It's Your Money  

Don't want life insurance?

Is there something stopping you from protecting your loved ones?

Have you convinced yourself that you really don’t need life insurance?

Maybe you’re right and you don’t need this important coverage. Let me help by providing you with five more reasons not to buy life insurance (and why they don’t make sense):

  • You don’t have any kids – While having children is the No. 1 reason for many to set up life insurance, the lack of them doesn’t automatically mean you don’t need coverage. Many people have a spouse or other family member who is reliant on the income they earn and they would be put into a tough financial position if you were to pass away unexpectedly.
  • You think it’s too expensive – False concern over the cost of insurance is the top reason why people don’t set up life insurance. A recent survey found the average consumer estimated coverage at five times its actual cost. This is partly the fault of the insurance industry who try to push expensive permanent policies onto people who only need a cheap term insurance plan.How cheap is it? A $500,000 life insurance policy for a 30-year-old female is only $20 a month.
  • You’re too young and healthy – Nobody is invincible, and an accident can happen at any time. If anyone depends on you to make ends meet, you should be considering insurance now. As an added bonus, someone young and healthy will qualify for great rates and be able to lock them in now for as long as they’ll need the coverage.
  • You don’t know where to start – Almost half the people surveyed said that their lack of understanding about insurance was the main reason they hadn’t set any up. There are vast amounts of information online for those that want to do some research. Alternatively, a short chat with a professional financial planner can help create a customized plan.
  • You don’t have time to set it up – Applying for insurance used to be a long and onerous task, but it’s much easier these days. The entire application process can now be done online, and several insurance companies even offer e-delivery of the policy once approved. Setting up a policy is now easier than ever so a lack of time is no longer a valid excuse.

It is common human nature to avoid tasks that you know you should do and equally common to find excuses or reasons to support your behaviour. But just because you don’t want to set up life insurance coverage on yourself doesn’t mean your family doesn’t deserve it.

So enough of the excuses already, if you need life insurance go set it up! You’ll sleep better at night once you do.

Avoid CRA scrutiny

Receiving a letter from the CRA that you’ve been selected for an audit is one piece of mail that absolutely nobody wants.

As we come into the final stretch of this year’s tax filing season, I thought I’d share some red flags that could trigger one.

While some audits are still random, a new approach by the CRA was undertaken following a study that found that random audits detected far fewer cases of significant non-compliance versus targeted ones.

The numbers showed that the random audits resulted in just 12.2 per cent converting to cases while targeted audits resulted in a 46.7 per cent conversion rate.

With that new information in hand, the CRA’s preferred approach today is to identify high-risk areas and focus most of their audits there.

Let’s look at what types of people are most at risk:

You file an adjustment

Mistakes are normal and the CRA has a fairly simple process for filing a T1-ADJ Form to fix mistakes made on your tax return. However, you should be aware that filing an adjustment can flag your return for a closer look and this could lead to an audit.

This certainly doesn’t mean that you should not file an adjustment if required, only that it pays to make sure that your initial return is done properly so it’s not needed. 

You don’t respond to CRA requests

If the CRA reaches out to you and you fail to respond, the risk of being audited goes up significantly. If the reason for their request is to ask for something you don’t have (including more money), you are still far better off to respond and tell them that instead of simply ignoring them. 

Ignoring the CRA will not result in them ignoring you. 

Your reported income doesn’t match your home value

If you live in a nice area with expensive homes and report little to no income, this is an obvious red flag for the CRA.

They use screening tools to compare your reported income to those of your neighbours and look for things that don’t line up.

You are reporting losses yet again

By reporting net losses in a business or rental property for multiple years, the CRA starts to ask some questions.

They begin to wonder if you are renting the property to a family member or friend at lower than market rates or using a business structure solely for the write-offs it provides. Either can be a key red flag for an audit.

Your return has notable changes from last year

If your income or expenses year to year vary significantly, the CRA may want to find out why.

Sometimes this “flag” can result in nothing more than a simple review instead of a full audit, but it is another key indicator for the CRA to dig a little more. 

You sold real estate in the last year

The CRA is shifting significant focus here and the 2019 federal budget earmarked $50 million over the next five years to help increase this focus.

It is very important to file a principal residence capital gains exemption if appropriate but be forewarned that the CRA may want to know more.   

Let's hope a CRA audit doesn't result in further action if you’re filing your returns properly; but it can still be a major headache that costs you a lot of time and money.

Be sure to file an honest, clean and double checked return this year to save yourself a lot of un-needed hassle. 

Tax tips for all stages of life

There is only three weeks left until the tax-filing deadline, yet I haven’t even started to put my own tax file together to send off to our accountant.

You would think that a financial professional would be all over this, but the truth is, I hate filing my taxes just as much as the rest of you. 

But just because I am waiting until the last minute does not mean that I won’t file my taxes on time or won’t make sure that I am structuring things as efficiently as possible to pay less tax. And I certainly hope that the rest of you will do the same.

With the deadline a few weeks away, I thought it was worth one more tax-related column to highlight some last-minute tax planning ideas that people in different stages of life should do in order to make a big difference: 

Teenagers — Most teens don’t earn enough money to be required to pay income tax and they generally don’t have to file a tax return. But even though they don’t have to, they likely should.

The minimum earned income for 2019 to pay tax is $12,069 and most teenagers who work will likely earn under this amount. That income does, however, still create RRSP contribution room and even though the teen may not plan to contribute to an RRSP right away, filing a tax return will lock it in.

The room will accumulate and carry forward and their future self will be very thankful for the extra room to use for tax planning down the road.    

College Students — There are similar benefits to filing a return for college students even if they also don’t need to do so. A college student will also have the $12,069 basic tax-free amount, but they can additionally claim tuition payments and even transfer certain credit amounts over to their parents.

Those students drawing out RESP funds and also working part time or in the summer need to be sure that they’re managing the RESP withdrawals properly to minimize any taxation issues. 

Working Years — A poll was released the other day that showed most Canadians still see a tax refund as a windfall instead of as their own money being paid back to them. The reality is that a tax refund is really just the result of poor tax planning.

While not much can be done for this year’s filing, those employees with fairly stable income should look at this year’s return and if they are getting a refund yet again, consider filing a T1213 form.

This CRA form is used to “Request to Reduce Tax Deductions at Source” and once approved, can authorize your employer to reduce the amount of tax withheld at source for 2019.

Reducing the tax withheld at source will allow you to re-deploy the extra money on a monthly basis directly into debt reduction or retirement savings.

Retirees or Soon to Retire — For anyone over age 65, make sure that you are claiming the pension income tax credit. Even if you’re still working, this credit will allow you to withdraw $2,000 per year from a “pension source” tax free.

If you don’t have a pension and aren’t ready to convert your RRSP account over to a RRIF, you can still convert a small portion of the RRSPs over so that you have enough to pull at least $2,000 out each year.   

Benjamin Franklin once said that “In this world nothing can be said to be certain, except death and taxes.”

So if you have to file your tax return, you might as well file it on time and do it right.


Give gift of financial literacy

Many grandparents I know have discovered the value of providing a financial gift such as an RESP contribution to their grandchildren instead of another toy that they will likely lose or forget about in short order.

There is another type of gift however that grandparents are in the unique position to pass on to their grandkids, but many don’t know how to do it or where to start.

The gift of financial literacy is likely the most valuable thing you can ever pass on to your grandkids and until we create the necessary framework to build this into our core education programs, it’s something they desperately need. 

But why do I suggest putting this task on the shoulders of a child’s grandparent and not their parents?

Most of the time, grandparents have an edge over parents in their ability to talk more freely with their grandchildren.

While children will sometimes resist listening to financial advice from their parents, they may be more willing to hear grandma or grandpa out.

Some parents fear that the grandparents might meddle too much or make their lives more difficult, so the parent’s prior support and blessing is important here. 

While this all sounds wonderful, how should it be initiated?

It all starts with a conversation; and it’s very important not to be too pushy here. Children want to learn, but they also want to know how it will apply to their lives. 

Grandparents could consider telling some stories of how they bought their first house and how they paid for it. Or they could explain their retirement income streams and how they pay for expenses without working anymore. 

The next step will be to get the grandchildren involved themselves. With the parents’ permission, of course, you could consider giving a grandchild a cash gift for their birthday or Christmas.

Give the grandchild three jars and label them:

  • spend
  • save
  • donate 

They can allocate one-third of the cash gift to each of the three jars. The “spend” jar can be used at any time to buy items they want.

The “save” jar is money that should be put away or invested for the long term.

Finally, the “donate” jar is money that should be set aside to donate to charitable causes. 

Over time, the grandparent could then have discussions with their grandchild on how to use the money in each jar. They could take their grandchild to meet their own investment adviser once their “save” jar has built up a little.

A field trip like this with grandma or grandpa can be a very memorable occasion and also a great learning opportunity.

With the help of the grandparent, the grandchild could also set up their own investment account with the advisor or online and choose their own investments. 

The “donate” jar provides another great lesson in the making. The grandparent(s) could set up a special time for them and the grandchild to meet and talk about different charitable causes.

They can discuss the pros and cons of each option and select one that the child believes in. 

If a certain dollar amount is required for the type of gift the grandchild wants to make, they may even want to do a little fundraising in the family or with odd jobs to reach their donation goal. 

Opportunities for learning are everywhere and ones that may seem minor to you could be a great addition to a grandchild’s financial literacy.

Consider taking them along to the ATM machine and having a discussion on where that money comes from and how it got there. Take them out for lunch afterwards and discuss the bill and why you’re leaving a tip for the server. 

Parents can definitely apply many of these same strategies and help teach their children about financial matters but don’t forget that grandparents can also assist in this role.

This may create a great way to share some special time and leave a lasting impression that will benefit them for the rest of their lives.   

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About the Author

Designated as a chartered investment manager and certified financial planner, Brett holds life insurance and investment licenses in B.C., Alberta and Ontario.

In addition to being the owner of Kelowna-based SPEIR Wealth Management Inc., Brett also serves as the vice-chair of the Financial Planning Standards Council of Canada’s board of directors. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FPSC board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

For more information or to see a database of previous columns, visit www.speirwealth.com.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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