A look at the best of the Internet, from an SPP point of view

A new retirement worry – the cost of healthcare as you age

They say the best things in life are free – however, the cost of healthcare, particularly for older Canadians, does carry a price tag.

And, according to recent Ipsos poll, conducted for the Canadian Medical Association and reported on by the CBC in Prince Edward Island, the cost of future care may prompt some Canadians to delay their retirement.

According to the polling, “58 per cent believe Canadians will have to delay retirement to afford health care. The poll also found that 88 per cent of respondents are worried about the growing number of seniors requiring more health care,” the CBC story reports.

Why are people concerned?

In the article, the CMA’s president Dr. Gigi Osler explains what people worry about.

“Our current health care system is already strained and already not able to meet the needs of our seniors, and will be even more strained in the coming years,” she states. “As our population ages, not only are people going to have to pay more for those services it’s going to cost our already strained health care system more in the coming years.”

Those concerns certainly seem to impact the thinking of older Canadians, the article notes. “Older Canadians (55 and over) are most concerned about how health care costs may affect their wallets. The survey found 77 per cent of those 55 and over were worried about the financial burden of health care costs, compared to 70 per cent of those 35-54 and 58 per cent of those 18-34,” the article reports.

The takeaway here is to be aware that costs of care can be fairly significant, particularly if you live to a long age and require some form of long-term care. Perhaps we all need to factor those future and often unexpected costs into our savings plans.

Another retirement thorn – carrying a mortgage after you’ve left work

The Financial Post runs a cautionary tale about a couple – who appear to have been great savers and investors – who are running into problems in retirement due to a “late life mortgage.”

“The couple has a late-life mortgage because they sent their children, now in their mid-20s, to private schools and paid their university costs. As a result, the kids have no education debts — but the parents have a big debt in retirement. On top of that, the kids are still living at home,” the article notes.

The couple are having cash flow problems, despite owning a $1.5 million home, having more than $500,000 in RRSPs and $100,000 in TFSAs, and a further $20,000 of investments, the article adds.

The solution from the Post is for the couple to sell their home and downsize. The article quotes Derek Moran, of Smarter Financial Ltd. In Kelowna, as saying that “more cash and less house” would give the couple more financial security. “Moreover, selling the house would give the kids a nudge to move out,” he states. “They should have independent lives.”

You can’t fault these parents for helping out their kids, but putting themselves behind the eight ball impacts their retirement and limits their ability to help the kids further.

If you’re still a long time away from retirement, and haven’t yet begun to put money away, a great choice for you is the Saskatchewan Pension Plan. Those savings will add to your income when you retire, allowing you to roll with the punches should health or family issues arise. A nice little extra chunk of income is never a bad thing when you’re too old to work.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

If you haven’t been following the financial media closely through the lazy, hazy days of summer, you may be unclear what income tax changes have been proposed and how they might impact you, particularly if you have an incorporated small business.*

As committed in the Federal Budget 2017, on July 18, 2017 the Department of Finance issued a discussion paper providing details about tax planning strategies involving the use of private corporations and setting out “proposed policy responses to close loopholes and bring greater fairness to the tax system.” Interested parties have been invited to submit comments to fi******************@ca****.ca by October 1^st.

This paper focuses on three issues:

1. Sprinkling income using private corporations which essentially means income splitting by paying out dividends or capital gains to other family members who may not actually be working for the corporation to reduce total taxes. The Government is seeking input on proposed rules to distinguish income sprinkling from reasonable compensation for family members.
2. Holding a passive investment portfolio inside a private corporation, which means retaining and investing money in the corporation instead of paying it out annually because corporate income tax rates are much lower than personal rates.
3. Converting a private corporation’s regular income into capital gains which can reduce income taxes by taking advantage of the lower tax rates on capital gains. Income is normally paid out of a private corporation in the form of salary or dividends to the principals, who are taxed at the recipient’s personal income tax rate (subject to a tax credit for dividends reflecting the corporate tax presumed to have been paid). In contrast, only one-half of capital gains are included in income, resulting in a significantly lower tax rate on income that is converted from dividends to capital gains.

Also read:  Tax Planning Using Private Corporations – The New Liberal Proposals (Blunt Bean Counter)

This has resulted in a huge outcry from groups as diverse as the Canadian Federation of Independent Business, the Canadian Chamber of Commerce and the Canadian Medical Association.

In a BNN video interview, Scott Johnston, a partner at CBM lawyers in B.C. says the Liberal plan would punish small business owners, not “fat cats.” He counsels more than 800 small businesses in the Vancouver area.

“You are comparing employees with entrepreneurs who may make nothing for years and have no guarantee their business will succeed,” he says. “They are the ones who are taking risk and putting their homes on the line. They don’t have fat government pensions and they don’t receive medical, dental or parental benefits.”

Canadian farmers are also worried about federal tax changes, but the proposals are the last thing they have had time to think about during the busy harvest season. The Western Producer says “the impact of the tax changes could be humongous,” including:

• Rules to make it more difficult and risky for full-time farmers to share farm income with spouses and children.
• Regulations that could make it dangerous to use farm earnings to help pay for children’s post-secondary education.
• Rules that discourage farms from renting out their land or saving cash within a farm company.
• Changes that could make it risky to divide ownership of a family farm’s land base among a number of children, while allowing the land block to remain intact.
• Rules that encourage farmers to sell their land to neighbours or strangers rather than their own children.

In contrast, the Canadian Nurses Association representing primarily salaried nurses issued a statement on September 5^th supporting the proposed changes. In her statement, Canadian Nurses Association (CNA) president Barb Shellian said:

“CNA commends Minister Morneau’s aim to achieve federal tax policy that treats all sources of income similarly and equitably, based on the principles of social justice. Accordingly, CNA supports the proposed changes to the federal tax code that reasonably strengthen the rules on increasingly popular but potentially unfair tax advantages for incorporated high-income earners. CNA further recommends a more comprehensive review of the Canadian tax system with an eye to simplification and ensuring all hard-working Canadians are treated fairly and equitably.”

Also read: Dissenting doctors write open letter in support of federal tax reforms

While both Finance Minister Bill Morneau and Prime Minister Justin Trudeau have said they are fully committed to the proposed tax changes, as in all cases “the devil is in the details.” It remains to be seen if any significant modifications to the proposals will be made prior to passage and the planned January 1, 2018 implementation date. We will update you when more information becomes available.

Also read: The good, bad and the ugly of Ottawa’s proposed corporate tax changes

*In the spirit of full disclosure, the tax status of my company Sheryl Smolkin + Associates Ltd. will be impacted by the proposed changes

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Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.