Managed Money Reporter Newsletter — Issue 279, March/April 2014

Editors: Carl Spiess & Allan McGlade

Featured Articles

The Great Big Tax Issue

Carl Spiess

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA

This issue of the Managed Money Reporter is just about the tax man, nothing but the tax. But before you cringe and perhaps run off to read something more exciting, please take a moment to glance at our articles. We think you'll find at least one or two tax saving ideas, charts, or articles of interest, especially if you are thinking about retirement income, are a "U.S. person", or have foreign assets.

RRSP Withdrawal Rates

There have been articles written lately about RRSPs being a hidden tax trap (e.g. Avoid the RRSP tax trap in your 50s, Globe & Mail, 17 Feb 2014). The Spiess McGlade team sends our retired clients over $5.5 million dollars of Registered Retirement Income Fund (RRIF) payments each year. We recognize that receiving too much RRIF income, along with income from other sources in retirement, can lead to an Old Age Security (OAS) clawback - essentially a 15% tax on income over $70,000. Therefore, we help structure retirement income streams (which can be split between married couples) to help minimize this OAS clawback.

Here is a handy chart showing the tax savings of putting money into an RRSP, and the effective tax rate when taking income out of the RRIF (RRSP must be rolled into a RRIF by December 31st of the year you turn 71) in retirement.

So the RRSP may not be the greatest tax strategy for single people who expect to earn over $70k (ask us how to generate tax deferred income) in retirement. But a couple would need to earn over $140k in retirement to start losing OAS. Certainly for clients in that situation, we are pleased to review TFSAs and other accounts and strategies to minimize taxes as part of your retirement income plan. Contact us for more details on retirement income streams.

Taxation of different asset classes

While we are talking about tax, here is a great chart showing how various types of investment income are taxed when held outside registered accounts. Especially at lower income levels, dividend income lets you keep more of the dollars you earn - and investing for capital gains, preferably deferred, is best for higher income earners.


Carl Spiess quoted in the Globe and Mail

It was fun being quoted in a couple of recent Globe and Mail articles. The topics were RRSPs for newbies and reasons an RRSP might NOT be right for you. See:

In the "Newbie's guide", my first quote was about how many people confuse RRSPs (and TFSAs and RESPs etc.) and their tax saving benefits with the investments (GICs, stocks, bonds, mutual funds, ETFs etc.) that are held inside the accounts. In a quote from the "5 reasons" article, I emphasized that it is important to think about what the right type of account is (e.g. TFSA or RRSP) to achieve your tax goals and then choose appropriate investments to hold in those accounts.

(So it was pretty amusing when the second web comment on the article was about how Canadian RRSPs are bad because US fund managers have a hard time beating their index. That comment was especially ironic since last year the majority of active Canadian managers were outperforming – see Canadian active managers have their best year since 2001, Financial Post, 20 Feb 2014 – and my other comment was about how too many people follow what was hot the year before.)

Knowing that many average Canadian investors continue to confuse their accounts with their investments, I have a theory: For the next while, I believe Canadians are going say they like TFSAs over RRSPs for one simple reason - the timing of their contributions with respect to the market cycle. In the chart below, we see that the largest number of RRSP contributors (AND percent of tax filers AND total dollar amount of contributions in Real $) was in 2007 - i.e. during the last market high for the TSX.

RRSP contributor characteristics 2005 2006 2007 2008 2009 2010 2011
Number of tax filers (millions) 23.3 23.3 23.7 24.0 24.3 24.5 24.8
Total no. RRSP contributors (millions) 6.14 6.20 6.29 6.18 5.97 5.96 5.953
Percent of Tax Filers 26.3% 26.5% 26.5% 25.7% 24.5% 24.3% 24.0%
Total RRSP contributions (millions) $30,581 $32,351 $34,058 $33,314 $32,999 $33,861 $34,401
Average RRSP Contribution $4,984 $5,221 $5,412 $5,392 $5,530 $5,685 $5,778

Data from CANSIM table 111-0039.

In 2009, at the low of the markets after the financial crisis, Canadians were first allowed to contribute to TFSAs. So to many people, their TFSA looks like the better "investment", while in fact their TFSA, like their RRSP, is an account, and the investments in both are performing better or worse for reasons that have to do with the markets, and the timing of their investment, and nothing to do with whether they invested in a TFSA vs. RRSP account, or with the tax implications of either. However, their investments that they made in 2007, just before the crisis, have barely recovered while those they made at the bottom of the market in 2009 have done nicely due to the timing of their purchases.

It is interesting to note that in 2012, the total amount that Canadians held in RRSPs was 959 billion. By contrast, the much newer TFSA has already attracted 66 billion in contributions since 2009 despite the lower annual contribution room. (See for more.)

So please let us help with deciding which account (RRSP or TFSA) is right for you based on your tax situation, and THEN what investments to hold in each account based on market conditions, investment fees and your risk tolerance.


TurboTax savings if you do your own taxes

Again this year, Scotiabank offers our Scotia Online clients savings for TurboTax. TurboTax makes it easy to do your own taxes and get your maximum tax refund. What's best, as a valued Scotiabank customer you can get a special 20% discount on TurboTax Online products. See details:



Or... Help if you want someone else to do your taxes

Stressed about tax preparation?

Scotiatrust Tax Services

If you would rather have someone else do your taxes, we can refer you to our team of experts for help. For personal tax services, Scotiatrust's taxation services are a mid-priced fee-for-service division to which we are pleased to refer clients. Please see the attached brochure for details and contact us if you would like a fee estimate and referral:


U.S. Tax Reporting Assistance for Canadian Fidelity investors with U.S. ties

We are pleased to note that there is some help on the horizon for Canadian investors with U.S. ties. It is estimated that 1 in 30 Canadian investors are considered "U.S. persons" by the IRS and as such, have additional tax reporting obligations. U.S. Passive Foreign Investment Corporation (PFIC) rules could be interpreted to include mutual funds and therefore require extra paperwork. We are pleased to note that Fidelity Canada is taking a leadership position in providing that extra required documentation.

If you are a "U.S. person", please see Fidelity's PFIC information and ask us for investment options from Fidelity that can simplify your reporting.


Canadians with Foreign Assets

Canadians are taxed on our worldwide income. The Federal government has recently updated the T1135 form for those who have foreign assets in excess of $100,000. We have attached an information piece for those who are affected and would be pleased to help review your overall investment holdings and strategies.


Federal Budget Update

There wasn't much in the Federal Budget of February 11, 2014 that affects individual investors. We have attached our Tax and Estate planning group's analysis if you do want to read about the changes to the taxation of trusts and estates:

  • 2014 Federal Budget Highlights, ScotiaMcLeod

What was interesting was to read The Economist's take on the budget:


Tax slip mailing dates

RRSP tax receipts should all be mailed by the first week of March - however other tax slips come earlier or later depending on the source of the information:

Tax mailing dates

If you hold trust or mutual fund units, we urge you to wait until you have received both your T5 and T3 slips before filing your tax return. Please contact us if you have any questions.


Recommended Link of the Month

E&Y's tax calculator is so good we keep using and recommending it. This version is updated for 2014. Input your income and see in which province you'd prefer to live!



Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

Security | Privacy Policy | Legal Information | Important Information | Site Map




® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.