Ten ways to reduce taxes in 2019

Ten ways to reduce taxes in 2019

Most business owners are certainly happy that the modifications to the taxation of small businesses that are part of the federal 2018 budget are not as drastic as those announced in 2017. This being said, the new tax rules will make passive investment income earned in a business less interesting for some small business owners. They may therefore be looking for more advantageous investment alternatives. They should consider Individual Pension Plans (IPPs) and Retirement Compensation Arrangements (RCAs).

This document presents our views on the broad impact of the new tax rules and should not be considered as tax advice. We will be pleased to work with tax and investment advisers to further assess whether an IPP or an RCA can help to maximize their clients’ retirement savings. A business owner must receive or start receiving T4 income to consider these retirement plans.

Monthly World Markets Report

Q1 OUTLOOK: A NEW BEGINNING

As we contemplate how best to adhere to New Year’s resolutions, it is also an opportune time to look back at the year that was and look forward to how we should position our investment portfolios for 2019.

In the November 2017 issue of the Monthly World Markets Report we first started to voice concern about the U.S. Federal Reserve (Fed) normalizing policy and the potentially negative impact on global growth and equity markets. We explained that the Fed faced a conundrum - normalizing policy after roughly nine years of extraordinary accommodation in order to prevent inflation from accelerating significantly above its 2% target without impeding growth. Raising the policy rate too fast could cause economic growth to slow materially and thus, ultimately cause the yield curve to invert (a situation in which short-term rates are greater than long-term rates). An inverted yield curve is often a harbinger of weaker economic activity and potentially a recession. At the time, we believed that potential policy missteps by central banks represented the greatest risk to equity markets and global growth.
 

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Preferred Share Update

Market Recap and Commentary

The Canadian Preferred Share market has had a lackluster second quarter and was not exempt from the recent volatility we have seen across asset classes. We have continued to see good performance from the rate reset/floating rate preferred share market as the Canadian 5-year bond yield inched higher from 2.00% to 2.21%. The recent performance of the rate-reset/floating preferred market is of no surprise to us since these securities have negative duration in a rising-rate environment.
With two rate hikes, one in January and the second in July 2018 preferreds have not performed as they should. Bank of Canada Governor Stephen Poloz is doubtful to be in a hurry. There remains a long list of reasons for caution, starting with the real possibility of Canada getting into a trade war with its biggest
trading partner. CIBC chief economist Avery Shenfeld, said “There is no preset calendar to higher rates and how fast they come will depend on how well the
economy does.”
Holders of preferred shares need to be patient and hold the course. Rates will continue to rise in late Q4/2018 or Q1/2019. A portfolio that is overweight in fixed-reset preferreds and a well-balanced fixed income bond selection should result in good returns. The market may have to face some headwinds in 2018 with fluctuating interest rates along with an expected decline in new issues from 2017 levels which should help to keep prices and demand
strong.

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Budget 2017/18: Same Numbers, More Details

It’s a somewhat less exciting budget, but mostly because the government scooped itself by laying out all the big numbers last year. With Canada’s economy sparking back to life in recent quarters, near-term deficit projections have eased off, but the targets for the debt-to-GDP ratio in the medium term only allowed for modest new elbow room for spending.

 

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The Case for Tax-Free Investing

Whether you choose an RRSP or TFSA, most Canadians would be well served by simply making a contribution to either plan. That’s because, no matter which plan you choose, you have the ability to earn tax-free investment income for life – an opportunity that no one should pass up.

While Canadians often ponder whether it would be better, given limited resources, to contribute to a Tax Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP), it’s important not to lose track of the major benefit of each plan – the tax-free growth.

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