all employee benefits are created equal. In some cases the value of the benefits is viewed as taxable income by Canada Revenue Agency when you file your tax return.

Here are seven things that may form part of your compensation and how they are taxed by CRA.

  1. Group benefits: Amounts your employer pays for your life, accident and critical illness insurance coverage are taxable benefits. But when the company pays all or part of the cost of your extended health care, dental plan, short-term disability (STD) or long-term disability (LTD) insurance you do not pay tax on the premiums. If you collect on your short-term or long-term disability insurance you will pay taxes if any part of the premiums were employer-paid.
  2. Pensions/Group RRSPs: Your company’s contributions to your pension plan are not taxable. However, your employer’s contributions to your Group RRSP account are viewed as additional taxable income by CRA. But you can deduct RRSP contributions (up to $23,820 for 2013) so you will not actually have to pay taxes on Group RRSP contributions made by your employer on your behalf.
  3. Service and recognition awards: Cash, gift certificates and things like gifts of stock certificates and gold coins are always taxable benefits. However, you can receive tangible tax-free gifts or awards worth up to $500 annually in some specified circumstances, such as a wedding or outstanding service award. In addition, once every five years you can receive a tax-free, non-cash long-service or anniversary award worth $500 or less.
  4. Tuition reimbursement: If you get a scholarship or bursary from your employer it will be a taxable benefit unless you took the program to maintain or upgrade your employment skills. For example, if you need an executive MBA to be promoted, no tax is payable on the value of company-paid tuition. Where the company gives your child a scholarship or bursary, generally neither you nor your son or daughter who benefit from the scholarship have to pay taxes on the amount.
  5. Parking: Employer-provided parking is usually a taxable employee benefit unless you have a disability or the parking spot is provided because you regularly need to drive a car for work. If you work in a shopping centre or industrial park where parking is free to employees and customers, a taxable benefit will not be added to your remuneration. Similarly, if there are fewer parking spots than the actual number of employees (scramble parking), free parking is not valued or included in taxable income.
  6. Mobile phone: Charges paid by the company for the business use of your cellphone are not taxable. If your phone is used in part for personal reasons, that portion of the bill should be reported on your T4 as a taxable benefit. However, if the cost of the basic plan has a reasonable fixed cost and your use does not result in charges over the cost of basic service, CRA will not consider any part of the use taxable.
  7. Subsidized meals: If the company cafeteria sells subsidized meals to employees, this will not be considered a taxable benefit as long as employees pay a reasonable amount that covers the cost of food preparation and service.

More details about the taxation of these and other employee benefits or allowances can be found on the CRA website.

Also see:

CRA Benefits and Allowances Chart

Income Tax Treatment of Taxable Benefits

Some workplace benefits come tax-free

Tax tips for seniors

By Sheryl Smolkin

SHUTTERSTOCK
SHUTTERSTOCK

Retirement income has to last a long time and stretch to cover the increasing need for care required by disabled or older seniors. That’s why it is important for seniors, their children and their advisors to fully understand and take advantage of available tax exemptions and deductions.

Here are two tax breaks you may not know about.*

1.    Disability tax credit (DTC)

The disability amount is a non-refundable tax credit that a person with a severe and prolonged impairment in physical or mental functions can claim to reduce the amount of income tax he/she has to pay in a year. In 2013 the maximum tax credit for people over 18 is $7,697.

To be eligible for the DTC, The Canada Revenue Agency must approve Form T2201, Disability Tax Credit Certificate. You can apply for the DTC at any time during the year. Retroactive payments may be made if the individual was disabled for several years before applying for the tax credit. Last year we got over $9,000 back for my mother.

If you qualified for the disability amount for 2012 and you still meet the eligibility requirements in 2013, you can claim this amount without sending in a new Form T2201. However, you must send one if the previous period of approval ended before 2013, or if requested to do so by CRA.

You may be able to transfer all or part of your disability amount to your spouse or common-law partner or to another supporting person.

If you received attendant care and you are eligible for the DTC, there are special rules that apply for claiming those expenses. For more information, see Attendant care or care in an establishment.

CRA has an interactive online quiz you can take to find out if you or your family member may qualify for the DTC. Also see Who is eligible for the disability tax credit? for all of the requirements that must be met to qualify for the DTC

2.    GST/HST for homecare expenses 

The goods and services tax (GST) in Saskatchewan (or the harmonized sales tax (HST) in Ontario, Nova Scotia, New Brunswick, and Newfoundland and Labrador) is not payable on publicly subsidized or funded homecare services.**

However, if an individual is not approved for municipal or provincial homecare services, a private agency must charge GST/HST.

Nevertheless, if a government agency approves even a small amount of subsidized homecare services (i.e. 2 hours/week), then ALL public and private homecare services become GST/HST exempt.

That’s why Lorne Lebow, a partner in the accounting firm Stern Cohen LLP recommends that in any situation where an individual requires home care services, an application should be made to the relevant government agency for subsidized or free services before or at the same time a private home care worker is retained.

“Even if a government agency authorizes services for only one or two hours a week, it’s enough to trigger the GST/HST exemption for additional privately-retained home care services. With GST/HST rates ranging from 5% (Saskatchewan) to 15% (Nova Scotia), that can quickly add up,” Lebow says.

He also advises individuals receiving both public and private home care services to inform the agency they are working with and request that invoices do not include GST/HST.

In the event that someone you know has inadvertently paid GST/HST you can apply to the CRA for a rebate going back two years.  Saskatchewan residents must send the completed General Application for rebate of GST/HST CRA (Form 189) three-page form with a letter from the government agency confirming the client is receiving subsidized care plus copies of the original invoices to Summerside Tax Centre 275 Pope Road Summerside PE C1N 6A2. 

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*Also see Guide RC4064, Medical and Disability-Related Information and discuss your family’s situation with your accountant or other financial advisor.

** Effective March 21, 2013 the definition of “homemaker service” in the GST/HST legislation has been expanded to include cleaning, laundering, meal preparation and child care provided to an individual who, due to age, infirmity or disability, requires assistance in his/her home plus  personal care services such as bathing, feeding, and assistance with dressing and taking medication.

Also see:
Tax tips for seniors – getsmarteraboutmoney.ca‎
TaxTips.ca – Saskatchewan Income Tax
TaxTips.ca – Seniors Income Tax and Government Benefits

Old Age Security: Take it now or later?

By Sheryl Smolkin

07Feb-OASapp

When you are planning to fully or partially retire, there are many decisions to make. Most Canadians are aware that they can elect to start receiving their Canada Pension anytime between age 60 and 70.

But many do not know that as of July 2013 if they become eligible for OAS benefits at age 65 they can also choose to defer receiving benefits for up to five years.

Regardless of whether you choose to defer your OAS or not, you must apply for benefits from this program when you wish to begin receiving payments.  It may make sense to wait, however, if at age 65 your income is still high enough that your benefits would be fully or partially clawed back. That would occur if you have net income between $71,592 and $115,716 on your tax return, and assuming you expect it to decline in future.

OAS is paid to seniors over 65 who are Canadian citizens or legal residents and have lived in Canada for at least 10 years after turning age 18. People living outside Canada at the time of application must have resided in Canada for at least 20 years after their 18th birthday. Your employment history is not a factor. A full OAS benefit is based on 40 years of Canadian residence.

For the period beginning January 2014, maximum OAS benefits are $551.54 per month or $6,618,48 per year. Benefits are indexed to inflation and adjusted quarterly. If you decide to delay collecting OAS beyond age 65, the benefit will be increased by 0.6 per cent for each month of delay to a maximum of 36%.

Therefore, based on the current annual benefit level (excluding future inflation), the pension you receive beginning at age 70 will be $9001.13.

Marissa Verskin, a senior tax manager at Toronto accounting firm Crowe Soberman, says the decision on whether to delay collecting OAS or claim it right away should depend on your personal situation. This includes your life expectancy, current and projected future income level and your expected rate of return.

Some of the other circumstances that may influence your decision are if you have chosen to work beyond age 65 or if you anticipate receiving a large one-time capital gain or lump sum at retirement (i.e., for accumulated sick leave credits or severance pay).

Doug Runchey of DR Pensions Consulting spent 32 years with Human Resources and Skills Development Canada. He says if you choose to defer receiving OAS beyond age 65 you can’t “double dip.”

That means if you are only eligible for a partial OAS pension because you have less than the 40 years of residence required for a full benefit, you can’t use the deferral period to both increase your OAS pension by counting it as additional years of residence and also receive a 0.6 per cent per month increase for voluntary deferral.

Service Canada is required to count the deferral period either as additional years of residence or a period of voluntary deferral — whichever is of the greatest benefit to the client.

Runchey also says there could be another collateral advantage to voluntary deferral of OAS. “If you delay and increase your OAS by 36 per cent to $9001.13 per year, you also effectively increase the maximum income claw back threshold to $131,599 from $115,716,” he says.

If you have started receiving your OAS benefits within the last six months but think you can benefit from the deferral, you can write to Service Canada and ask them to cancel your benefits for now. Once your request is approved, you will have to pay back the benefits received. Then you can reapply for OAS at a later date.

By 2023, gradual changes in the age of OAS eligibility from age 65 to age 67 will be fully phased in. This change will not affect OAS applicants or recipients born before March 31, 1958. But people born between April 1, 1958 and January 31, 1962 will have a date of eligibility between ages 65 and 67. For example, a person born in June or July 1961 will be not be eligible to collect OAS until age 66 plus eight months.

Also see:
Old Age Security
Changes to the Old Age Security program – Service Canada
Voluntary deferral of OAS – Retire Happy
Getting what’s yours when it comes to government pensions