For those of us who manage wealth on a regular basis, it continues to be surprising to see the growing number of assets that are forgotten or just not optimally put to work. Here are three actions we can all consider to help keep assets working hard for the future:
Consolidate financial accounts.
The latest data suggests at least $2.5 billion of funds remain unclaimed: the Bank of Canada holds $1.1 billion of unclaimed balances1 and the Canada Revenue Agency (CRA) has 8.9 million uncashed cheques, with a total value of over $1.4 billion.2 This sheer magnitude of funds should remind us of the benefits of consolidating financial accounts to ensure assets do not become orphaned over time. Consolidation can also provide other benefits, including better visibility to optimize asset allocation and tax efficiency, greater simplicity and improved legacy planning, among others.
Do any unclaimed funds belong to you or your loved ones? To search for unclaimed assets, see: www.unclaimedproperties.bankofcanada.ca/app/claim-search. Check your CRA “My Account” for unclaimed cheques at: www.canada.ca/en/revenue-agency/services/uncashed-cheque.html
Consider fully maximizing tax-advantaged accounts.
Investing in tax-advantaged accounts can make a significant difference down the road. As one example, consider an investor who invests $50,000 today at an annual rate of return of 6 percent. In 25 years, this investor would have almost $215,000 if invested in a TFSA. Investing the same amount in interest-bearing investments in a non-registered account would yield only $104,000 after taxes.3
Do you have available RRSP or TFSA contribution room? The latest statistics suggest that there is over $1 trillion of unused RRSP contribution room available.4 And, as noted in last quarter’s newsletter, the vast majority of TFSA holders, at all wealth levels, have not
RRIF Withdrawals
As we reach the end of the year, this is often a time when retirees take their Registered Retirement Income Fund (RRIF) required withdrawals. Don’t forget that an “in-kind withdrawal (transfer)” can satisfy part or all of the requirement; securities do not have to be sold.
An in-kind withdrawal involves transferring investments directly to a non-registered account or Tax-Free Savings Account (TFSA). There may be associated benefits: You will maintain ownership of the shares and it may minimize trading costs. An in-kind withdrawal from the RRIF to a TFSA, subject to available TFSA contribution room, could also allow for the future tax-free growth of the securities transferred.
For an in-kind withdrawal from the RRIF, the fair market value (FMV) of the shares at the time of transfer will be added to your taxable income and their cost base will be adjusted. For example, an in-kind withdrawal of 100 shares of XYZ stock trading at $60 will be valued at $6,000 (the FMV of the shares). This amount will be added to your taxable income. The adjusted cost base (ACB) of the transferred shares will now become $6,000, regardless of the price paid when originally acquired. If the transfer is to a non-registered account, the ACB will be used when the shares are eventually sold to calculate the capital gain/loss. Keep in mind that if the transfer value is greater than the RRIF minimum withdrawal requirement, the excess amount will be subject to withholding tax.
Still Have Yet to Open the RRIF? Consider Planning Ahead
If you still have yet to open the RRIF, planning ahead is always recommended. Here are four practices that may require forethought.
1. Opening a small RRIF before the age of 71. The pension income tax credit generally begins at age 65, so this may be one way to take advantage of this non-refundable credit. You may also be able to split pension income with a spouse/partner, which can reduce taxes or improve access to income-tested government benefits.
2. Using a younger spouse’s age to determine the RRIF minimum withdrawal rate. A younger spouse’s age can minimize withdrawal amounts and maximize flexibility since you can always withdraw more than the required minimum if you need it (subject to withholding tax). However, you must elect to use a spouse’s age when first setting up the RRIF, and this cannot be changed at a later time.
3. Making withdrawals closer to year end to allow greater potential tax-deferred compounding. Remember: for those who convert the RRSP to the RRIF at age 71, mandatory withdrawals aren’t required until the year after the plan is opened.
4. Varying RRIF withdrawals with your tax bracket. For years in which you will be in a lower income tax bracket, consider the opportunity to make greater withdrawals than the minimum requirement to take advantage of the lower tax rate (subject to withholding tax).
maximized their contribution room.5
1. nationalpost.com/news/canada/how-to-know-if-you-own-any-of-the-1-8b-in-unclaimed-bank-accounts-in-canada;
2. www.canada.ca/en/revenue-agency/news/2022/08/approximately-14-billion-in-uncashed-cheques-is-sitting-in-the-canada-revenue-agencys-coffers.html;
3. Assuming a marginal tax rate of 50.25% on interest income;
4. At 2016; Stat Canada T: 111-0040 “RRSP Room”;
5. www.canada.ca/content/dam/cra-arc/prog-policy/stats/tfsa-celi/2020/table1c-en.pdf
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