Fundamentals of Financial Planning Flashcards
What are the 6 steps of financial planning process?
- Establishing client-planner engagement
- Gathering client data and determining goals and expectations
- Clarifying the client’s present financial status and identifying problem areas and opportunities
- Developing and presenting the financial plan
- Implementing the financial plan
- Monitoring the financial plan
Strategies to improve cash flow? This should focus on After-Tax income.
- Reduce discretionary expenses (for example, refinance high interest debt)
- Reorganize investments to produce highest possible after-tax income (for example, draw more from TFSA and non-reg IA etc.)
- Seek to increase income
How to calculate Gross Debt Service Ratio?
GDSR = (Mortgage Payments + Property Tax + Heating + 50% Condo fees) / Gross Family Income
This should not exceed 32%.
How to calculate Total Debt Service Ratio?
TDSR = (Mortgage Payments + Property Tax + Heating + 50% Condo fees + Other Debt Payments) / Gross Family Income
This should not exceed 40%.
What is Education Assistance Payment??
An EAP is the amount paid to a beneficiary (a student) from an RESP to help finance the cost of post-secondary education. The RESP provider reports EAPs in box 42 on a T4A slip and sends a copy to the student.
What changed after June 18, 2008 regarding EAP?
A beneficiary is entitled to receive EAPs for up to six months after ceasing enrolment.
What is the limit of EAP that can be paid out?
$5000 for the first 13 consecutive weeks of full-time studies in a qualifying educational program. After that, there is no limit. $2500 for part-time studies.
What is a specified RESP?
A specified plan is a single beneficiary RESP (non-family plan) where beneficiary is entitled to the disability tax credit. A specified plan cannot permit another individual to be designated as a beneficiary at year 37th.
What is the CESG and how long does the CESG continue?
20% of annual contributions for a beneficiary to a maximum CESG of $500 ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.
What are the additional CESG tiers?
40% (extra 20% on the first $500), if family net income is $41,544 or less. 30% (extra 10% on the first $500), if family’s net income is more than $41,544 but is less than $83,088.
What is the deadline to start RESP and be qualified for grants?
Before the end of the calendar year in which the beneficiary turns 15 and made a $2000 contribution; or at least $100 contribution in any 4 previous years. Grants stop by end of the year beneficiary turns 17.
What is the maximum term of RESP?
35 years.
What happens to the RESP if beneficiary doesn’t go to post-secondary school?
Contributions are returned to subscriber, with any accumulated income payment (growth from the contributions) taxed. This can be avoided by contributing the AIP (to a max of $50k) to subscriber’s RRSP if there’s room. CESG is returned to government. Any non-education withdrawal from RESP will prevent the plan from being qualified for CESG for the next 3 years.
What if the AIP is not rolled into RRSP?
There is a deferral tax of 20% over and above a subscriber’s ordinary marginal tax rate. For example, if the subscriber were in a 30% tax bracket, the accumulated income would be taxed at approximately 50% if it were taken as a payment.
What is Canada Learning Bond?
Grant to help lower income families (net income below $48,535) start saving for their child’s post secondary education. $500 first payment, and $100 for every year after up to 15 years.
What is First time HBP?
You may participate in the plan if you (or your spouse) have not owned a home which you occupied as your principal place of residence in any of the past four calendar years. Each can withdraw up to $35000.
What does repayment to RRSP for HBP begin?
2 years after the year of purchase, to a maximum of 15 years. For example, if A bought a home in 2020, she will have to start her repayment in 2022.
What is the limit to withdraw for Lifelong Learning Plan?
$10,000 a year, and not exceed $20,000 in a span of 4 years.
What happens when RRSP owner doesn’t finish the education program?
RRSP withdrawn is still considered to be under LLP if:
- The student withdraws from the program more than three months after the year of the RRSP withdrawal;
- Less than 75% of the student’s tuition is refundable as a consequence of leaving a program; or
- The student enrolls in another qualifying educational program before April the year after RRSP withdrawal.
What is LLP repayment period?
Repayment has to start no later than 60 days after year 5 since the first RRSP withdrawal under LLP. This repayment has to conclude within 10-year period. Repayment can also start early if RRSP owner doesn’t go to school for at least 3 months in 2 years. In that case, repayment starts 60 days after the 2nd year’s end.
How to calculate elasticity?
Elasticity = % Change in Quantity Demanded / % Change in Price
What are elastic, inelastic and unit elastic demand?
- Elastic demand means a small change in price causes a large change in the quantity demanded.
- Inelastic demand means a change in price causes a small change in the quantity demanded.
- Unit elastic demand means the change in price causes an exact equal change in the quantity demanded.
How to calculate GDP?
GDP = C + I + G + (X – M) C: Consumer Spending I: Business Investment G: Government Spending X: Export M: Import
Tell me about expansionary fiscal policy?
Designed to stimulate economy. ↑G or ↓T results in ⇒↑C and ↑I leading to ⇒↑GDP
