Newsletter April 2019 (1)

The latest news in the sphere of Finances and more:

1. Prime Rate remained unchanged in March. Should we expect an increase in the near future?
2. Budget 2019, the most interesting…
3. ServiceCanada.ca. Why is it better to register at this site?
4. Savings Account with a 3.25% interest from Manulife Bank.
5. Celebration of Victory Day 2019.

In more detail:

1. Prime Rate remained unchanged in March. Should we expect an increase in the near future?

Central Bank of Canada left the overnight lending rate unchanged, meaning Prime Rate also remained unchanged. Chair of the Central Bank, Steven Poloz stated that changes of the overnight lending rates will be fully based on statistical data – level of inflation, which is currently under 2%, state of nation’s economy, oil prices, real estate market, and overall global environment… All of this, according to experts, postpones the time of rise in the overnight lending rate, and the resulting rise of the Prime Rate.
On the other hand, in comparison with the end of 2018, there has been a decrease in the fixed mortgage rate, making it very attractive. In some instances fixed rate is lower than the variable rate.
If you currently have a variable rate mortgage with a not so significant discount to Prime Rate, then today is a good time to consult with us on different options available, which may help you save money in the future.

2. Budget 2019, the most interesting…

The 2019 budget contains various interesting moments that I would like to share with you.

• First and most important, something everyone is talking about, is the First-Time Home Buyers Initiative (FTHBI). Assistance to those buying for the first time and does not have a large down payment. Will only come in effect in September of 2019.
  For example, if a family has 5% of the purchase value on an existing property, the insurance company CMHC (Canada Housing and Mortgage Corporation) will provide an additional 5% and as result, the total down payment will be 10% which will lower the monthly payments for the buyers. If a person is planning to sign a contract on a newly built property, the CMHC insurance company will provide an additional 10% to the initial 5%. In any case, it appears that the total sum of down payment from the buyer and the insurance company will not exceed 20%, as the insurance aspect is involved. Such program is titled Shared Equity Mortgage (SEM).
  At the time of the sale of said property in the future the insurance company will receive back its share of the profit or losses, proportional to their initial contribution.
  An income of such household should not exceed $120,000 per year and the mortgage amount including the amount provided by the insurance company should not exceed the household income more than 4 times.
  If we analyze these restrictions, the program does not appear to be very useful in larger cities such as Toronto, Vancouver and surrounding areas.
  For example: Using the income level restriction of no more than $120,000, based on stress test, the family can qualify for a property of up to $600,000 (with 5% own down payment and 5% from the government), but there is the second rule: sum of the mortgage and 5% received as a loan cannot exceed the household income more than 4 times. This means that this particular household can only purchase a property of up to $490,000. This assistance is not for everybody.
• The allowed withdrawal amount when buying first property and using the HBP (First-Time Home Buyer’s Plan), has for many years been $25,000, but as of 2019 the allowed withdrawal amount will be increased to $35,000 per spouse. This has been in effect since March of this year.
• New option at age 71 when transferring money from RRSP to RRIF. Will come in effect in year 2020.
  Deferring tax payment using an individual pension program RRSP (Registered Retirement Savings Plan) can be done only until age 71, at which point everything needs to be withdrawn and taxes paid, or the whole amount has to be transferred to RRIF (Registered Retirement Income Fund) or the LIF (Life Income Fund), from which you would then have to withdraw a certain amount every year and pay taxes. You can also purchase an Annuity, this is if you would take your savings and switch it to a guaranteed pension provided by an insurance company (not the best option in recent years due to low investment interest rates).
  The government has introduced another option for when you turn 71.
  25% of accumulated amount can be used to purchase a postponed annuity – ALDA (Advanced Life Deferred Annuity), this way 25% of the savings can be put aside until age 85 for the purpose of deferring tax payments.
• Changes to the RDSP program (Registered Disability Savings Plan). Will come in effect in year 2021, but a portion of new rules will come in effect in 2019.
  Registered Disability Savings Plan (RDSP) – is a very beneficial program for those that qualify for the disability credit.
  The rules are as follows: if the household income is below $95,259 in year 2019, the government provides a 300% grant on the first $500 contributed in the year and another 200% on the next $1,000. If the household income is above this level, the family will receive 100% on the first $1,000, contributed in the year. If the household income is below $31,120, the government will issue a bond in the amount of $1,000 per year and this is not affected by whether you contribute to RDSP or not. This $1,000 is given annually and is based only on your income. The most important part is that all the income earned is not taxable for as long as it is in this program.
  But there is an important detail, if a person was no longer receiving this credit, within the next year, since stopping to receive the disability credit, the plan had to be closed an all the money received from the government in the previous 10 years, Grants and Bonds, had to be returned.
  Avoiding immediate repayment was possible by obtaining a letter from a doctor stating that in the near future, based on the person’s health, they may be re-qualified to continue receiving this credit. This letter from the doctor allowed postponing closing of the plan for a period of 5 years and no longer.
  New rules do not require closing of the plan, even if disability credit is no longer received. More information in detail can be found by calling our office.
  We can also assist opening such plans.
• Employee Stock Options Plan. New rules are in effect immediately.
  Employees of large companies often have an option to participate in an Employee Stock Option Plan. When employees liquidate these shares in the future, the difference between the purchase and disposition price, multiplied by the number of shares was considered as income of the employee, but only 50% of this profit was taxable (the rules are very similar to the rules of taxation of capital gains). Starting this year, only a maximum amount of $200,000 can be eligible for the stock option deduction, options granted beyond that amount will not be eligible. This rule only applies to established companies and will exclude companies such as “Start Ups” and “Rapidly Growing Canadian Businesses”.

3. ServiceCanada.ca. Why is it better to register at this site?

Recently many of our clients come to talk to us about their pensions. In order to better calculate future pension, it is important to know what amount will be received under the CPP (Canadian Pension Plan). In order for our meeting to be more productive and in order for us to be able to better understand the amount of your future pension, I recommend you register at the following government website www.servicecanada.ca. Having access to your account, that will be available to you within a few weeks, you will be able to see the amount of your pension using a computer, if you retire today or if you decide to retire at a later time. This information will allow me to better develop a strategy for your retirement and better answer questions such as:

– Are you eligible for social assistance in your situation?
– Is the amount of your pension correct?
– When should the funds be withdrawn from the RRSP pension program, to avoid losing social assistance?
– How to receive full pension with all additions in the first few years of retirement, if it has been denied by the government, based on your previous year’s income?

4. Savings Account with 3.25% interest from Manulife Bank.

Starting April 15th and for the next 6 months, Manulife Bank will be offering 3.25% on new savings accounts, Advantage Account, that you can open yourself using the link below.
After the 6 months period the interest will convert to 1.5%, which is still a very high interest rate, when compared to the rates offered by regular accounts at the major banks. This savings account can be used an ongoing account with all the benefits of a typical chequing account. Very useful account, many of our clients use this bank.
client.manulifebank.com/edo/#/productCatalogue/BANK_ID=MNL&LANG_ID=001&REF_ID=82609&PROMO_ID=DSP2019

5. Celebration of Victory Day 2019.

Many different activities, dedicated to Victory Day, will take place in Toronto this year, including a free concert by the Turetsky Choir.
Detailed information on the schedule of all the activities will be sent in a separate letter in a few days.
As always, I am ready to assist you with these and other questions you may have.

Serguei Totrov
Financial Advisor, CFP, CLU, EPC
Mortgage Broker, AMP
TOP – 75 Mortgage Broker in Canada
in 2015, 2016, 2017, 2018
416-222-0533
www.totrov.com

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