It is budget time in Ottawa and the federal government decided to leave two critical areas of Canadian tax policy unchanged:

  • Principal residence exemption still remains
  • Capital gains inclusion rate will stay at 50%

Below we outline some other key areas of the budget that financial planners will need to be aware of:

Anti-flipping Tax

Profit on sale of residential property held for less that 12 months would be taxed as business income

Canadians who sell a home or rental residential property that they have held for less than 12 months will be considered flipping and will see profits from a sale taxed as business income. The idea is to protect the current and important principal residence exemption for Canadians who use their houses as their homes. Under current rules, the CRA had to prove that your intention was to flip. The CRA no longer has to prove it anymore. Exemptions will apply due to certain life circumstances, such as death, disability, the birth of a child, a new job, or a divorce.


New Home Savings Account

A new measure for first-time home buyers

 The Tax-Free First Home Savings Account (FHSA) would allow first time homebuyers to save up to $40,000. Similar to an RRSP, contributions would be tax-deductible and like a TFSA, withdrawals to buy a first home – including investment income – would be non-taxable. Individuals will still be able to withdraw from an RRSP to purchase a home, so they can now take advantage of both options to buy a home. The FHSA will have an $8,000 annual maximum contribution limit, and unused contribution room cannot be carried forward. There is no age limit. If after 15 years, the individual still doesn’t own a home, the funds can be transferred to a RRSP or a RRIF. To open an FHSA, the individual needs to be over the age of 18 and they have not owned a home in the current year or the previous four years.


Better Access to the Small Business Rate

Increasing the level of taxable capital at which business can still access the small business tax rate

The small business tax rate (federal) is 9% on the first $500,000 of taxable income, versus a general corporate tax rate of 15%. This rate is proportionately reduced once a business has taxable capital between $10 million and $15 million. The rate ends completely above $15 million. This has now been changed to $50 million. This will help capital-intensive businesses who are often not eligible for the small business rate. However, many are complaining that the passive income rules still prevent the savings of large reserves in a corporation for future expansion. The small business deduction limit starts to be reduced once investment income passes $50,000 and hits zero at $150,000.


New Minimum Tax on Top Earners

New measure targets the top 0.5% of earners

Tax filers with income above $400,000 – the top 0.5% of earners – make significant use of deductions and tax credits and find ways to have large amounts of their income taxed at lower rates. Canada already has an alternative minimum tax (AMT), but the new approach will be outlined at a later date to ensure that all wealthy Canadians pay their fair share of tax.


The Old Age Security (OAS) pension is a taxable monthly payment from the Canadian Government to eligible seniors over the age of 65.

Eligibility for OAS include the following:

  • You must be at least 65 years of age.
  • If living in Canada: You must be a Canadian citizen or legal resident and must have lived in Canada for at least 10 years since you turned 18.
  • If living outside Canada: You must have been a Canadian citizen or legal resident before you left Canada and must have resided in Canada for at least 20 years since you turned 18.

The current maximum monthly basic OAS payment as of the October to December 2021 quarter is $635.26. When your net income exceeds the income threshold set by the government, the OAS paid to you becomes subject to a clawback (or Recovery Tax as its officially referred to). The income threshold amount is updated every year. OAS clawback results in a reduction of OAS benefits by 15 cents for every $1 above the threshold amount and is essentially an additional 15% tax.

Ways to Minimize the OAS Clawback

  • Prioritize Your TFSAs
    • Income from savings and/or investment in a Tax-Free Savings Account (TFSA) is tax free. Ensuring you maximize your TFSA accounts will allow you to draw income as required without impacting the OAS clawback
  • Analyze Your Sources of Income
    • Income derived from non-registered accounts are treated differently for tax purposes. For example, interest income is fully taxable, while 50% of capital gains are taxable. If your investment income is taxable, then this could push you over the income threshold for OAS
  • Early RRSP Withdrawal
    • If you know that you will have lower periods of income before age 65, consider withdrawing funds before you start your OAS payments. Funds withdrawn from your RRSP can be re-invested in a non-registered account or a TFSA
  • Defer OAS/CPP
    • OAS payments can be deferred until age 70, which increases the monthly benefit amount by 36%. If you are planning to have higher income between the ages of 65 and 70, this will defer any clawbacks
  • Leverage Your Investing
    • If you borrow to invest, the interest paid may be deductible and lower your overall taxable investment income
  • Realize Capital Gains Early
    • If you are planning on making any large sales of property, consider doing this before age 65 ot 70
  • For Your RRIF, Utilize the Younger Spouse’s Age
    • This strategy will lower your annual withdrawal requirements and lower your overall net income for OAS calculations
  • RRSP Contributions
    • You can lower your taxable income by making contributions to your RRSP or your spouse’s RRSP if you are over 71, but they are younger. This will lower your taxable income
  • Income Splitting
    • Splitting of pension and other income such as Registered Retirement Income Funds (RRIF), annuity payments, and CPP pension sharing between spouses can lower individual income for either spouse and help them limit or avoid OAS clawbacks.


Utilizing Life Insurance to make Charitable Donations

Many registered charities, including hospitals and universities, solicit donations of insurance policies from their supporters. The donors get federal and provincial charitable donations tax credit while the organization, which becomes the owner or beneficiary, receives the insured amount assuming, where applicable, premiums continue to be paid.

The federal charitable tax credit is 15% on the first $200 and 33% on any remaining amount. The 33% credit applies only if the individual’s income falls within the highest range of the marginal tax rate. Provincial charitable tax credit rates vary from province to province. These are non-refundable tax credits which reduce tax owed.

Assigning a new insurance policy to a charity

An individual can purchase a life insurance policy for the benefit of a registered charity. In order to obtain a charitable tax credit for the premiums he must assign the policy to the charity, making the charity the owner and beneficiary.


Heba has been donating $1,000 annually to the alumni fund of the college she attended and receives a tax credit receipt for that amount each year. The president of the college suggested that she consider buying a life insurance policy and assigning it to the college. She agreed and purchased a term-100 life policy with an annual premium of $1,000 and a face amount of $150,000 (Heba is 40 years old and a non-smoker). She assigns the policy to the college and continues to pay the premium for which the university issues a charitable donations tax credit receipt equal to the premium. Assuming Heba does not let the policy lapse, the insurance company will pay $150,000 to the college when she dies.


Assigning an existing policy to a charity

Individuals can donate an existing policy to a registered charity. In such cases the charity can issue a charitable donation tax credit receipt for the cash surrender value (CSV) and additional tax receipts for additional premiums paid. If, however, the cash surrender value (CSV) exceeds the policy’s adjusted cost base (ACB), the policy gain will be taxable as income in the year the policy was donated. In some cases, the fair market value will be used, and the insurer could issue a receipt equivalent to this amount.


Miguel has a permanent life insurance policy he no longer needs. The market value of the policy is $120,000. He calls the fund-raising office at his local hospital and speaks with the director who informs him that if he assigns the policy to the hospital, he will receive a tax credit receipt for the market value. Furthermore, if he continues to pay the premiums, he will receive tax credit receipts for these.

Naming a charity as beneficiary

A policyholder can name a charity as beneficiary of a policy. However, this may not be the most tax efficient option for the policyholder. First, the charity will not own the policy when this is done (or even know it is the beneficiary) so it cannot issue receipts for the cash surrender value (CSV), if any, or for the premiums paid. It will however issue a receipt to the estate when the policyholder dies, and the benefit is paid.


Anna reviewed her finances and decided that she no longer needed the benefit from an insurance policy she had purchased decades earlier. She called the issuer who sent her a change of beneficiary form which she completed, changing the beneficiary to a local clinic which is a registered charity. If she continues to pay the premiums to keep the policy in effect and does not change the beneficiary, when she dies the clinic will issue a charitable donation tax receipt to Anna’s estate for the amount of the benefit it receives. Because the charity did not own the policy it could not issue charitable donation tax credit receipts for any of the premiums she paid.


Leveraging a Life Insurance Policy

Life insurance policies with a cash value component, such as universal life and permanent life policies, can be flexible financial planning tools – for both individuals and businesses. One way to access the cash value during the lifetime of the insured is by taking out a loan from a financial institution, using the policy as collateral. This is called “leveraging” a life insurance policy.

The primary advantage of this approach is that under current tax laws, the loan proceeds can be received tax free. In addition, loan interest may be deductible if the loan proceeds are used to generate income from business or property.

Whether leveraging is used in a personal or business context, the basic structure is the same. At the time of the loan application, the financial institution will issue a line of credit or a loan to the policy owner, taking the insurance policy as collateral through a collateral assignment.

The maximum amount that can be borrowed is based on a specified percentage of the CSV, usually 50 to 90 per cent depending on the investment options chosen by the policy owner. Interest may be paid annually or added to the loan balance, depending on the lender and the terms of the loan. When a financial institution calculates the loan amount, the calculation is designed to ensure that the loan balance never exceeds the maximum allowable percentage of the CSV before the estimated date of death

Upon the death of the insured, the financial institution has first claim on the proceeds of the policy. After the loan is fully repaid, the excess of the death proceeds, if any, will flow to the designated beneficiary, the policy owner, or the estate if there is no designated beneficiary.


Spousal RRSPs are often an overlooked account when in comes to investments or savings for retirement. This is mistake. Spousal RRSPs are one of the most powerful ways that Canadians can achieve income splitting. Let’s dive in.

What are Spousal RRSPs?

A spousal RRSP is similar to a regular RRSP, except that instead of the account being for the beneficiary of the contributor, it is for the benefit of the spouse. The contributor still receives the tax deduction for any contributions made to the account up to their personal CRA limit.

The primary benefits of spousal RRSPs is that a higher earning taxpayer can contribute to the RRSP of the lower income earning spouse or common law partner and claim the tax deduction. When amounts are later withdrawn, they will be taxed at marginal tax rate of lower income spouse.

Pension Splitting Rules

Back in 2007, the government introduced significant tax changes to income splitting rules that allowed retirees the option to allocate up to 50% of their pension income to their spouse on their tax return to help reduce overall taxes. For Canadians that have defined benefit pension plans, this splitting can start at any age once payments from the plan start. For all other pension income (e.g. including RRIF’s and spousal RRIF’s), income splitting can only occur at age 65 or older.

Prior to these new rules, the main way retirees could income split was through spousal RRSPs. Although these changes have cause spousal RRSPs to lose some of their importance, there are still benefits of utilizing them as part of your overall financial plan.

Why spousal RRSPs still make sense?

      • Income splitting before age 65 – if you retire early and need income, you could start withdrawals from the spousal RRSP because RRIF income cannot be split prior to age 65.
      • Leverage the Home Buyers or Lifelong Learning Plans in your spouse’s name to pay for education or the purchase of a home
      • Allows you to continue making RRSP contributions past age 71 if your spouse is under the age of 71. You can continue making contributions on their behalf if you have contribution room
      • They can be used for planned leaves (sabbatical or parental leaves) of absence or low income years. With proper planning you can withdraw from spousal RRSP to pay expenses during periods of low income and pay taxes at the rate of the lower earning spouse
      • For estate planning, you can make contributions after death. In the year of death, you cannot contribute to your own RRSP, but you can still contribute to a spousal RRSP if your spouse is under the age of 71.

Bottom Line

It is important to think ‘outside the box’ when it comes to setting up a spousal RRSP.  Some key benefits to remember:

      • It creates an additional emergency fund or liquidity for your family
      • You can access spousal RRSP funds in a way that make sense from a tax perspective
      • It provides you with more flexibility
      • It allows for tax efficient retirement income to start earlier than age 65


Direct Indexing is quickly emerging as the new shiny investment vehicle for individual investors. Similar to how ETFs disrupted the financial industry two decades ago, Direct Indexing is set to follow a similar path.

Most of us are familiar with index funds, a mutual fund or ETF that replicates the performance of an index by owning each of the individual stocks/components in the same weighting as the index (e.g. TSX 60 or S&P 500). Direct Indexing is similar, but instead of owning the mutual fund or ETF, the individual investor own all the individual components as well. Now you might think why would anyone want to do that, instead of owning the ETF or mutual fund. The answer lies the ability of the investor to manage tax more efficiently, incorporating Environmental, Social and Governance (ESG) into even the smallest portfolios and customize based on their goals or investment ideas.

In the past two decades, consumers have learned to love customization. Music streaming supplanting CDs and Netflix tailoring of movie recommendations are just some of the new ways consumers have been given the power to choose. It is likely these same trends will hit the investment industry. It started with ETFs and Direct Indexing could be next. Individual investors have always been able to pick out a handful of individual stocks, but for people aiming for broad exposure, prepared products such as mutual funds or ETFs have been their only option.

Although still in the early stages, Direct Indexing is here, and recent acquisitions in the fund management industry shows that companies believe this is the next big growth area. Just last year, Blackrock and Morgan Stanley placed bets on mass-market offerings: BlackRock Inc. bought Aperio Group LLC, while Morgan Stanley bought Eaton Vance Corp. and its subsidiary Parametric Portfolio Associates LLC, by far the largest player in the Direct Investing space.

Direct Indexing gives investors the ability to pick and mix their stock holdings as easily as they select songs for their playlist. So, if individual investors wanted to obtain broad exposure to the U.S. market, they could choose a direct indexing product that gives them ownership of each of the individual stocks in the S&P 500, or a fraction of each share. Thanks to new technology, fractional shares and commission-free trading, customizable funds are becoming much simpler to roll out to the masses. With software, it becomes easy to maintain thousands of portfolios and rebalance them to whatever suits the investor.

Managing Tax

For investors, managing the tax implications of their investments with mutual funds and ETFs has always been a challenge. With Direct Indexing, the process of tax-loss harvesting (selling holdings to incur a capital loss that can be used in the future to offset capital gains) can be incorporated to pick and choose which gains or losses to recognize within their Direct Indexing portfolios. As well, investors can now control the timing of taxable gains. Previously, investors in mutual funds would be at the mercy of mutual fund managers buying and selling decisions that could impact their taxes payable. Consider the scenario where an investor purchases a mutual fund on Wednesday, and the fund sells one of is holdings on Thursday for a large capital gain. The new investor would have to pay taxes on his or her por-rated percentage dating back to when the mutual initially purchased the stock even though the investor did not benefit from holding the stock.

Incorporating ESG

Direct Indexing also solves the difficult problem for sustainability-minded investors. There is no shortage of environmental, social and governance funds on the market, but investors and asset managers may not always agree on what counts as green or responsible. With direct indexing, investors do not have to go out and select a whole new fund, they can just drop and add whatever stocks they want. Perhaps you want to invest in the S&P 500 but wish to exclude weapons manufacturers.  Instead of buying 490 or so S&P stocks that don’t sell weapons, which would be time-consuming and expensive, you would leverage technology to quickly create an index that excludes these stocks based on pre-screened research done by the Direct Indexing providers.


Perhaps the most appealing dynamic of Direct Indexing is the flexibility of customizing an index to meet an individual’s investment criteria or even personal values — such as the ability to exclude fossil fuels from a portfolio or to support companies with female leaders. Other use cases involve investors building investment strategies that invest in an entire index, but exclude companies or sectors that are expected to underperform. Also, for those executives that hold large amounts of their company stock, they might want to exclude that stock from their own investment holdings to ensure they have more diversification.

The costs of Direct Indexing portfolios will be key to their growth and be a determining factor in their adoption. Current offerings are not as cheap as basic, vanilla ETFs that track a major index like the S&P 500, but they are more competitive against ETFs or funds that have a more strategy-based approach.

Direct Indexing will not be for all investors. It is hard to discredit the simplicity of receiving a monthly statement with one holding (of say an index fund or S&P 500 ETF) and gauging performance of that one security. With a Direct Indexing strategy, an account holder receives statements with information about every security owned, which can count into the hundreds for a widely held index.

These drawbacks may result in direct indexing seeing a more gradual uptake than ETFs, however, the benefits are compelling and would seem to outweigh the negatives over the long run.


Once someone or a couple together reach the age of 72, the flexibility to reduce your taxes paid becomes more difficult. At this point you are already collecting CPP and OAS, you are making your minimum withdrawals from your RRSP/RRIF and you no longer have the ability to make contribution to tax-sheltered accounts. Nonetheless, there are tried and true strategies that people can use in retirement to maximize their after-tax retirement income.

  1. Spousal RRSPs

The higher earning spouse can contribute to an RRSP of the lower earning spouse and still receive their full tax deduction. The lower earning spouse can then withdraw the money in retirement and pay tax at their marginal tax rate, lowering the overall effective tax rate for the couple.

  1. Order of Withdrawal

Following a tax efficient withdrawal strategy can lower your taxes payable. General guidelines include making withdrawals in the following order:

  1. Required Minimum from Matured Registered Accounts (RRIFs, LIFs and LRIFs)
  2. Liquidate Losses in Non-Registered Accounts
  • Liquidate Non-Appreciating Investments and Cash Balances
  1. Draw Down TFSAs
  2. Trigger Capital Gains in Non-Registered Accounts
  3. Withdraw from Registered Accounts

Any withdrawal strategy needs to be customized to the client situation and it should not change a client’s overall investment strategy.

  1. Asset Location

Where you hold investment assets matters! For example, if someone has both registered and non-registered accounts, they should consider purchasing investments that earn Canadian dividend, capital gains or return of capital income in a non-registered account. This income is taxed more favourable by the CRA than other investment income.

  • Fixed income
    • Interest-bearing investments have the least favorable tax treatment
    • Should be in tax deferred or tax-free accounts
  • Canadian stocks (and foreign stocks with low or no dividends)
    • Dividends from Canadian stocks and realized capital gains are the most favorably taxed kinds of investment income.
    • Non-registered accounts

Note: Owning individual securities allows for high diversification, lower transaction costs and the ability to control the size and timing of taxable events

  • Preferred Shares
    • Considered a fixed income investment, but payouts are eligible for the dividend tax credit
    • Non-registered accounts
  • REITs
    • They pass along most of their cash flow to investors, making them attractive to income-oriented investors.
    • Mix of capital gains, interest/rental income and return on capital. Income and deductions retain their character as they flow through to the investor
    • Tax deferred or tax-free accounts 
  1. CPP Sharing

You can share up to 50% of your CPP income with your spouse. The amount of the benefit depends on the number of years the spouses have been married and the number of years they have contributed to the CPP. Both spouses must be at least 60 years old and have elected to begin their CPP benefit.

  1. Utilizing Surplus Assets

If you have enough assets to meet your retirement income needs, then consider directing the surplus to either a Tax-Exempt Life Insurance Policy or giving a Gift to family members.

    • Tax Exempt Life Insurance Policy – Investment income can grow tax free and death benefits can flow tax free to beneficiaries.
    • Lifetime Gifts – there is no attribution on income earned on the gifted funds if the family member is 18 years or older
  1. Prescribed Annuity

If you are not satisfied with your income in retirement, you can immediately increase it by purchasing a prescribed annuity. You will pay less tax on the monthly annuity payments because a portion of it will be considered a return of capital.

Note: it is not advisable to invest all savings into an annuity, as the decision is irrevocable, and you cannot access the capital during your lifetime.

  1. Planning Your RRIF Minimum Withdrawals

    • Base your minimum withdrawals on the age of the younger spouse to minimize the annual percentage withdrawals amount
    • Convert your RRSP to a RRIF at 71, but don’t make your first withdrawal until the year you turn 72
    • Withdraw the annual required minimum from the RRIF as a lump sum at the end of each year





Resistance has been the common theme from industry players in their response to the proposed title reform legislation that is working its way through the new Financial Services Authority of Ontario (FSRA) regulator. This important regulation to ensure that only financial professionals with appropriate credentials be able to call themselves “financial planners” or “financial advisors” will ensure that consumers are better served and protected.

If this self-centred push is successful, it will only benefit the least-qualified providers of financial services and be another setback for professionalization and transparency in the investment industry. Currently, financial professional’s titles (outside of Quebec) are meaningless and do nothing to inform consumers of financial services as to what the financial professional they deal with actually does. Possibly, these titles could mislead consumers into expecting a level of service and credibility that may be completely unwarranted.

Some of the industry submissions received are arguing that the rules are planning to set the bar too high and would exclude people who are using either title now from continuing to do so without achieving further designations or credentials. As well, the MFDA and IIROC organizations who are having their submission provided by the Investment Association of Canada (IIAC) who is arguing that any financial professional regulated by these two bodies should be exempt from any further educational requirements. The main issue with these arguments, is that most of the education provided to the financial services industry is focused around the licensing to sell products. However, financial planning and advice are not solely focused on products and in fact may result in no product sales at all. Financial planners and financial advisors synthesize information to make well-educated, informed recommendations; product selection and sales are only a small portion of the total value proposition provided.

Keeping the status quo, will simply be validating that the financial services industry is sufficient to meet consumers needs in today’s increasing complex economic environment. It could be argued that it would prove that this entire exercise was failed from the beginning due to regulatory capture by the industry.

Many people already are wary of financial services, and their ability to meet their specific needs and goals. Helping title reform fail will simply provide one more reason for people (especially Millennials and Gen Z) to move away from traditional financial provides altogether.


“The incentives offered by CPP/QPP – combined with the strength of these programs – have made delaying CPP/QPP benefits for as long as possible is the safest, most inexpensive approach to get secure, worry-free retirement income that lasts for life and keeps up with inflation.” – Bonnie-Jeanne MacDonald

Today, the National Institute of Ageing (NIA) released the Get the Most from the Canada (CPP) & Quebec (QPP) Pension Plans by Delaying Benefits research paper, which has outlined the significant benefits of delaying pension benefits until age 70.

The paper has shown that Canadians can significantly increase their income security in retirement by delaying their CPP/QPP benefits; however only 1% of Canadian currently delay CPP/QPP pension until 70. For example, a monthly benefit of $1,000 at at 60, if delayed grows to $2,218.75 by age 70. It is clear that with fewer resources to build up retirement savings in today’s low interest rate environment, one of the best ways to maximize retirement income is to delay CPP/QPP benefits.

As CFPs and QAFPs, when meeting with clients over the next couple of months for year-end client discussions, this research and the accompanying examples should help your clients better understand both the options for starting CPP/QPP and the significant benefits to their retirement income of delaying to age 70.

Source: FP Canada Research Foundation


A recent study from Investment Planning Council (IPC) found that almost 75% of Canadians believe they need financial planning advice to be successful in the future. The appreciation for planners is on the rise amid the uncertainty stemming from the COVID-19 pandemic. Not only are individuals leaning more on their planners, but they believe the fees they are paying are worth it.

Some of the survey’s findings included:

  • Participants said they have increased their communication with their planners since the pandemic started.
  • 93% said it was important to work with an advisor who is familiar with their personal needs
  • 75% who work with an advisor were prepared for retirement

 Chris Reynolds, the CEO of IPC noted in the report that “people want someone who knows them, their family, their unique situation and what they want to accomplish”. It is clear that “this cannot be solved by a robo-advisor or some algorithm”.

Other reports are showing similar findings, where the willingness to pay for advice has been growing and the desire of individuals to increase the amount of planning advice they are receiving.

Encouraged by the positive sentiment, planners are taking advantage to develop and deepen long-term, trusted relationships with clients that prove their worth, especially when compared to robo-advisors and other DIY investing options. Planners should look for opportunities to expand the role of truly comprehensive financial advice relationships. Planners have never been more valuable than in the midst of COVID-19, and individuals are realizing that value goes beyond simply selecting and managing investments.

 Whether it’s the technology crash of the early 2000’s or the 2008 global financial crisis, markets at times can get very volatile as they did this year with COVID. Even though the event is different, the markets reaction isn’t, and this is where a planner can offer tremendous value.