With growing economic uncertainty during the COVID-19 pandemic, the financial landscape is shifting every day.
Whether it's dealing with sudden unemployment, ballooning debt, or expenses related to working from home, BNN Bloomberg wants to help Canadians navigate these uncharted waters. retirement
That’s why we created Ask BNN Bloomberg, where you can have your personal finance questions answered by industry professionals.
Email or send your questions via video to email@example.com, and we will aim to answer them weekly.
Questions and answers have been edited for clarity. Last names will not be used.
How will federal aid packages impact 2021 taxes?
Deborah in Toronto:
I’m a fourth-year student completing my bachelor’s degree. I applied for the Canada Emergency Student Benefit (CESB) for the first four-week period because I qualified for it, but I will be starting work after the four-week period ends.
Overall in 2020 I’m expecting to make over $20,000 in employment income, so I’m wondering if accepting the first CESB payment will have a detrimental effect on my taxation in 2021? If so, does that mean I’m better off returning the payment? (May 24, 2020)
Carol Bezaire, VP of tax, estate and strategic philanthropy at Mackenzie Investments:
Thank you for your question. The CESB payment of up to $2,000 will be fully taxable to you, and added to your employment income. Having said that, you will be in the first tax bracket in Ontario when filing your 2020 income tax return.
That means that if your net income is $48,535 or less, Ontario will tax you at 5.05 per cent, plus the federal first level of 15 per cent. If you contribute to your Registered Retirement Savings Plan (RRSP), which you can deduct from income for tax purposes, you can lower your taxes further. At this level, keeping the CESB payment will have no detrimental effect to your taxes. (May 27, 2020)
Factoring pension plan benefits into CERB eligibility
Wayne in Nanaimo, BC.:
I am 71 and was laid off in mid-March and have applied for the Canada Emergency Response Benefit (CERB).
I understand the Canada Pension Plan (CPP) and Old Age Security pension (OAS) do not count as earned income and do not affect my eligibility to receive CERB.
I also receive a Public Service Pension Plan (PSPP) in B.C., which is split with my spouse. After the split, it is less than $1,000 a month.
My question is whether the PSPP is considered in the same way as CPP and OAS? Or is the PSPP considered to be earned income and if so, is the pension split taken into account or not? (May 12, 2020)
Tim Cestnick, co-founder and CEO of Our Family Office Inc.:
Many people are still confused about whether or not they qualify for the Canada Emergency Response Benefit, the CERB. Most recently I had someone come and ask me, "I’m receiving old-age security benefits, I’m receiving Canada pension plan benefits, I’m even collecting a pension from my former employer, am I going to qualify for the CERB?"
Well, the question comes, have you actually lost any employment income or self-employment income because of COVID-19? So if the answer is yes to that, maybe you’re out of work now or you’ve been laid off because of COVID-19, not withstanding the fact that maybe you’re receiving other kinds of pension income, you may still qualify.
Don’t forget the tests are that you’ve had to have earned $5,000 last year in 2019 or at least $5,000 in that 12 month period that leads up to the beginning of your application for the CERB. Don’t worry if you are collecting pension benefits still; that’s not going to disqualify you necessarily for this CERB benefit. (May 16, 2020)
Can I still collect EI?
Nina in Toronto:
I was packaged last year due to closure of my branch. My salary continuance package is ending and I am forced into an early retirement. The pension I will be drawing is a quarter of what my salary was. I will be turning 65 in February 2022.
I have been looking for jobs and now because of the ongoing COVID-19 situation I haven’t seen any opportunity in my field of business. I am also doing a certification in credit counselling and haven’t seen any jobs open up.
I was wondering if along with the pension income I can apply for employment insurance (EI) to bridge the shortfall in income for now.
I would appreciate your guidance on this and what option is available to me pertaining to all the financial help government is giving. (May 21, 2020)
Peter Papadakis, principal of financial planning and tax advisory services at Kerr Financial:
You may qualify for EI benefits provided you meet the eligibility requirements. However, you should have applied for EI benefits as soon as you stopped working. A delay in filing your claim for benefits of more than four weeks after your last day of work risks you losing your benefits.
In addition, CPP and Québec Pension Plan (QPP) and/or employer pensions constitute earnings and must be reported to Service Canada as these amounts will be deducted from your EI benefit amount.
You should take the following next steps.
- Make an application with Services Canada to determine if your application is accepted and how much EI you are eligible to receive
- Have available your total pensionable earnings that you are receiving
- Determine your potential net EI benefit amount or consider deferring your pension to maximize your EI benefit
- Verify with the government of Canada if your certificate course in credit counselling qualifies for the Canada Emergency Student Benefit (CESB). (May 26, 2020)
Delaying CPP benefits
Ian in North Vancouver, B.C.:
I am recently retired. On my CPP benefit page, it states that if I apply for it today the benefit amount is $781. If I wait until age 70, the benefit is $1180.
Does the amount due on age 70 take into account the time value of money and the 0.7 per cent monthly increase incentive for taking the benefit later? A dollar today is definitely worth more than that in five years’ time. (May 25, 2020)
Mia Karmelic, senior financial consultant at IG Wealth Management:
Thanks for your question. The amount that you are set to receive at age 70 will already include adjustment for inflation as well as the incentive to actually push out the date from age 65.
Having said that, the decision should not only be tied to the financial side of your life; it should also look at your health. If you are somebody that has longevity in their family and is quite healthy themselves, it might actually make sense to defer if it can be afforded depending on what the other sources of income are. Essentially, you are giving up around $46,000, assuming you’re 65 now and have five years until 70.
You’re giving up $46,000 of CPP income to gain roughly $90,000 over the duration of those 20 years, so I encourage you to speak to a financial service professional who can guide you through this situation. Again, it’s tied to the health side, the financial side with the other sources of income. Being mindful of taxes and any OAS clawback, at such time will also make a difference. (May 27, 2020)
Time to invest in bank stocks?
Alan from Leamington, Ont.:
With the present low interest rates, is it a good time to borrow money to invest in financial institutions like banks, knowing that they have dividends?
If so, do you have a recommendation or preferred stock? My investing horizon is one and a half years minimum, pending results and interest rates. (May 14, 2020)
Bruce Campbell, chairman of Campbell, Lee & Ross:
This is the first time I have been asked this question since early 2009 when banks hadn’t taken a big hit after the great financial crisis. It worked out very well in that case.
It should work well again if your time horizon is long enough - borrowing rates are low, likely four per cent or so for a loan of this nature. Dividends are in the six per cent range so you make money on the spread plus you get the growth over the long term in the banks.
You should only do this however if you can afford to endure a temporary fall in the price of the stock that you buy, given the uncertainty in markets that could happen. If COVID-19 lasts longer than markets expect or there is a large second wave, you could experience a short-term loss on the holdings, but I would be highly confident that over time you would end up ahead. (May 28, 2020)
To have your personal finance question answered an industry professional, send an email to firstname.lastname@example.org.
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