Although we are in the Dog Days of summer, last week the government made a vitally important announcement that should not be missed. I have paraphrased the following from CI Global Asset Management:
“For the past year, there has been significant discussion about new trust reporting rules that require most trusts to provide additional disclosure to the CRA including the names, addresses, date of birth, jurisdiction of residence and taxpayer identification number of those involved with the trust, including settlors, trustees, beneficiaries and any persons who can exert influence on the trust.
On August 12, 2024, the Department of Finance indicated that it will move forward with consultations to advance key 2024 budget priorities, and announced a series of updated and corrected legislation in the federal Income Tax Act. As part of the announcement, new and amended legislation on the trust reporting rules was announced with the intention to “significantly reduce the number of Canadians with bare trusts who would have to file, and ease the related administrative burden.”
What does this mean for bare trusts going forward? In brief, it appears that the Department of Finance intends to allow certain bare trusts to be excluded from the reporting requirements, potentially as early as the 2024 tax year if the amended legislation is adopted and formally introduced into law.
So, if passed, Canadians that are joint owners of their aging parents bank accounts for convenience purposes will not have to file a trust tax return as long as it doesn’t have a balance greater than $250,000 at any point in the year.
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It seems like we are awash in election season. More and more people are wondering about the US elections in November, and what that might mean for the markets and their investment portfolios. Morgan Housel recently shared an important story:
“After the November, 1930 election, Republicans and Democrats held an even number of seats in the House of Representatives. A perfect tie.
By the time members were sworn in, thirteen had died, most of them Republicans. Special elections to replace them fell in Democrats’ favor, and when the Congress first met the Democrats held a comfortable majority.
Remember this the next time you hear a confident political forecast. No one knows anything, even when it looks obvious.”[1]
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I read an interesting article on CPP in the Globe and Mail which touches on an aspect that no one ever considers. I will footnote the article below in case you are a subscriber; and will try to relay the concepts here for non-subscribers.
First some background. Until 2019, CPP was designed to replace 25% of the average income. Between then and continuing through to 2025, the government has instituted an enhancement process whereby CPP will aim to replace 33% of the average income from 2019 onward.
Per the Globe[2]:
“For someone turning 65 in 2024, the maximum annual CPP pension is about $16,400. This reflects the effects of the CPP expansion from 2019 up to now. That amount will continue to rise with inflation. If price inflation is 2.5 per cent for 2025 and 2.2 per cent a year thereafter, the maximum payable to a 2024 retiree in 2040 will be about $23,300.”
However, the maximum payable to a 65-year-old who retired in 2040 will be about $32,800. The difference is sizeable ($9,500 a year). There are two reasons for the increase.
The first is fairly obvious: once you start CPP it rises with the rate of price inflation. However, if your CPP starts in a future year, it will rise with your wage inflation right up until the time that you start CPP. “Historically, wage inflation has usually been higher than price inflation by about 1% per year.”
The second reason is that CPP enhancement will continue to be phased in in the future, but only for non-retirees. In effect, if you were a young person just starting out, the CPP enhancement will increase the maximum CPP retirement pension by more than 50% if you make enhanced contributions for 40 years.[3]
Note that none of these calculations reflect the amount of CPP if you apply for it early or delay it until age 70.
If you have any questions about bare trusts, CPP or just want to hear us make election predictions, please give us a call at any time. To be clear, I am joking about the election predictions!
P.S. If you are coming into the office for a meeting, please note that we are collecting gently used running shoes at the front door. Through a charity called Soles 4 Souls we can donate the shoes and provide educational, housing and nutritional support to children in need. Thank you.
[1] https://collabfund.com/blog/a-few-little-ideas/
[2] https://www.theglobeandmail.com/investing/personal-finance/retirement/article-the-maximum-cpp-pension-future-retirees-could-get-is-about-to-start/
[3] https://www.canadalife.com/investing-saving/retirement/pension-plans/canada-pension-plan-cpp/what-is-cpp-enhancement.html#:~:text=The%20maximum%20limit%20of%20earnings,enhanced%20contributions%20for%2040%20years.
