Manulife IncomePlus funds (and the like) , and how it affects OAS, GIS?

hello,

my parents who are in their 60s are considering incomeplus (and the like, big insurance companies has their own). they heard that it is an efficient way to get fixed income and also get the maximum OAS/GIS compared to had they invested in Life annuities.

i'm not too experienced in this, does anyone have some insight?

after going through their site, http://www.manulifegifselect.ca/incomeplus/
they actually don't explain how it is tax efficient.

i had to dig a little deeper.
i believe the gist of it is, if you hold them in a rrsp account no matter what your withdrawals out of your rrsp will be taxable income.
however in a non registered account similar to series T mutual funds, you can elect to have it withdraw a certain percent every year as Return of capital which is tax deferred. it would be like giving you your own money back, there's no tax on that. however once the principle amount dries up the rest would be taxable.
if it's taxable it may affect oas, gis.

my first time hearing about this product and it looks interesting.
it's not too clear about how the fees and mer affect payout but i'm sure those will eat at your return.

because i'm meticulous with these things (heritage funds haha inside joke)
the mer on some of their funds are quite high... as well if you pick the riskier funds there's a higher fee.
Fund Fee Rates range from 0.35% to 0.85%, depending on the risk level of the Fund.
it's likely that if you select the option to receive return of capital that will increase MER.

conclusion
probably something to look in to.
the most attractive thing is the guaranteed 5% for life if you choose the payout at 65. it's unclear if fees are still charged.
definitely not for me but for someone seeking guaranteed income and planning to live past 85, it could be worth a look.

compared with life annuities same thing if it's in a rrsp, it'll be completely taxable
if it's in a non registered account only the interest portion will be taxable.
the interest would increase your income which could potentially reduce gis and oas payments.

Canada Life Participating Life Insurance - Wealth Achiever

I have a life ot death question I got a phone call from Investors Group, spoke with them in person and they suggested the following life insurance product. This life insurance is offered by Canada Life and is called : Participating Life Insurance - Wealth Achiever
This is what they told me: The main benefit of that product is that all the investments made are tax deductible and not taxable when withdrawn(kinda like a TFSA but no 5000$ limit) However if i commit to a certain amount per month and need to make the payment otherwise there are penalties (getting smaller the closer you get to 20 years).

The example they gave me, If i put 25 000$ a year (way to much for me btw) in 20 years i can withdraw ~ 620 000$ tax free, and every year after that the amount was considerably higher. Basically, i get a 120 000$ return with 500 000$ after 20 years. That's good but the every year tax deduction is what attracts me the most.
I'll get a call within a week to buy that insurance, but since i find it to good to be true, i'm starting to have doubts.

Any useful imput would be appreciated.

This is a great question.

Participating Insurance is "permanent" insurance wherein the growth of your investment is participating in the performance of the insurance company.

THERE ARE NO TAX DEDUCTIONS FOR LIFE INSURANCE DEPOSITS..is that clear?

However, the invested value will grow on a TAX-DEFERRED basis, NOT TAX FREE.

If you withdrawal the funds, all the growth will be taxed to you as income...OUCH!!

IN order to access your funds in a "Tax free" way (as they say), then you need to obtain a loan against the value of your policy...this loan is NOT GUARANTEED and the amount of the is also NOT GUARANTEED.

Read this article on permanent insurance (sometimes called Universal Life or Whole Life)...HERE

If you don't fit the criteria, then stay away. From what you have posted so far, your are very misinformed by the advisor or not yet understanding the product. Make sure you completely understand what you are getting into before giving them any money.

don't get sold on RATE of RETURN...it is not guaranteed.

One more thing....

PERMANENT INSURANCE (like the one you're proposed) IS A TAX DEFERRAL MECHANISM...ONLY PROCEED WITH THE GO AHEAD OF A TAX PROFESSIONAL...your accountant, not a sales person.

Don't be afraid to get a second opinion from an independent advisor that you trust.

All the best.

investment property/principal residence question (no one can give me an answer

I have talked to several real estate lawyers and a few accountants and no one can give me a definite answer. Everyone seems to be telling me something different.

Here is the situation.

My parents are looking to purchase a new condo. Either 1 through assignment that closes in a couple months or 1 to 2 pre construction units that close in 2014.
If they treat this as investment property with intent to rent it out right away what kind of taxes (HST) would they have to pay on the purchase, and how much of this is refundable. I have heard rates such as 1.5%, 7.8% and 13%. Some people have said they get all of it back up to $24,000 per unit and some have said they only get up to 6% back. Everyone is giving me a different answer :S

Option 2.

The condo is purchased by them. But one of there siblings who are over 18 will live there for a bit. Since it would be a principal residence we would not have to pay any extra HST.. Say the sibling moves out and then they decide to rent the place. How are they effected? How long does the sibling have to live there? Can the property still remain as principal residence or does it have to turn into rental unit.

any help is appreciated.

AFAIK the HST rebates are only for primary residences AND NOT for investment properties.

May be this link can provide some answers http://www.rev.gov.on.ca/en/notices/hst/pdf/04.pdf

"Primary place of residence
One of the main conditions for a new housing rebate to be available is that you must buy or build the house for use as your or your relation’s primary place of residence.

Your primary place of residence is generally a house that you own, jointly or otherwise, and that you intend to live in on a permanent basis. You may have more than one place of residence, but you are considered to have only one primary place of residence.

Note
If you buy or build a new house in Canada but your primary place of residence remains outside Canada, then your house in Canada would be a secondary place of residence and would not qualify for the new housing rebate.

The following are examples of some of the factors we may consider to determine whether a house is your or your relation’s, primary place of residence for purposes of the new housing rebate:


•whether you consider the house as your main residence;
•the length of time you inhabit the premises; and
•the designation of that address on personal and public records.
To be eligible for the new housing rebate, your intent to use the house as your or your relation’s, primary place of residence must be evident at the outset of buying, constructing, or substantially renovating the house.

For rebate purposes, a house is not your primary place of residence if, for example, your intention is to use the house as your primary place of residence upon some more distant occasion, such as retirement. Further, a recreational cottage or an investment property is not your primary place of residence for rebate purposes. No new housing rebate is available in these cases." 

It's time to retire and they have no clue what to do

neither do I to tell you the truth.

Here's the situation. My parents are about to retire and they don't have a clue what to do financially.

They both have RRSPs and other assets like a house, cash, investments and so on.

The problem is that they really don't have a plan. They are old school and we really have never talked about their money. They are worried about their RRSPS and RIFS, benefits they are about to receive from the government and so on.

My problem is that I don't know much more than them. I know some basics, but I'm not an expert.

What I need is a primer on the web or a book or some advice so that I can educate myself and then offer them some very basic advice.

For starters, can anyone offer any information on what benefits they are about to collect??

Cheers and thanks in advance.

Claudio

The most pertinent question is how old are your parents or how far away are they from turning 65?

There are 4 primary sources of retirement income:

1. Canada Pension Plan - CPP

The amounts received are based on the amount an individual puts into the plan over their working career. You can start to take CPP at age 60 and must start receiving it by the time an individual turns 70. For each year before 65 you take your pension you get a couple of percent the of amount you would receive lopped off. Similarly, for each year after 65 you get an extra couple of percent. IE: if at age 65 your CPP would be $700/month, if you start taking at 63 it would end up at maybe $660/month and if you start taking at 67 you might get 750/moonth.

I believe for ppl currently turning 65, there was no incentive to wait until after 65 as the additional amount was quite small and in some cases takes years to recoup (i think for my dad it would have taken 15 years for him to have received the same total pension if starting at 70 vs 65).

I should add that you can only start taking pension before 65 if you are currently out of work. Strangely, you only have to be out of work for the month after you start receiving pension. What this means is that many ppl get their pension, dont work for a month and then go back to work while collecting their pension. It seems like a large loophole, but depending on cash flow needs ive seen many ppl do this.

In terms of getting this money, you simply have to apply. You can send in the application online which asks some ID questions, but if I remember correctly does not require any supporting information (like copies of passports etc etc). There is a signature pagethat has to be mailed in regardless of whether your file on line or not. The government determiens how much you are entitled to.


2. Old Age Security - OAS

Starts at 65. The maximum benefit is about $500 per month. The amount that an individual receives is based on how long they have been in Canada. You have to have spent 40 years since turning 18 to get the full pension. Below 40 years, you get a fraction depending on how long you have been in Canada. There are some other exceptions and rules that might specifically determine how much you will receive.

Again yuo have to apply for this. This application, unless you were born in Canada, requires proof of citizenship, and also proof showing how long you have been in Canada (so for example if you state you entered Canada december 15, 1975, you would need proof that shows that, such as the entry mark on your old passport). The govt determines how much you are entitled to.

3. Registered Retirement Savings Plan - RRSP

Money has to be moved from RRSP to an RRIF or other similar account by the time turn 69/70. There are different options. You can continue to contribute to yuor RRSP until 69 and once you are done contributing to your own you can contribute to your spouses RRSP until they are 69 as well.

4. Company pension

May or may not apply. The company and their pension provider would be responsible for determining how much you receive depending on how long you have worked, the type of plan etc. I imagine you would inform them of your retirement once you are ready to collect.


Things to consider:

-OAS gets clawed back once an individual total icnome for the year goes beyond about 65k
-Low income retirees, ie no company pension, no RRSP, are eligible for the guaranteed income supplement which adds about another 600/month to monthly pension payments


Hope this little primer helps...not an expert by any means but i do have some familiarity so id be happy to help any way i can

Loaning money to your spouse for income splitting purposes

How does this actually work for people with combined bank accounts (ie, how is the interest paid)? Would you just use the shared money and put the brokerage account in the lower income spouse's name? Would paying interest be necessary or would it be considered a gift?

Another thing (from http://www.rbcfinancialplanning.com/...t-purpose.html)

Another simple but very beneficial strategy is to use the income of the higher earning spouse to pay living expenses and tax liabilities and use the income of the lower earning spouse to make investments. This way, investment income earned will be taxed at the lower earning spouses’ rate.

Again, how would this be done if you have joint accounts? Just putting the investments in the lower income spouse's name?

 
According to the link you posted, no interest = attribution rule applies, so yes paying interest would be necessary.  I would 100% set-up separate accounts to attempt this. That way you have a paper trail to give the CRA if/when they accuse you of tax evasion (and then you can prove it was only tax avoidance, which is legal).

---

As mentioned by the other poster, you need to charge interest or attribution rules will apply. It is even better to have a signed contract (see a lawyer) which states loan amount, interest rate, and repayment terms so that it is a bonafide loan and cannot be challenged by CRA. The interest rate you would want to charge would be the lowest rate you can so you are not stuck including a lot of interest income on your tax return. Check the CRA website for prescribed interest rates and use these rates as the interest rate. Hope this helps.

PS. I am a Chartered Accountant and have done this for clients in the past. With the low interest rate environment that we live in, prescribed rates are really low and can be really beneficial in income splitting and loans to spouses. 

---

you should be aware your spouse is still paying you taxable interest. so you have to declare that interest as income. if you don't then you'll get hit with the attribution rules.
and this isn't a one time thing. the loan goes on until it's fully paid back, so you'll keep earning interest from your spouse until it's paid off.

just something to consider

CRA Rules re Joint Investment Income

Hello,


Looking for some help re a joint savings account for two individuals. I gather the typical institution reports interest income on the primary owner's tax slip.


What exactly are the rules re basic investment income (interest) splitting? Are we only allowed to do a 50/50 split regardless of whose slip the amount appears?


Thanks.

Interest should be reported based on the amount of money each person deposits to the account. It doesn't really depend on the SIN number on the slip.

E.g. if one person puts in 60% of the principal in the account and the other 40%, that's how the income should be reported.

It is common practice to simply split the income 50/50.

Ideally, the lowest income earner would save 100% of their income and report the interest due to the preferable tax rates. The higher income earned should pay all the bills in order for the lower earner to invest.

Ontario Student Loan Default from 1996 -- Question re Statute of Limitations

I had an OSAP loan back in 1996.

This was back when the bank would take the loan and it was funded through the government (two parts to loan, federal part and provincial part).

Long story short, I defaulted on about 7k owing for the federal portion of the loan. For several years collection agencies called me. After awhile the calls stopped. I called one of the collection agencies around 98 - 99 and they said that the loan had been recalled by the bank.

Around 2005 I tried to track down who I needed to pay spending hours on the phone. Nobody could find any record of the loan. Not on my credit bureau, not through National Student Loan Centre, various government departments, I even called ScotiaBank with the loan number and they couldn't find it (I think that I got the loan in the year just before they changed the whole OSAP system to one integrated loan done through the government instead of the banks.)

Finally I gave up and figured as long as it's not hurting my credit score who cares.

Has the statute of limitations passed on this debt? I know 10 years needs to go by from when you were last in school, however I returned to college in 2005 for one year.

Just worried that one day in the future I'm going to get a call "You owe us the original 7k + god knows how much interest". 

Canada Student loans granted under the Canada Student Loan Act and the Canada Student Financial Assistance Act have a six year limitation with exceptions as outlined in the Acts. Read them as they can be read online. Ontario has no limitation period for student loans. The new Limitations Act which has a basic limitation period of two years specifically notes that such limitation period does not relate to student loans. See also Interpretations Act in Ontario re crown debt.

If you have gone bankrupt prior to the expiration of the 10 year limitation period set out in s. 178 1g of the Bankruptcy and Insolvency Act, you may apply to the bankruptcy court after the expiration of the 10 yr period for an order including the loans in your earlier bankruptcy provided you have acted in good faith regarding payment of the loan and the debt continues to be an ongoing burden. See s. 178 1,1 of the BIA. I have made over 70 such applications for clients all of which have been successful.