Author Segal LLP

TFSA or RRSP? Your Financial Goals Will Decide

lores_TFSA_canadian_flagWhile you consider how much you will contribute to your Registered Retirement Savings Plan each year, also think about how you could split your savings between your RRSP and a Tax Free Savings Account (TFSA).

You will want to consult with your accountant on the best way to apportion your money, but meantime here is a refresher on how both accounts can work to your advantage.

Every Canadian age who reaches the legal age of majority, which depends on the province, and holds a valid Social Insurance Number accumulates TFSA contribution room each year, indexed to inflation. In the year you reach majority you can deposit the full contribution amount for that year regardless of the month of your birthday. The accounts can be opened through banks, credit unions, insurance companies or trust companies.

Canadians living abroad may contribute to a TFSA provided that they still have residential ties in Canada. If your status changes to a non-resident with no residential ties you are still allowed to keep your current TFSA, but no further contribution room will accumulate while you remain a non-resident.


Deciding whether to contribute to an RRSP or a TFSA is a question that you may face every year. The answer depends on the specifics of your financial circumstances.

If you are a lower-income earner such as a student or starting level employee, a TFSA can be a good choice. Your RRSP deduction will not save you as much tax today as it could in the future when you are in a higher marginal tax rate bracket and it will help lower your taxes.

If you are a senior, a TFSA offers you ability to reduce taxable income. You can contribute to an RRSP only until the year you turn 71. Before the end of that year you must convert the plan to a Registered Retirement Income Fund RRIF) or an annuity. A TFSA withdrawal will not impact benefits such as Old Age Security, the Guaranteed Income Supplement, child tax benefits, or GST credits. An RRSP withdrawal could generate a clawback of these benefits.

As a senior, you may not need the funds in the future and you may not want to withdraw the money immediately. This is possible with a TFSA whereas a RRSP requires you to start withdrawals at the end of the year that you turn 71.

Generally, you should contribute to your RRSP during your working years because it provides you with a deduction to income at your highest earning years. It is also a good tool to help you save, as there are the tax consequences if you decide to withdraw the funds.

Other TFSA Advantages

The savings accounts can provide a major boost toward reachingotherfinancial goals without being locked into tax consequences for early withdrawals. Non-retirement financial goals such as saving for a vacation, car, or home are all reasons to contribute to a TFSA.

Among the advantages of TFSAs is that any income, interest, dividends, and/or capital gains in the account are earned tax-free. Unused TFSA contribution room is carried over to the next year. The accounts provide many investment options to choose from, including mutual funds; Guaranteed Investment Certificates (GICs); stocks; certain mortgages and bonds.

Prohibited Investments and Penalties

You may also open a self-directed TFSA that lets you manage your own portfolio. If you opt to take this route, you must be aware of non-qualified or prohibited investments in order to avoid unexpected taxes. A prohibited investment is an investment in debt of the TFSA holder or an investment in which the TFSA holder has a significant interest. In other words you cannot include shares of your own company, a company in which you have a significant interest, or any investment where the TFSA does not deal at arm’s length.

Where a trust that is governed by a TFSA holds a prohibited investment during the calendar year, the holder of the TFSA is liable to pay two taxes:

1. A one-time tax when a prohibited investment is acquired or when a previously acquired property becomes a prohibited investment. The tax is equal to 50 per cent of the fair market value of the property when it was acquired or became prohibited. If the prohibited investment ceases to be a prohibited investment while it is held by the trust, the trust is considered to have disposed of and immediately re-acquired the property at its fair market value.

2. Income (including capital gains) on prohibited investments – 100% tax under the “advantage” rules.

All TFSA withdrawals are tax free and the full amount of withdrawals can be re-deposited in future years. Withdrawing funds from your TFSA increases your contribution room for future years but not for the year of the withdrawal.

If you plan to make a withdrawal, it might be best to do it before December 31. That way you could pay it back into the plan in the next year. providing even more contribution room for next year. If you wait until January or later to make the withdrawal, you must wait a full year before re-depositing the money.

Other Benefits

It is crucial to note that depositing large amounts in the same year that you withdraw from your TFSA may exceed your current year’s contribution limit and subject you to penalties. The penalty is one per cent of the highest amount of over-contribution in the month and will repeat each month you exceed the limit.

Income generated and withdrawals taken from a TFSA do not affect the income requirements to be eligible for benefits of Old Age Security, Child Tax Benefits, relief from medical premiums, and other federal benefits determined by income. This provides an opportunity for seniors and Canadians with low to moderate income to earn investment income while still retaining their benefits.

You may transfer funds to a spouse with no tax consequences if the funds are invested into a TFSA. In case of the death of a TFSA holder, the account generally can be transferred to a spouse or common-law partner who is appointed successor holder without tax consequences or impact on the successor’s existing contribution room. There may be some tax consequences incurred on income earned within a TFSA after the date of death of an account holder.

If you are looking for a way to save money, invest for the short term or long term and not be subject to the high restrictions of an RRSP, a TFSA may be your best choice. Consult with your accountant for guidance on which account best suits your situation.

Latch on to a Major Consumption Trend

MB115_Computer_Keyboard_desvription size_BizActionsCanadian media consumption habits are changing and the shift suggests you might want to review your company’s marketing strategy.

Reasons to Add Internet Marketing

The Canadian arm of the Interactive Advertising Bureau conducted studies with Molson, RBC Insurance, General Motors, Canadian Tire, Unilever Canada and AIM Trimark.

Data from the trade group’s studies point to some key conclusions about adding the Internet to your marketing efforts:

Increased coverage – Your company can more efficiently reach hard-to-get consumers who are increasingly surfing for information and entertainment.

More effective campaigns –Online advertising reinforces traditional media messages and boosts brand awareness.

Online advertising has value and can be cost-effective.

Canadians in the 18-to-34 age bracket who go online.actually spend more time on the Internet than they do watching television. It is not so surprising that young people are so enthusiastic about the Internet. Most of them grew up with computers and find the Internet to be second nature.

So, whether or not you already have an online advertising strategy, it’s a good time to step back and reassess. You may want to start taking or bolstering a cross-media marketing approach that includes the Internet to help capture this group of technologically astute, affluent and trend-conscious consumers.

Many experts see the Internet, at least in combination with traditional media, as the advertising wave of the future. If your company hasn’t yet tapped into the online ad universe, here are five steps to help set up and maintain an Internet presence.

1. Determine what percentage of your target consumers has access to the Internet. You want to reach consumers where they are and the same principles apply to the Internet as to buying a page in a magazine. Where do your company’s profits come from? If more than a third are from people with Net access, you’re likely missing out on a big opportunity without a strong online strategy.

2. Spend a small amount on Internet marketing and compare the results with other media outlets. Then, experiment with the mix. A rule of thumb: Generally, online advertising should take up 10 per cent to 15 per cent of your total ad spending.

3. Integrate the online element. To be most effective, you need a strategy that integrates the online and offline elements of a campaign from the day of its launch.

4. Take sound, accurate metrics. The widely accepted critical measurements of Internet advertising are ad impressions, clicks, visits, unique measurements and page impressions. Be cautious with click-throughs. This percentage of people exposed to an ad that actually click through to your company’s Web site is a key metric, but its importance fades if your company isn’t actually selling anything online. Consumer perceptions may be a more important metric. And even if you do sell online, one in ten may not click through but those other nine may come back later. Studies consistently show that many of those who don’t click through will likely come back to your site to make a purchase.

5. Focus on building brand awareness or perception, not on unique online factors such as interactivity. Online, print and television advertising each has specific elements you can exploit, but they should not be the point of your campaign.

When it comes to buying, today’s consumers think the way they did a decade ago. So offline and online advertising is subject to the same principles. Target consumers by deciding whether an online, newspaper or television ad will do the trick. The major point is to allocate your media mix and spend accordingly.

Penetrate the B2B Media

thmb_arrows_direction_nhIf you really want to attract attention to your business, try getting some exposure in business-to-business publications and other trade media. The coverage can not only attract the attention of current and prospective customers, as well as potential recruits, it can also position your company and its executives as thought leaders and industry experts.

What is an Editorial Calendar?

Newspapers, magazines, newsletters and other publications often plan certain features or themes well in advance. They put together the topics, along with the deadlines, in an editorial calendar.

The list of topics planned for upcoming issues is generally used to attract advertisers. For example, if a publication runs an issue on home values, a kitchen remodeling company may want to advertise in that issue.

A company can take advantage of that same calendar. For that special issue on home values, a Realtor might want to contact the editors about writing an article on how certain improvements can boost the price of a property.

The time to contact an editor or send a press release should be well in advance of the deadline listed in an editorial calendar.

B2B, or trade, publications are hungry for editorial material. These days, reporters and editors are called upon to find worthwhile material for news articles, features, blogs, Web site content, discussions on social media sites, webinars and podcasts.

Trade journals can be national or local — most major cities have them — and the Internet is probably the fastest way to find both. For example, a Google search for “Canadian  Realtor publications” or “Canadian grocer publications” will instantly turn up several entries on the first results page. Change the word “publications” to “newsletters” and you can find other potential publicity vehicles.

Once you get onto a Web site, a click or two will likely get you to the publication’s guidelines for submitting news releases, articles and photos. The publication may also post its editorial calendar or at least provide instructions on how to get it. (See right-hand box for more information about editorial calendars).

Making Your Pitch

B2B publications are interested in a variety of content. One of the most common topics is what’s happening with a company’s personnel. People within an industry are always interested in who’s been promoted, hired, moved to another company, won an award or gave a speech.

Avoid sending ideas with limited interest. For instance, sponsorship of local community events is unlikely to spark much editorial curiosity in a national publication unless it is particularly unusual or innovative, or it has broader appeal as an example that other organizations could follow.

Three general ways to approach B2B, and other, publications are:

1. Sending news releases: These should include the who, what, where, when and why of the topic. Include at least two sentences from a company executive that can be used as comments, and, if appropriate, incorporate customer testimonials. The release should be sent with a news kit that includes a fact sheet on your company, biographies of your managers and highlights of their areas of expertise, complete contact information and professional color photos in both print and electronic formats.

2. Writing bylined articles: These can position your company and its staff as what B2B publications consider “technical experts.” For example, write an article examining how the economy is affecting consumer spending patterns. Or send in an opinion piece on how a legislative proposal is likely to affect your industry. Write tips-oriented articles — they lend themselves to being edited into small pieces and publications are often tight on space or need material to fill small openings on a page. Insist on attribution from your company if the article is turned into a brief item.

If you are writing a consumer piece, you can include, but minimize, how your product or service benefits people. You don’t want to come off as looking for free advertising. If other businesses in your industry are more cost-efficient or have more features, address those issues and clearly define the value your company brings to the marketplace.

3. Starting a blog or developing a presence on social media sites. Once you get it started, start spreading the word. You can send items to B2B publications that are taken directly from the blog. Or let the publication know that your company’s social media page has an interesting discussion on an important industry topic. Position the blog or social media page as one that consumers and businesses seek out when looking for advice, services or products.

Another possible approach is to send news tips and story ideas and offering your services as a source. This helps portray you — and your staff — as informed and helpful.

If you wind up making an unsolicited call to someone at the publication, try to find out the individual’s schedule and deadlines first. If that’s not possible, when the person answers your first question should be, “Are you on a deadline?” or, “Is this a good time?”

If you are being interviewed for an article about your company, be sure you don’t divulge secrets. The finished article will, after all, be seen by your organization’s competitors. If during an interview you become concerned, simply tell the person that what you are saying is off the record so that it won’t be included in the article.

A Powerful Statement

Getting your company’s name into B2B publications generates publicity and public relations that can be far more powerful than marketing or advertising campaigns and generate more business and revenue. This is because editors at a reputable publication are deciding that what you have to say is worth publishing, so your company’s message and image comes across as more objective and stronger. On the other hand, you do lose control over this type of publicity, as placement and the actual content will be determined by the writers and editors.

Persistence is important when working with the B2B media, as it is with any media. Not every news release or notice your company sends will be printed verbatim. But publishing professionals do notice individuals who keep contacting them without becoming a nuisance.

Once you successfully get an item published, make the most of it. Push the coverage to your company’s customers by emailing it to them or putting it on your company’s Web site. Distribute copies of articles at business associations and industry trade shows.

Gaining exposure through B2B publications doesn’t replace advertising or marketing, but it does bolster your organization’s credibility and is a great way to raise your business’s profile and create opportunities. On top of that, it doesn’t cost anything unless you hire a public relations professional to do the job for you.

Mutual Funds to Give Investors Additional Information

071516_Thinkstock_484125614_lores_KKMutual funds are popular among Canadian investors, but how they work, and how much they cost, is confusing for some investors.

That will soon change. As of Friday July 15, 2016, the third and final phase of Client Relationship Model Two (CRM2) went into effect. Phase 3 gives investment firms one year to comply with uniform reporting standards to clarify how mutual funds have performed over time as well as the total costs investors pay as an actual dollar amount. Currently trailer fees, loads, administrative and marketing fees — and other fees — are typically expressed as a percentage.

In addition to showing charges and other compensation, registered dealers will also have to provide an annual investment performance report that covers deposits into, and withdrawals from, the client’s account, the change in value of the account, and the percentage returns for the previous year; and the previous three, five and ten years.

More Transparency

CRM2 has been going on for nearly a decade and came about as a result of complaints that Canadians pay among the highest investment fees in the developed world. Although mutual fund dealers must comply with the new rules by July 2017, in the majority of cases, investors will begin receiving the reports early in 2017. The earlier start is because most firms are choosing to provide the information on a calendar-year basis.

The new regulations cover a lot of ground, but the focus of the July change involves the portion of mutual fund fees that go to the dealer firm and the broker who is making those recommendations. While it may seem like a free service, advisors are generally compensated through loads when funds are bought and sold, and fees relating to administration and marketing.

They’re also compensated through annual trailer fees lumped into the annual mutual fund fee known as the management expense ratio (MER). An average MER is about 2.5%. Trailer fees vary but they are usually around 1% of the total amount invested.

That percentage sounds small, but consider this: an investor with a $40,000 mutual fund portfolio generally may pay around $400 in trailer fees, while a high net worth individual with a $1 million portfolio can pay as much as $10,000.

Add on loads, other fees, and the rest of the MER and that wealthy individual could pay as much as $30,000 in fees on that million-dollar portfolio. And that’s regardless whether the fund generates a return.

Types of Fees

Loads come in two varieties, back-end loads, or fees you’re charged when you redeem a mutual fund, and front-end loads that are charged up front. A no-load fund simply means that you can buy and redeem the mutual fund units/shares at any time without a commission or sales charge. Trailer fees are what a mutual fund pays to a person who sells a fund to you.

You also may be charged fees if you switch funds, start a registered plan, or open or close an account. You could be charged a short-term trading fee if you sell a fund within a certain period. Short-term trading fees are meant to discourage investors from using mutual funds to make a quick profit by “timing” the market. Market timers move in and out of the market or switch between asset classes based on using predictive methods such as technical indicators or economic data.

Some media coverage has contained factual errors about the timing and content of the CRM2 reporting requirements. As a result, the Investment Funds Institute of Canada published a list of myths and facts about what’s happening. The following is an edited, shortened version of that list:

Myth: CRM2 applies mainly to mutual funds.

Fact: It applies to all securities and all dealers and portfolio managers registered with any Canadian securities commission. The securities commissions are encouraging firms to include non-securities products in client reporting, to the extent possible.

Myth: The report on charges and compensation will tell investors the total cost of their investments.

Fact: CRM2 focuses only on the amount paid either directly or indirectly by an investor to the dealer firm. For mutual funds, it doesn’t include the amount paid to the investment manager. For an understanding of the total cost of a mutual fund, investors can review the fund’s (MER).

Myth: The new report on investment performance will provide benchmarks so that investors can evaluate their personal returns based on a benchmark.

Fact: The report on investment performance won’t provide benchmarks. The report focuses on the individual investor’s personal rate of return (ROR) and this can’t be compared to a benchmark. The personal ROR is based on the investors’ specific deposits into and withdrawals out of their accounts, as well as dividends and interest earned within the accounts and changes in the value of the securities held within them. Because each investor has a different combination of deposits and withdrawals, each could have a different ROR.

Under CRM requirements that went into effect in 2014, however, dealers are required to provide clients with a general explanation of benchmarks. Benchmarks may be a helpful measure to understand how a fund has performed over a specific period of time. However, benchmarks aren’t relevant comparisons to an individual investor’s ROR. This is because the benchmark evaluates the performance of a fund over a time period and doesn’t take into account the timing of an individual investor’s day-to-day deposits or withdrawals.

Investors should compare their ROR to their target rates of return to evaluate whether they’re on track to meet their investment goals.

Myth: When investors receive their first reports on charges and compensation, they’ll be surprised to learn how much their dealers are being paid.

Fact: Investors already receive information about dealer compensation, through information presented in percentage terms in the Fund Facts document and in the simplified prospectus. The only change under CRM2 is that these amounts will be provided in dollars and cents and at the account level, rather than just in percentage terms.

If you already, or plan to, invest in mutual funds, consult with your investment adviser for more help understanding the new reports you’ll be receiving.

Is it Too Darn Hot for Your Business

072216_Thinkstock_155366999_lores_KKEnvironment Canada has been issuing heat warnings… Quebec construction workers halted a job on a hospital for a day … some city pools are extending their hours and community centres are offering ‘cool places’ where people can take a break.

A heat dome from the Midwest of the United States recently brought scorching hot temperatures to much of Canada, with daytime highs hitting a humidex rating of around 40. Environment Canada uses humidex ratings to inform the general public when conditions of heat and humidity are possibly uncomfortable. When the humidex rating range is 40-45, it’s very uncomfortable and you should avoid exertion. Above 45, conditions are considered dangerous.

The Most Vulnerable

The agency issues heat warnings when it’s concerned about those who are most at risk from heat. These include very young children, the elderly and those with chronic diseases. In the worst case scenario, people can die.

If you are an employer, you have a legal obligation under Occupational Health and Safety Regulations to take every reasonable precaution to protect your workers from the heat. This includes developing policies and procedures to protect employees who work in surroundings that are hot due to processes or the weather.

Heat-related conditions can occur in many work environments, but particularly at risk are construction workers and others who work outdoors, as well as employees in kitchens, bakeries, boiler plants, smelters, foundries and those who work with heavy equipment.

For outdoor workers, direct sunlight is the main source of heat. In mines, geothermal gradients and equipment contribute to heat exposure.

Don’t Just Look at the Thermometer

You can’t predict heat illnesses by the temperature on the thermometer. That only measures air temperature. To get an accurate view of the heat load, also consider:

  • Relative humidity, which means the amount of moisture in the air. The more moisture, the more heat the air holds. High humidity makes it difficult for sweat to evaporate, which is how people cool themselves.
  • Air movement inside, or a breeze outside, can evaporate more sweat, which acts to absorb heat and cool the body.
  • Radiant heat coming from machines and furnaces can add a great deal of heat to a person’s body.

The two most common heat-related conditions are heat stroke and heat exhaustion. Here are their symptoms and treatments.

Heat Stroke

This is the most serious heat-related health problem for workers. Signs include:

High body temperature (usually higher than 40C) Lack of sweating, although with exertional heat stroke there may be profuse sweating
Red, hot and dry skin Nausea or vomiting
Rapid heartbeat Rapid shallow breathing
Confusion, disorientation or staggering Seizures
Dizziness or light-headedness Muscle weakness or cramps
Hallucinations Unconsciousness

Treatment: Immediate medical attention is required. Victims of heat stroke can die unless treated promptly. After calling for medical help, Health Canada recommends the victim be moved to a cool area. Soak clothing with cool water and fan vigorously to increase cooling. Prompt first aid can prevent permanent injury to the brain and other organs.

Heat Exhaustion

This results from loss of fluid through sweating when a worker has failed to drink enough fluids or take in enough salt. The worker still sweats but experiences extreme weakness or fatigue, giddiness, nausea or headache. The skin is clammy and moist, the complexion pale or flushed, and the body temperature normal or slightly higher.

Treatment: The victim should rest in a cool place and drink an electrolyte solution (a beverage used to quickly restore potassium, calcium and magnesium salts). In severe cases, victims vomit or lose consciousness and require medical assistance.

For both of these conditions, prevention is critical. Here are 5 tips to help keep your workers from suffering in the heat:

1. Provide engineering controls at points of high heat production, such as general ventilation and spot cooling by local exhaust ventilation. Shielding is required as protection from radiant heat sources. Evaporative cooling, mechanical refrigeration and cooling fans can also reduce heat. Modifying equipment, using power tools to reduce manual labor, eliminating steam leaks and wearing protective clothing can also help.

2. Provide plenty of drinking water — at least a quart per worker per hour. Train first aid personnel to recognize and treat heat-related disorders and make the names of trained staff members known to all workers. Employers should also consider an individual worker’s physical condition when determining his or her fitness for working in hot environments. Older and obese workers as well as those on some medications are at greater risk.

3. Alternate work and rest periods with longer rest periods in a cool area. Whenever possible, heavy work should be scheduled during the cooler parts of the day. Train supervisors to detect early signs of heat stress and permit workers to interrupt work if they’re extremely uncomfortable.

4. Acclimate employees to the heat through short exposures followed by longer periods in the hot environment. New employees and workers returning from an absence of two weeks or more should be allowed to acclimate for five days. This should begin with 50% of the normal workload and time exposure the first day, gradually building up to 100% on the fifth day.

5. Keep a first aid kit handy. Stock electrolyte drinks and ice packs, which need no refrigeration and become cold when the cylinder within the pack is broken. Also keep emergency medical numbers.

Educate workers so they’re aware of the need to replace fluids and salt lost through sweating. Make sure they recognize symptoms of dehydration, exhaustion, fainting, heat cramps, salt deficiency, heat exhaustion and heat stroke. And encourage workers to look out for each other in the sweltering heat.

Stay Cool Away from Work

It’s just as important to avoid the heat at home as it is at work.

Here are some tips:

  • Stay cool. Visit cool places such as malls, public recreation centres, public libraries and other air-conditioned facilities.
  • Dress light. Wear lightweight, loose-fitting, light-coloured clothing. Wear a hat or take an umbrella to keep your head cool and don’t forget sunscreen.
  • Take it easy. Limit physical activities (walking, running, gardening, etc.) during the day. If rescheduling activities to dawn or dusk when it may be cooler, protect yourself with insect repellent as mosquitoes are more active at such times.
  • Keep your living space cool. Close blinds or curtains. When the temperature is cooler outside than inside, open windows to let air circulate. Use fans. Take a cool bath or shower.

And remember, never leave children or pets alone in closed vehicles. Temperatures in a car can become life threatening within minutes.