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.
Questions and answers have been edited for clarity. Last names will not be used.
The ABCs of annuities
Dave in Grand Bend, Ont.:
I'm a 75-year-old investor who is tired of the seemingly frequent downturns in the stock market over the years. They are becoming more problematic for me as I have less and less time for markets to rise again to be able to recoup any losses.
Hence, I've started to think about annuities as a possible option, but don't know much about them. Could you please outline their pros and cons to consider for an investor in my situation? (July 5, 2020)
Mia Karmelic, senior financial consultant at IG Wealth Management:
There are a few different types of annuities out there in the market place and the two that you will most come across would be the life annuity as well as a term annuity.
A life annuity will provide you with a guaranteed income for the rest of your life - there is no chance that you will outlive your money. There is an option to add your spouse as a survivor benefit in case your spouse outlives you. This would provide some additional income to your spouse, however any of these extra options added to the annuity would reduce the amount of income that you yourself would receive from it.
The biggest disadvantage to a life annuity is if you don’t add any survivor benefit options and you do pass away before you use up all of your money, your estate would not be getting the remainder of those assets.
The term annuity provides a guaranteed amount of income for a certain amount of time and if you pass away before the term is up, your estate would get the remainder of the assets.
Your decision should be very much based on your overall financial situation, what your sources of income are and what kind of a legacy you wish to pass behind.
Finally, the amount of payments you receive from the annuity will be dependent on your age, gender, how much money you put into the product and what types of interest rates are being offered by the annuity provider so please chat with your advisor to decide what might be best. (July 15, 2020)
Can my employer ask me to repay health benefits?
Gregory in Belleville, Ont.:
I have just returned to work from being temporarily laid off in March because of COVID-19. As a full timer, I have health benefits and while we were laid off the company was covering the employee portion.
Now that we are returning to work, the company is asking us to repay them for the employee portion of our benefits. Is that something they can do or am I obligated to repay them?
For reference, here is their response directly from my notice of recall:
- When do my benefit premium payments restart?
- Your ongoing premium payment for your benefit plan will begin upon your first pay. During your temporary layoff, the company has paid the employee portion of your premium on your behalf. We have worked to arrange a repayment plan and you can expect to receive a communication soon with an option for repayment. (June 30, 2020)
Kevin Coon, partner at Baker McKenzie and a specialist in labour law:
The most likely answer is that you are not obligated to repay, nor can they deduct the payments from future wages.
Most employment standards legislation prohibits such unauthorized deductions from wages, unless there was a specific agreement when you went on layoff that you would repay the employee share of the premium.
In Ontario, the government made changes to the law in June that indicated anyone on temporary layoff under the statute was deemed to be on a COVID-protected leave under the statute.
If premiums were being paid by the employer then absent a specific agreement to repay, the employer will not be able to require repayment now. (July 15, 2020)
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Is CERB eligibility based on gross or net income?
Keith in Waterloo, Ont.:
I am retired and I receive pension income, investment income and a small amount of self-employment income from providing services to other businesses.
The business that I service was forced to close in March due to COVID-19 and hasn’t resumed purchasing my services due to restrictions on their operating hours. As a result, I have had no self-employment income since early March.
My self-employment income in the first part of 2020 was very low, so I am looking at my 2019 income tax return to determine if I meet the criteria for the Canada Emergency Response Benefit (CERB).
My gross self-employment income in 2019 (line 13499 on my tax return) was more than $5,000 but my net business income after expenses (line 13500 on my tax return) was less than $5,000.
When CERB was originally announced, I was unable to get a straight answer on whether the $5,000 requirement was based on gross or net business income. Recently, the Canada Revenue Agency added some frequently asked questions to their website, including the one I have copied, below.
I assume that this clarification means that I am not eligible for CERB, since my net business income in the preceding period was less than $5,000. Is this an accurate interpretation?
From CRA’s website:
Q: Are self-employed small business owners eligible for the CERB?
A: Yes provided they meet the eligibility criteria including that they stopped working due to COVID-19 and do not earn more than $1,000 in a period of at least 14 consecutive days in the first benefit period and for the entire four-week benefit period of any subsequent claim.
Small Business owners can receive income from their business in different ways, including as salary, business income or dividends. In determining their eligibility for the Canada Emergency Response Benefit:
- Owners who take a salary from their business should consider their pre-tax salary;
- Owners who rely on business income should consider their net pre-tax income (gross income less expenses);
- Owners who rely on dividend income should consider this as self-employment income provided it comes from non –eligible dividends (generally, those paid out of corporate income taxed at the small business rate).
Thanks, Keith. (July 3, 2020)
Tim Cestnick, co-founder and CEO of Our Family Office Inc.:
Yes, believe it or not there’s still some confusion around the Canada Emergency Response Benefit and exactly who will qualify.
I was contacted recently by a self-employed individual who did have over $5,000 of income in 2019 which you think would qualify him, however most of his income was pension income and investment income, which does not count towards the $5,000 requirement if you’re applying for the CERB.
Now he did have self-employment income but CRA has said that it’s the net income number after your expenses that has to be $5,000 or more; in that case he didn’t qualify because his net income was under $5,000.
Now a couple of points for people who are self-employed: If you are incorporated and you’re drawing money out of your corporation as salary or as non-eligible dividends, those types of income will qualify for the $5,000 test if you will.
Also, don’t forget the $5,000 test is not simply income you earned in 2019, it’s $5,000 in income earned in the 12 months leading up to the date of your application. This might include some funds you earned in 2020, so don’t forget to factor in some of those dollars you might have earned when you’re checking to see if you qualify for the CERB. (July 16, 2020)
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