(February 23, 2005) The new budget is hardly a non-event this time since it presents advisors with a host of new client discussion opportunities.
According to advisors contacted by Advisor.ca, the removal of foreign content limits will likely reduce transaction costs, and the increased RRSP contribution limit means small business clients will be able to withdraw bigger salaries and shelter more of their assets for retirement.
“In many respects they did a better job. They’re moving in the right direction,” says Anthony Windeyer, business, insurance and estate planning specialist with Coast Capital Insurance Services in Vancouver. “Increasing the (basic personal) tax amount to $10,000 is a good move, the increase in RRSP room is also a good move.”
Joyce Marbach, vice-president and senior investment advisor at Wellington West Capital in Regina, agrees. “I think every tax reduction has some benefits, even if it’s just in the attitude,” she says. “People just feel better knowing that the government is doing something positive. I don’t know if all of this was necessarily expected, and 1% never sounds like a lot, but at least it’s a positive step in the right direction.”
|Feds scrap foreign content rule, raise RRSP limits|
Marbach also appreciates the tax credit for people caring for elderly parents or adult disabled children will increase to $10,000 for the 2005 tax year, up from $5,000 last year. The Child Disability Benefit will also climb to $2,000, up from less than $1,700. “Changing it from $5,000 to $10,000 is just exceptional,” she notes. “Now the big thing is getting people to be aware of it.”
Last year, Marbach counselled a client who was caring for a dependant brother. The client’s accountant didn’t know this fact so the client “wasn’t getting the credit, but because she told me, I was able to advise her and the accountant re-did her tax return.”
The most relevant detail for most advisors is the elimination of foreign content restrictions. Amin Mawani, a CFP and associate professor of taxation at York University, says investors who were previously bypassing this restriction using expensive clone funds should gradually start switching to lower-MER funds to meet their foreign content needs.
“Up to now, bypassing the 30% was easy, it was just expensive. Now it’s cheaper and you no longer have to go through the same song and dance,” Mawani says.
Brian Pallister, a Conservative MP in the Manitoba riding of Portage-Lisgar, agrees. Pallister is also a financial advisor and founder of Pallister Insurance and Financial Services in Portage la Prairie, Man. “I’m sure other advisors use different techniques, but now that won’t be necessary. The world’s our oyster,” he says. “I think this is a positive thing, frankly, because anything that allows the Canadian investor to generate better returns is a great thing. It reduces the need for government programs. They just increased the guaranteed income supplement today, too. God willing, most Canadians who work with a consultant or a planner who have some acumen are not going to need that supplement. That’s more money for them and less money coming off future taxpayers.”
Even though RRSP contribution limits will be on the rise, Mawani recommends clients consider paying their mortgages before contributing to their RRSPs. “Even though the limits are higher, I would do that. With my own money, I would pay off my mortgage first because mortgage rates are still at 4% or 5%, that’s risk-free after tax, and RRSPs are after tax as well, but you can’t guarantee 5% [returns] without taking risk.”
The gradual increase in basic personal deduction to $10,000 by 2009 will allow 860,000 low-income Canadians — including 250,000 seniors — to escape the tax rolls. While few low-income Canadians work with financial planners, Mawani says advisors should encourage their low-income clients to continue filing annual tax returns to be eligible for all of the means-tested credits such as the GST credit.
What do advisors think was missing from the budget?
“The only thing I’m disappointed in is the corporate surtax which was originally introduced to service [Canada’s] ballooning debt and the reduction in corporate tax,” says Windeyer. “They’re not actually going to implement that until 2008 and 2010 respectively. That’s not soon enough.”
Pallister wishes the budget addressed estate planning issues like the capital gains exemption. “It’s been at $500,000 for years. That’s not really fair for a lot of small business people.”
Filed by Kate McCaffery, Advisor.ca, email@example.com, with files from Heidi Staseson.
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