Jun 5, 2020
If I collect CERB will it impact my GIS amount?: Ask BNN Bloomberg
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.
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 firstname.lastname@example.org, and we will aim to answer them weekly.
Questions and answers have been edited for clarity. Last names will not be used.
Financial aid for retirees
Gerry in Harrington, Que.:
I am a 61-year-old retiree. I have no company pension and live off my savings, a part-time job and Québec Pension Plan (QPP). Our savings have plunged with the stock markets.
It seems like the federal government is helping everyone except those in my position. Is there any help for me? (May 24, 2020)
Filomena May, financial advisor at Filo Financial Solutions of Raymond James Ltd.:
At this time there is minimal assistance in this category; however, the minimum RRIF withdrawal amount has been reduced by 25 per cent in 2020 so that you are not forced to withdraw more than necessary from your investments, providing more time for market recovery. If you qualify for the Guaranteed Income Supplement (GIS), you will receive a one-time, tax-free amount of $200.
This is a time to have greater awareness of overall spending and reduce where possible. Another important component to understand is that markets have corrections and recoveries regardless of this pandemic, so it is prudent to reassess risk tolerance and make adjustments that will be sustainable to your overall long-term retirement plan. If you do not already work with a financial advisor, now would be the time to seek assistance in making informed decisions on your overall financial roadmap to stay on track. (June 1, 2020)
Lower-fee ETFs in your retirement strategy
Don in Calgary:
I am planning to retire in a year or so and have all of my RRSPs invested in mutual funds. I don't expect to need the money for several years as I also have a company pension. Should I move my money into lower-fee ETF's or leave it as is? (May 22, 2020)
Dilys D'Cruz, VP and head of wealth management at Meridian Credit Union:
I think it’s great that you’re looking at your investment strategy especially because you’re a year out from retirement.
One of the most important things for you to consider is how does any investment decision you make align directly with your investment strategy and your retirement strategy?
There are many ETFs on the market that are lower in cost but there are also actively managed ETFs out there that might be higher in cost. So you’ll need to look at these ETFs, understand not only their costs, understand how they align with your overall investment strategy to make sure you can achieve the outcomes you want through retirement.
Another consideration will be the time and effort involved in managing your own portfolio and also your investment knowledge and ability to create an effective tax-efficient drawdown strategy while you’re in retirement, or do you need the help of an advisor.
So lots to think about, do your due diligence, do your homework and consider these things over and above the lower fees that ETFs offer. (May 28, 2020)
Tax implications for foreign dividends
Ben in Toronto:
When dealing with U.S. market stocks inside registered retirement income funds (RRIF) and tax-free savings accounts (TSFA), are there any tax implications regarding dividends and capital gains? (May 22, 2020)
Silvia Jacinto, tax partner at Crowe Soberman LLP:
If your RRIF is invested in foreign stock that pays dividends, the question is whether Canada and that foreign country have a tax treaty that exempts dividends paid on stocks held in registered retirement accounts from withholding tax.
The tax treaty between Canada and the U.S., for example, provides an exemption for withholding tax on dividends paid on shares held in RRIF and Registered Retirement Savings Plan (RRSP) accounts. However, for other foreign dividends that are not exempt in the same way, the dividends will be subject to withholding tax. Since you hold these dividends in your RRIF, wherein the income is sheltered from tax, you will not be eligible for a foreign tax credit.
Dividends paid on foreign stocks held in your TFSA are subject to withholding tax. Since the income in your TFSA is not subject to tax in Canada, you will not be eligible for a foreign tax credit in respect of the foreign tax.
When reviewing which securities to invest in your RRSP, RRIF and TFSA, consideration should be given to any foreign tax implications that would otherwise reduce your net rate of return. (May 29, 2020)
Will CERB impact my GIS amount?
Thomas in Fergus, Ont.:
I got laid off from my job back in mid-March due to COVID-19. I was working as a respite support worker and I earned employment income of $5,509 in 2019. My total income for 2019 was $24,750.
I am a senior receiving Old Age Security (OAS), Canada Pension Plan (CPP) and GIS. My taxable income in 2019 was $19,500.
Is it worth my while for me to receive CERB benefits? I’m worried that my GIS amount that I receive will be clawed back if I elect to receive the CERB benefit. My income will be going up $45 per month starting in late July because the first $5,000 I earned in 2019 is tax exempt. It used to be $3,500 for the 2018 tax year.
I’m married and my wife’s income in 2019 was $9,500. Any advice you could give me would be greatly appreciated. (May 15, 2020)
Tony Salgado, president and founder at AMS Wealth:
Thank you for the work you do as a respite worker. It is not easy work and often over-looked. I encourage you to continue in this field, if possible.
I recommend you follow up on this question with your advisor as there is certain missing information. Does your wife currently receive OAS? Will her income be higher or lower this year? You mentioned the employment income for 2019. What is the expected employment income for 2020?
Your concern regarding the likelihood of the CERB limiting your access to the GIS is a valid concern. Further, your GIS is a non-taxable monthly benefit whereas the CERB would be a taxable benefit likely to impact your qualification for the GIS in the following year (you don’t want to give up a tax-free benefit for a taxable benefit). Also, be sure to check on your ability to claim any deductions in providing your services as a respite worker, these may provide some tax savings. (June 1, 2020)
To have your personal finance question answered an industry professional, send an email to email@example.com.
Sign up for BNN Bloomberg's new weekly newsletter, Home Economics, which aims to help Canadians navigate their personal finances in the age of social distancing and beyond. Have it delivered to your inbox every Friday by subscribing at https://www.bnnbloomberg.ca/subscribe.