CFP Free Questions Flashcards
LIRA Vs advantages and disadvantages
advantages
-eliminates concerns around company solvency.
-more flexibility around income stream (can unlock up to 50% of pension)
-tax deferred rollover to wife
-unused rrsp room can be used to shelter portion of the excess
-if returns are strong, could provide a better income benefit
disadvantages
-assuming full investment risk
-no health benefits
-no bridge benefits
-giving up indexed pension
-only a portion of value commuted to lira.
-bad performance could lead to reduced income benefit
-has to take a lump sum at a higher mtr
Benefits and risk of new job
IPP will provide a fixed source of retirement income. DB plan would be appealing since they are conservative investors. The plan can be indexed and the employer needs to make up for any shortfalls.
Doesn;t have health benefits. will possibly need to replace these through outside insurance or by self insuring
Assumptions with comparing pensions
-inflation rate-assumption
-investment returns-assumption
-FAE at age 65 - actual
-FAE at age 66 - estimate
-Pension contribution formula-actual
-marginal tax rate in retirement-estimate
-Current and 5 year YMPE for 65-actual
YMPE and 5 year average for year she turns 66-estimate
-discount rate - estimate
-impact of additional rrsp contributions or mtr-estimate
-pv of after tax incremental income if taken at age 66 -estimate
-amount of after tax incremental income taken at 65-actual
-marginal tax rate in year she is 65-actual
considerations for pension decisions
health - may want to take sooner if she’s in poor health
economic condition of the pension - if the pension does poorly, you could lose indexing, which is a case for taking the pension sooner
-investment risk, if she takes the money earlier and invests it, she has to make decisions. She a risk averse investor so this may not be her preference
-rrsp contribution room -she will be earning rrsp room and can use this to defer her pension income
pr exemption
always remember +1. If you can claim a pr exemption for the entire time you owned a home, say 20 years. You can designate it for 19 years and use the plus1 to your advantage. Then use that year you saved for another property in the future.
implications of passing on investment proeprty
joint tenancy advantages - income splitting can be achieved, passes on future capital gains tax liability to daughters, automatically transfers to daughters on death (no delays or disputes like leaving through a will), won’t have to pay probate at death.
disadvantages - losing control of property (they could sell their portion or there could be a dispute over a business decision). property would be available to their creditors or ex spouses in event of marital breakdown, automatic flow to daughters at his death may not be his intention.
transfer to trust with children as remainder interest advantages -
trusts are expensive, money required to open trust and for annual reporting, he would have a capital gain to deal with and would need funds on hand to pay this, 21 year disposition rule could affect him as well.
use testamentary trust - he retains ownership/control throughout his lifetime, GRE will have favourable taxation for the first 36 months of existence, capital gains deferred until his death, he retains the right to change his will if his relationship changes
disadvantages- the cost associated with setting up trust and filing may not be worth it, the asset will be part of his assets at death and subject to probate, subject to 21 year disposition rule (they will likely live for many more years), trust owns the asset instead of his daughters
deductible to employee
option to work from home or office = only professional dues would be deductible (can also deduct amount of cpp 3166 roughly and amount paid into ei 890 or so.
if your job requires you to work from home - can deduct maintenance, utilities (water, heat, hydro),rent
commissioned employee - maintenance, rent, home insurance, property taxes, utilties
self employed - can deduct portion of household expenses (except renovations for certain personal thing). things like phone for personal use, gym membership not included. If it’s a principal residence, best not to claim cca (proportional anyways). ei can also be excluded if theres no clear reason to participate. Can deduct any reasonable expense
retractable vs redeemable shares
retractable shares can be bought by the corp-
redeemable shares can be traded for cash
lpp carry forward
can carry back 3 years or forward 7 against other lpp gains
if its explicitly for shareholders, not employees, its a shareholder benefit and corp can’t deduct. full taxable to shareholder
tuition AMOUNT can be transferred to parent or spouse.
bond interest in year of death
accrued up to the date of death
when someone is on a short timeline after losing a job
determining whether or not to convert insurance is important
retractable preferred shares
capital preservation (especially when used with fixed income heavy portfolio/money market fund
