“We are so busy watching out for what’s ahead of us that we don’t take time to enjoy where we are.”- Calvin & Hobbes
As 2017 is quickly approaching, I would like to wish all my clients and their families a very happy holiday and a prosperous New Year. Often life is hectic and we rarely take the time to enjoy time spent with one another. My favourite part of the holiday’s is that things tend to slow down and after a year of saying “let’s get together”, we have time to truly enjoy family and friends.
2017 economic commentary:
US and Global
Slightly higher global growth is anticipated for 2017 due to lower recession risks, solid leading indicators and a stabilizing Chinese economy. However, the post-Trump-election environment has resulted in a selloff in emerging markets, a sharp increase in bond yields and further proof of rising global populist sentiment.
Economic effects of Trump's victory could be both positive - fiscal stimulus in the form of tax cuts and infrastructure spending, fewer government regulations and the dislodging of special interests from Washington - or negative – high policy uncertainty, trade impediments and effects of tighter immigration policy.
Markets have moved significantly post-election, with stocks, the U.S. dollar and yields all higher. Equity markets are being driven by expectations for sharply lower corporate taxes and higher earnings; inflation concerns are putting upward pressure on yields; and, higher rates and equities are leading to a stronger U.S. dollar.
Canada
The Canadian economy is still in negative territory with slower than usual growth, but shows signs of improving as the oil shock begins to fade and oil companies are more profitable. There are a huge range of possible outcomes in regards to the Canadian housing market, but as of current the scenario of prices remaining flat is most likely. Any housing correction could result in a drag on economic growth over the next several years.
Global trade growth may not return to the pace that we have seen in past decades, as some of the biggest gains from opening new markets and adding new technology have already been tapped. This is compounded by the fact that companies are also very reluctant to invest their capital even after the global financial crisis.
A very important fact that seems lost in global trade is that Canada's weak exports may be misleading because more companies are building facilities abroad and filling orders abroad.
"By 2013, sales by Canadian-owned foreign affiliates almost matched the amount of total exports sold from
Canada,
at
$510
billion
versus
$573
billion,
respectively.
I
n
effect,
there
is
almost
as
large
a
Canadian economy operating in foreign countries as there is in the domestic export sector, creating jobs and GDP both domestically and
abroad
."
The Bank of Canada's governor indicated that with this era of stubbornly low interest rates people should review their retirement plans, temper business investment expectations and encourage policy-makers to pounce on smaller morsels of economic opportunity. Stephen Poloz laid out recommendations on how to adapt to low interest rates, which he expects will linger for the long-term.
"The most important force pushing the neutral rate down has been a steady decline in the potential growth in the economy,"
Poloz's speech said.
"/ have heard from many Canadians who are rightly worried about their ability to live off their savings and who are seeking a return to higher interest
rates.
"
Something that we ALL do not want to hear, Poloz suggested that in order to ensure an adequate retirement
Canadians must start saving more, working longer than originally planned and changing their investment allocation mix to adjust to the persistently low interest rates. These changes are compounded by the fact Canadians are living longer
.
"We cushioned the blow"
with rate cuts last year, Poloz said, and "
it will take three to five years for the economy to restructure itself. With a projection that Canada's economic potential is likely to grow by only around
1.5 per cent, which is not very inspiring, we need to take every decimal point of potential growth more seriously than we have in the past.”
Welcome to a brand-new world in 2017. At De Thomas Wealth our team of advisors are constantly working to provide you with the confidence that you have the very best investment advice in an investment world that is rapidly changing.
Important Facts and Figures:
Tax-Free Savings Account (TFSA) dollar limit for 2016: $5,500
Registered Retirement Savings Plan (RRSP) dollar limit for 2016: $25,370
2016/2017 Investment and Tax Planning TipsReview the asset allocation in your portfolioExamine the asset allocation of your portfolio and if required re-balance the weightings to your target asset mix based on your risk and objectives.
Review your debtIs the interest cost you pay on your debt deductible? If not (and the interest rate on your debt is high), and you have other non-registered investments, consider selling some or all of these investments (but first calculate the tax cost of selling the investments) and using the money from the sale to reduce your debt.
Time your purchase of certain investmentsIf you plan on investing in an interest-earning security (like a GIC) with a maturity period of one year or longer, you may want to wait until 2017 before purchasing this investment. If you wait until 2017, you won’t have to pay tax on any accrued interest on this investment until 2018 – the year of the first anniversary of your purchase.
Time withdrawals from your TFSAIf you plan on withdrawing funds from your TFSA, consider withdrawing funds in 2016 instead of in early 2017. Withdrawals from your TFSA in 2016 will be added to your TFSA contribution room in 2017; however, if you were to withdraw the same funds in early 2017, the amount would not be added to your TFSA contribution room until 2018.
Realize accrued capital losses before year endIf you realized capital gains in 2016, or in any of the three previous years (2015, 2014 or 2013), you could consider selling your investments which have decreased in value (have an accrued loss) in order to use these capital losses against your capital gains. There is an ordering rule that says capital losses have to first be used to offset capital gains in the current year. Therefore, only the excess capital losses may be carried back to the three previous years. Carrying back capital losses may enable you to get a refund of previously paid income tax that can be used for investments or to pay living expenses. Capital losses can also be carried forward indefinitely. Be aware of the superficial loss rules, as losses may be denied if the same investment/property is purchased 30 days before or after the sale and still hold it on the 31st day after the disposition.
Realize capital gains if appropriate
It may make sense for you to trigger a capital gain before the end of 2016 if realizing that capital gain doesn’t result in tax. For example, this might apply if you have capital losses that can be used to shelter the capital gain from tax, or if the capital gain will be taxed in the hands of another person who has little or no other income (e.g., an in-trust investment account for your child(ren)).
Donate investments with accrued gains to charityMaking a charitable donation by December 31st may provide you with a donation receipt that can be used to reduce your tax payable or possibly increase your tax refund for 2016. If you’re considering selling any non-registered investments, you may want to consider donating these securities instead to a charity. Any capital gain realized on your donated public securities is not subject to tax and yet you are still entitled to a donation receipt for the full fair market value of your donated securities. Therefore, donating with non-registered investments having an accrued gain makes better income tax sense than either donating with cash or selling the securities and then donating with the sale proceeds.Contribute to your RRSPYou have until Wednesday, March 1, 2017 to make a contribution to your RRSP that would enable you to claim a deduction on your 2016 personal income tax return.
Reduce your unused RRSP contribution roomIf you have been contributing less than the RRSP contribution limit available to you, you will have unused RRSP contribution room. If you have enough cash flow, you could consider making extra contributions to your RRSP to use your unused RRSP contribution room in 2016, resulting in more money being saved for your retirement. If your taxable income is in a low tax bracket and your taxable income is expected to increase to a higher tax bracket in the future, consider delaying the RRSP contribution deduction to a future year when your taxable income is in a higher tax bracket.
Split income by contributing to a spousal RRSPIf you contribute to a spousal RRSP before December 31st, you can reduce the length of time that should pass before your spouse or common-law partner (Partner) can withdraw money from this spousal RRSP without the attribution rules applying to tax (some or all) the Partner’s withdrawal in your hands.
71 years of age this year? Make an advance contribution to your RRSPIf you are 71 years of age at the end of 2016, December 31 is the last day you can contribute to your RRSP and the deadline for winding up your RRSP. You may want to make your RRSP contribution before this deadline in order to benefit from the tax-deferred growth of your money inside your RRSP sooner. However, if you also have earned income in 2016 which can provide you with RRSP contribution room in 2017 (or have unused RRSP contribution room), you might consider making your 2017 contribution (or using up your unused RRSP contribution room) before December 31 when your RRSP matures. While you may incur a small over-contribution penalty for the month of December 2016, you should be entitled to a deduction in 2017 for your RRSP contribution (made in December 2016). This RRSP deduction may save you more tax dollars in 2017, and can ensure that you maximize contributions to your RRSP before it is wound up. You should speak with your professional tax advisors to ensure this strategy is appropriate and your planned over-contribution isn't excessive in your circumstances.
Base RRIF withdrawals on the age of the younger PartnerIf you have a younger Partner, you may want to consider having your mandatory (i.e., minimum) RRIF income withdrawal based upon the age of your Partner. This decision could reduce your required annual RRIF minimum income, and allow you to defer tax on your RRIF for a longer period of time.
Make your required HBP repaymentIf you withdrew money from your RRSP under the HBP in 2014, you have your first repayment due in the 2016 tax year (i.e., before the end of the 2nd year following the year of your HBP withdrawal). This repayment can be made as late as March 1, 2017 (i.e., your 2016 RRSP contribution deadline). You should not forget to make a contribution to your RRSP for 2016, otherwise you may face income tax on any deficient repayment amount.
