Everybody understands the value of life insurance and most of us who take our finances seriously have a solid life insurance policy in place. But what happens if you are unlucky enough to sustain a serious illness, chronic disease or disability which prevents you from working? Such a scenario could be disastrous for your family finances and this is where disability insurance comes in.
What is disability insurance?
Disability insurance provides you with a portion of your income in the event that you suffer from an illness or accident that renders you unable to work, either temporarily or on a permanent basis.
Studies show that you are actually more likely to sustain a disability during the course of your working life than to die whilst of working age. A disability can have a dramatic and long-term impact on your earning potential – in fact, the Council for Disability Awareness has found that the average absence from work for a long term disability is nearly three years.*
Types of disability insurance
There are two main types of policy – short-term and long-term disability insurance.
Short-term disability insurance generally offers the policyholder a maximum of 6 months of benefits.
Long-term disability insurance usually kicks in at the end of a short-term disability insurance. Policies differ in terms of the length of time that they offer benefits for and the criteria that must be fulfilled to be eligible.
An important factor in this regard is the definition of “regular or own occupation” or “any occupation”. A “regular or own occupation” policy covers you if you are unable to work in any capacity – meaning that, even if you could perform a role different to the one that you worked in prior to your disability, you will still receive benefits under the plan. Alternatively, an “any occupation” policy means that you will only receive disability benefits if you are unable to work at all.
It’s important to figure out which type of policy suits you better, depending on the cost of the premiums, the type of work that you do and your personal preference. We can help you with this.
Factors to consider when taking out disability insurance
How much do you or your family depend on your income?
Dependency is the key question here – if you have a spouse, children and/or other individuals who rely on your income contribution to the household finances, disability insurance is likely to be valuable to you.
However, it is likely that, as you age and your children become less financially dependent on you or you have saved enough retirement funds to help you through a potential early retirement due to ill health, disability insurance becomes less fundamental.
How much does your company plan protect you?
Some companies offer a disability policy and this is a common reason for people failing to purchase a personal plan. However, it’s important to understand the level of coverage that your company policy offers you, as it is common for such plans to only replace a small proportion of your income (often capped) across a short-term basis which is unlikely to be sufficient for your needs.
Work out your budget and shop around for the best deal
You could benefit from working with an independent financial advisor to help you in the purchase of your disability insurance. They will be able to search the market in order to find you a customized plan which fits your budget, rather than falling back on off-the-shelf policies which may not meet your individual requirements as well.
Don’t cut back on your level of coverage where possible
That said, it’s easy to underestimate the level of disability coverage that you actually need should the worst happen. Not only would you have to replace your existing expenditure, but you are likely to accumulate new expenses if you were to become disabled, such as the purchase of medical equipment, healthcare or home help, additional childcare, home renovations etc. Make sure that the benefits that your policy pays out are sufficient to cover all of your financial needs adequately.
Key questions to ask when purchasing disability insurance
There can be a lot of small-print involved in a disability insurance policy. Make sure that you understand the answers to the following, non-exhaustive questions before proceeding:
Terms and conditions of the policy- Including how disability is defined, which conditions are eligible and which are excluded and if pre-existing conditions are covered and, if so, to what extent.
Policy premiums- Including the total cost of the policy and whether contributions are still required if you are diagnosed with a disability and claiming on the plan.
Benefits of the plan- Including the level of benefits you will receive, whether they are adjusted for future inflation and whether they are taxable, any waiting periods for receiving premiums and how a disability is diagnosed.
Group plans- Including how the plan is funded (by an insurance company or self-funded by your employer), how your benefits will be affected if the company goes bankrupt and how your coverage will be treated if you leave your job.
Disability insurance is an important cornerstone to achieving your financial goals. Talk to us, we can help.
On November 30, Finance Minister Chrystia Freeland provided the government’s fall economic update. The fall economic update provided information on the government’s strategy both for dealing with the COVID-19 pandemic and its plan to help shape the recovery. We’ve summarized the highlights for you.
Corporate Tax Changes
Information on several subsidy programs was included in the update. These changes apply from December 20, 2020 to March 13, 2021.
The government has provided an increase in the Canada Emergency Wage Subsidy (CEWS) to a maximum of 75% of eligible wages.
If you are eligible for the Canada Emergency Rent Subsidy (eligibility is based on your revenue decline), you can claim up to 65% of qualified expenses.
The Lockdown Support Subsidy has also been extended – if you are eligible, you can receive a 25% subsidy on eligible expenses.
Also, there were two other significant corporate tax changes:
Starting January 1, 2022, the government plans to tax international corporations that provide digital services in Canada if no international consensus on appropriate taxation has been reached.
The tax deferral on eligible shares paid by a qualifying agricultural cooperative to its members has been extended to 2026.
Personal Tax Changes
The following personal tax changes were included in the update:
The update confirmed the government’s plan to impose a $200,000 limit (based on fair market value) on taxing employee stock options granted after June 2021 at a preferential rate. Canadian-controlled private corporations (CCPCs) are not subject to these rules.
If you started working from home due to COVID-19, you could claim up to $400 in expenses.
The Canada Child Benefit (CCB) has temporarily been increased to include four additional payments. Depending on your income, you could receive up to $1200.
Additional modifications were proposed to how the “assistance holdback” amount is calculated for Registered Disability Savings Plans (RDSP). The goal of these modifications is to help RDSP beneficiaries who become ineligible for the Disability Tax Credit after 50 years of age.
Indirect Tax Changes
GST/HST changes impacting digital platforms were included in the update. They will be applicable as of July 1, 2021:
Foreign-based companies that sell digital products or services in Canada must collect and remit GST or HST on their taxable sales. Also, foreign vendors or digital platform operators with goods for sale via Canadian fulfillment warehouses must collect and remit GST/HST.
Short-term rental accommodation booked via a digital platform must charge GST/HST on their booking. The GST/HST rate will be based on the province or territory where the short-term accommodation is located.
And some good news on a GST/HST removal! As of December 6, and until further notice, the government will not charge GST/HST on eligible face masks and face shields.
A lot of changes came out of the fall update – and you may be feeling overwhelmed. But help is at hand!
Contact us to learn more about how these changes could impact your personal and business finances.
Canada Emergency Business Account (CEBA) $20,000 expansion available now
Now that we are reaching the end of the tax year, it’s an excellent time to review your finances. We’ve listed below some of the critical areas to consider and provide you with useful guidelines.
We have divided our tax planning tips into five sections:
Individual tax issues
Family tax issues
Managing your investments
Tax Deadlines for 2020 Savings
December 31, 2020:
If you reached the age of 71 in 2020, you can’t contribute to your RRSP after this date
Use up your TFSA contribution room
Contribute to an RESP to get the Canadian Education Savings Grant (CESG) and the income-tested Canada Learning Bond (if eligible).
Contribute to an RDSP to get the Canada Disability Savings Grant (CDSG) and the income-tested Canada Disability Savings Bond (if eligible).
Investment counsel fees, interest and other expenses relating to investments
Some payments for child and spousal support
Fees for union and professional memberships
Student loan interest payments
Deductible legal fees
January 30, 2021
Interest on intra-family loans
The interest you must pay on employer loans to reduce your taxable benefit
March 1, 2021
Contributions to provincial labour-sponsored venture capital corporations
RRSP Repayment under Home Buyers Plan or Lifelong Learning Plan
Deductible contributions to a personal or spousal RRSP
Individual Tax Issues
To help Canadians deal with financial hardships due to job loss because of COVID-19, the Canadian government introduced several benefit programs. If you received any of these benefits, you should be aware of the tax ramifications.
The Canada Emergency Response Benefit (CERB) was the first benefit program issued by the government and ran until September 26, 2020. If you received the CERB at all during 2020, the government will issue you at T4A, showing how much money you received from the CERB program. You must then declare that as income when filing your 2020 income tax return. Since no tax was taken off at the source, be sure to put aside money to pay for potential income taxes on your CERB income.
As of September 27, 2020, the government offered three replacement benefit programs:
Canada Recovery Benefit (CRB) This is for people impacted by COVID-19 who work but are not eligible for EI (e.g. self-employed).
Canada Recovery Sickness Benefit (CRSB) This is for people who are employed cannot work due to COVID-19 and do not have access to paid sick leave.
Canada Recovery Caregiving Benefit (CRCB) This is for people who must miss work to care for a family member who has COVID-19.
For all three of these programs, the government will be withholding 10% in taxes upfront, but you may end up owing extra tax, depending on the rest of your income for 2020, so it’s important to set extra money aside for taxes.
Also, there is a unique condition for the CRB only. If you make over $38,000 in 2020 (excluding the CRB), you will have to pay back the CRB at a rate of 50 cents for each dollar of CRB you earned above the threshold.
If you paid interest on an eligible student loan in 2020, you can claim a non-refundable tax credit in the amount of interest you paid by December 31. In addition, you should be aware that student loan payments were frozen for six months – from March 30 to September 30. No interest accrued on student loans during that period.
Family Tax Issues
Check your eligibility for the Canada Child Benefit
(CCB) To receive the Canada Child Benefit in 2021/22, you need to file your tax returns for 2020 as the benefit is calculated using your family income from the previous year. Eligibility for the CCB depends on set criteria such as your family’s income, how many children you have, and how old they are. You may qualify for a full or partial amount, depending on whether you have full custody or shared custody.
Consider family income splitting
The CRA offers a prescribed low-interest rate on family loans. Therefore, it makes sense to consider setting up an income splitting loan arrangement with your family members. If you do this, you can potentially lock in a family loan at a low-interest rate of 1% and then invest the borrowed money into a higher return investment while benefitting from your family member’s lower tax status. Don’t forget to adhere to the Tax on Split Income rules.
Managing Your Investments
Use up your TFSA contribution room
If you can, it’s worth contributing the full $6,000 to your TFSA for 2020. You can also contribute more (up to $69,500) if you are 29 or older and haven’t made any previous TFSA contributions.
Contribute to a Registered Education Savings Plan (RESP)
The Registered Education Savings Plan (RESP) is a savings plan for parents and others to save for a child’s education. The Canada Education Savings Grant (CESG) will match up to 20% of your contributions up to a maximum of $2,500.
That means the CESG can add a maximum of $500 to an RESP each year. The grant room accumulates until your child turns 17. Therefore, any unused CESG amounts for the current year are automatically carried forward for possible use in the future years.
The income-tested Canada Learning Bond (CLB) is paid directly to a child’s RESP by the Canadian government to low-income families. No personal contributions are required to receive the CLB.
Contribute to a Registered Disability Savings Plan (RDSP)
The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others to save for the financial security of a person who is eligible for the Disability Tax Credit (DTC). The government will pay a matching Canada Disability Savings Grant (CDSG) up to 300% – depending on the beneficiary’s adjusted family net income and amount contributed.
Also, low-income Canadians with disabilities may be eligible for a Canada Disability Savings Bond (CDSB). If you qualify, it will be paid directly to your RDSP.
The government will pay matching grants or bonds into the RSDP up to and including the end of the year the recipient turns 49. Be aware that there is a 10-year carry-forward of CDSG and CDSB entitlements.
Donate securities to charity
Donating by year-end will provide you with tax savings. If you donate eligible securities or mutual funds, capital gains tax does not apply, and you can receive a tax receipt for their full market value. Also, the charity gets the full value of the securities.
Think about selling any investments with unrealized capital losses
It might be worth doing this before year-end to apply the loss against any net capital gains achieved during the last three years. The last trading date for 2020 for Canadian and US publicly traded stocks will be Tuesday December 29th in order to record the gain or loss in the 2020 taxation year.
Conversely, if you have investments with unrealized capital gains that cannot be offset with capital losses, it may be worth selling them after 2020 to be taxed on the income the following year.
Consider the timing of purchasing of certain non-registered investments
Suppose you are considering purchasing an interest-bearing investment like a guaranteed investment certificate (GIC) with a maturity date of one year or more. In that case, you may consider delaying the purchase to the following year, so you don’t have to pay tax on accrued interest until 2021. You should also consider this with mutual funds that make taxable distributions before the end of 2020, consider delaying this until early 2021. Don’t pay taxes earlier than necessary.
Check if you have investments in a corporation
The new passive investment income rules apply to tax years from 2018 onwards. They state that the small business deduction is reduced for companies with between $50,000 and $150,000 of investment income. Therefore, the small business deduction has entirely stopped for corporations that earn a passive investment income of more than $150,000.
Note – At a provincial level, both Ontario and New Brunswick do not follow the federal rules to limit access to the small business deduction.
Make the most of your RRSP
The deadline for making contributions to your RRSP for the year 2020 is March 1, 2021. The deduction limit for 2020 is limited to 18% of the income you earned in 2020, to a maximum of $27,230. This maximum amount is impacted by the following:
Any pension adjustment
Any previous unused RRSP contribution room
Any pension adjustment reversal.
Remember that deducting your RRSP contribution reduces your after-tax cost of making said contribution.
Check when your RRSP is due to end
If you reach the age of 71 during 2020, you must wind up your RRSP this year. You must make your final contribution to it by December 31, 2020.
Convert to RRIF before year-end
If you turned 65 during 2020 or are already older than 65, you’re entitled to a pension credit that can fully or partly offset the tax on the first $2,000 of eligible income annually. Consider setting up an RRIF before year-end to pay out $2,000 annually if you don’t have any other eligible pension income.
If you have any questions about your taxes for 2020, contact us – we can help you!
On September 23rd, in a speech delivered by Governor General Julie Payette, Prime Minister Justin Trudeau outlined the Federal government’s priorities focused on four foundations:
Fighting the pandemic and saving lives;
Supporting people and businesses through the emergency “as long as it lasts, whatever it takes”;
“Building back better” by creating jobs and strengthening the middle class;
Standing up for Canadian values, including progress on reconciliation, gender equality, and systemic racism.
Below, we highlight the support programs that help those Canadians who are struggling financially due to the pandemic.
Canada Emergency Wage Subsidy extended to next summer
The Canada Wage Subsidy (CEWS) will be extended to summer 2021. Under new program criteria, businesses with ANY revenue decline will be eligible. However, the amount of the subsidy will be based on the revenue drop rather than the original 75%.
The day after the Throne Speech, in a bid for opposition support, the federal government announced it will increase the new Canada Recovery Benefit (CRB) to $500/week for up to 26 weeks.
In order to qualify for this program, Canadians must be looking for work and had stopped working or had their income reduced by 50 per cent or more due to COVID-19, but are still making some money on their own.
Canada Recovery Sickness Benefit
The Canada Recovery Sickness Benefit (CRSB) will provide $500/week for up to 2 weeks for workers who are unable to work because they are sick or must isolate due to COVID-19.
Canada Recovery Caregiving Benefit
The Canada Recovery Caregiver Benefit will provide $500/week for up to 26 weeks per household to eligible workers who cannot work because they must provide care to children or family members due to the closure of schools, day cares or care facilities.
Creating a new Canadian Disability Benefit
The government pledged to bring in a new Canadian Disability Benefit (CDB) that will be modelled after the guaranteed income supplement (GIS) for seniors.
The CRB, CRSB, CRCB and CDB are pending the passage of legislation in the House of Commons and Senate.