Your CPP questions answered: If you’re receiving survivor benefits, is there a good time to take your own CPP?

February 20, 2024

As part of this ongoing series, we invite readers to ask questions about their Canada Pension Plan (CPP) retirement benefits and find experts to answer them. This week, we asked Kevin Burkett, tax partner at Burkett & Co. Chartered Professional Accountants in Victoria, to answer some questions about survivor benefits:

What’s the difference between a death benefit and a survivor benefit?

The death benefit applies in cases in which the deceased made contributions to the CPP that meet certain requirements around years of contributions. It’s a one-time payment of $2,500 that can be applied for immediately after the contributor’s death, paid to their estate or, in cases in which there’s no estate, it can go to the person paying for funeral expenses, the surviving spouse or the next-of-kin, in that order.

The survivor’s pension is a monthly pension paid to the surviving spouse or common-law partner and, in cases in which the survivor is 65 or older, results in a 60 per cent entitlement. If the surviving spouse is under 65, they receive a base amount of $227.58 per month, which is the flat rate portion for 2024, plus 37.5 per cent of the deceased contributor’s retirement pension entitlement. Note that if the surviving spouse is already receiving a CPP retirement pension, the total of these amounts is limited to certain thresholds.

If you are receiving survivor benefits, is there a good time to take your own CPP? I was 62 when my husband passed away and I started receiving survivor benefits then. I tried to research the best time for me to take my own CPP, and it’s all very confusing. No one seems to have a good, clear answer.

It is very confusing. The best choice will depend on your specific situation. In addition to all the usual considerations of when to start your own retirement pension, you need to be aware of the overall limit for someone receiving a combined survivor’s and retirement pension. In some cases, if this limitation affects you, it may be best to defer receiving your own retirement benefit to obtain the increased retirement entitlement at 70. If you call Service Canada, a representative can provide you with the exact numbers of your combined survivor pension and retirement benefit if you decide to start now. You could then compare this to the option of allowing your retirement pension to grow by deferring it.

Can you tell me what the CPP maximum combined survivor and retirement pension is if the deceased or the survivor starts collecting at 70? Also, what is the impact if both spouses are over 65 and neither is collecting when one of them passes away?

The 2024 maximum combined survivor’s and retirement pension, as shown on the Service Canada website, is $1,375.41. This limit is for a surviving spouse who starts their own retirement pension at 65. If the surviving spouse defers their CPP benefits until 70, this limit is increased by 42 per cent. If both spouses are over 65, and neither is collecting the CPP when one of them passes away, the surviving spouse’s combined survivor and retirement pension will be subject to the maximum limit at that time, after taking into account the 0.7 per cent per month increase that applies by deferring the start of the retirement pension after 65.

Markets continue recovery from mid-week selloff as S&P 500 notches new all-time high

February 15th, 2024

Canada’s main stock index gained 1.6 per cent on Thursday, led by strong gains in the energy sector, while U.S. markets also rose, with the S&P 500 notching a new all-time high.

The S&P/TSX composite index closed up 333.29 points at 21,222.69.

In New York, the Dow Jones industrial average was up 348.85 points at 38,773.12. The S&P 500 index was up 29.11 points at 5,029.73, while the Nasdaq composite was up 47.03 points at 15,906.17.

Mixed messages from inflation readings are driving short-term market volatility, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.

On Tuesday, hotter-than-expected U.S. CPI numbers drove markets into a selloff, but much of that was recovered in the following days.

“The numbers themselves aren’t bad. I think that the issue is people’s expectations, in particular at the end of December, had become so aligned to this view that we would see imminent and steep rate cuts,” said Burkett.

“And what we’ve seen in the last two months, in particular, is people start to think more realistically about the timing with which we can expect policymakers to begin to cut rates.”

Right now there’s very little chance that either the Bank of Canada or the U.S. Federal Reserve will start cutting interest rates in March, said Burkett. As well, expectations for how many cuts the entirety of 2024 will bring have come down significantly in recent weeks, he said.

“The challenge is that with inflation stubbornly elevated, it’s awfully hard for monetary policymakers to justify cutting rates and risk undoing (the effects of) the rate hikes of the last 12 to 24 months,” he said.

Thursday saw the latest retail sales report in the U.S., with sales in January weakening by more than expected, which could remove some pressure on inflation.

Recent earnings reports in Canada have highlighted the disparity between companies that have more pricing power — like insurance or grocery companies — and those more on the discretionary side, said Burkett.

Manulife’s stock price soared by almost nine per cent Thursday after it reported higher earnings in the latest quarter.

Meanwhile, Canadian Tire reported a drop in profits in the latest quarter amid tougher economic conditions and softer consumer spending, though its stock price didn’t move significantly Thursday.

The Canadian dollar traded for 74.11 cents US compared with 73.80 cents US on Wednesday.

The April crude oil contract was up US$1.23 at US$77.59 per barrel and the March natural gas contract was down three cents at US$1.58 per mmBTU.

The April gold contract was up US$10.60 at US$2,014.90 an ounce and the March copper contract was up six cents at US$3.76 a pound.

— With files from The Associated Press

Trust us: You don’t want to be caught off guard by new reporting rules

  • New expanded reporting requirements from the Canada Revenue Agency (CRA) that took effect in 2023 now require many trusts to file an annual trust tax return (T3)
  • This update includes ‘bare trusts’, a unique trust-like relationship which many individuals and businesses may not realize they are part of
  • The trust tax return filing deadline is April 2, 2024, with the potential for significant penalties for those who don’t file

What is a trust and why did the CRA’s create new reporting rules?

Trusts are a helpful tool used in tax and estate planning that describe a legal relationship that allows a third party (a “trustee”) to hold assets on behalf of a beneficiary. In 2023, the Federal government implemented new income tax reporting requirements for trusts to improve transparency.

While these new tax reporting requirements are intended to catch individuals who use trusts to avoid certain tax obligations or disclosures, the expanded rules now require many trusts to file an annual trust tax return (T3) where they previously had no reporting requirements.

What type of trusts are affected?

Formal trusts, informal trusts, and bare trusts are all included in these new reporting rules. The first two are fairly common and straight forward, but bare trusts are unique arrangements which can be tricky because there are no requirement to sign paperwork to formally establish one or set out the parties’ intentions.

As a result, many unsuspecting Canadian businesses and individuals are likely unaware that they are deemed to be part of a bare trust and have a filing requirement – putting them at risk of being caught off guard.

How do I know if I’m part of a bare trust?

There is likely a bare trust arrangement if there is a mismatch between legal and beneficial ownership of property. In such instances, the person or entity listed as the owner of an asset is not the true beneficial owner; instead, they hold the asset on behalf of another party.

Bare trusts can exist even where there is no formal documentation of the intentions of parties involved.

Examples of a bare trust could include:

  • a parent is added to the title of their child’s home to assist the child with qualifying for the mortgage to purchase a home;
  • a child is added to the title of an aging parent’s home for the purpose of simplifying the estate process;
  • a child is added to their aging parent’s bank account to help their parent with bill payments or other transactions as directed by the parent;
  • a corporation is on title of an individual’s real estate, vehicle or other asset, and vice-versa; or
  • assets registered to one corporation but beneficially owned by a related corporation 

What is the penalty for failing to file?

These changes will catch many individuals and businesses that may not be aware of their trust-like relationships, exposing them to potential penalties and other consequences for non-compliance. Typically, bare trusts have no income or taxes owing, however, failure to file an annual trust tax return before the April 2, 2024 deadline may lead to significant penalties and interest and could have other unintended long-term consequences.

While the CRA is taking an “education-first approach to compliance” for the 2023 tax year and may waive late-filing penalties for certain bare trusts that submit their T3 returns after the deadline, it’s best to take time to understand if you’re affected now so you can be prepared.

How do the new trust reporting affect my unique situation?

Understanding if you’re affected by the new trust reporting requirements and when to file is critical, and we’re here to help. If you would have questions or would like to discuss the specifics of your unique situation, please contact our Tax Manager Brad Grsic (250.370.9178 | [email protected]).

Disclaimer: This article is intended to inform readers in general terms. It is not intended to provide any tax, investment or business advice. Please consult your advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.

“It’s clearly not an investment,” advisors weigh in on the impact of US bitcoin ETFs

How advisors are answering client questions about cryptocurrency following the SEC approval of bitcoin ETFs

January 17, 2024

While Canadians have had access bitcoin ETFs since the pandemic, the approval of US-listed bitcoin ETFs by the SEC last week was still meaningful news on this side of the border. The access US investors now have to bitcoin-tracking ETFs was predicted to make a meaningful impact on demand for the cryptocurrency.

Following that announcement, those new US ETFs saw billions of dollars in trading values. However, the price of Bitcoin has pulled back meaningfully from the highs it hit in the leadup to last week. As big news in the US drums up consumer interest in bitcoin worldwide, how are Canadian financial advisors viewing the currency and what are they now telling their clients?

“I would say that insofar as you define an investment as one which generates income or has the potential to generate income I think it’s clearly not an investment in that context,” says Kevin Burkett, portfolio manager at Burkett Asset Management. “Whereas shares issued by a company or bonds issued by a company or government derive their value from the ability to generate some underlying cash flow somewhere, cryptocurrencies do not have that.

“That kind of relegates bitcoin to the category of what I would call a collectible. It’s finite and so has value derived by the relative forces of supply and demand the way art, or commodities, or other collectibles derive value. For me, that’s a very key distinction.” 

While Burkett says he is not “anti-bitcoin” and sees a great deal of interest in the technology, he thinks the fact that bitcoin has been marketed as an investment has created a great deal of confusion among investors. Accessing bitcoin through investment vehicles like ETFs, too, has popularize the view of bitcoin as an investment. While it may appear like a semantic distinction, Burkett believes that because bitcoin does not meet his definition of an investment it’s not something he would elect to put in his clients’ accounts.

Francis Sabourin may not share Burkett’s hardline delineation between what is and is not an investment, nevertheless he treats bitcoin and other cryptocurrencies as a purely speculative play. The director of wealth management and portfolio manager at Francis Sabourin Wealth Management of Richardson Wealth sees the approval of ETFs as a victory for bitcoin and cryptocurrency advocates, nevertheless he ensures his clients are aware of the speculative nature of that market.

“I tell my clients it’s not a proven investment. It’s very speculative. It’s sexy, it’s interesting to know, but it’s not yet mature in terms of investment,” Sabourin says. “That’s because there’s no intrinsic value by itself. Gold has intrinsic value, dollars have intrinsic value. You can do something with your gold bar, you can melt it down and make jewellery, but with bitcoin what else are you going to do with it? Is it Monopoly money or what?”

Sabourin says that when clients come to him asking about bitcoin or other cryptocurrencies, he expresses these concerns, says they’re free to try out an investment but emphasizes the speculative nature of bitcoin.

Burkett shares that view, likening bitcoin’s value to that of baseball cards of beanie babies. While many bitcoin advocates are celebrating the arrival of US ETFs, Burkett notes that it may impact the original intent of the cryptocurrency as a medium of exchange without intermediaries. The introduction of products like ETFs will bring more intermediaries into the space and bring in greater regulatory attention. That may, in turn, leave bitcoin and other cryptocurrencies in a space where they aren’t used as currencies, and trade more on psychology and speculation than any underlying value creation.

As advisors tackle questions about cryptocurrency from their clients, Burkett believes they should begin by contextualizing things like bitcoin in what they know about investments as advisors. They can draw their own lines based on what they’ll include in their practice and what they wont.

“Be careful, it’s okay to say that you don’t know about something,” Burkett says. “There’s a lot of things that you can own within the universe of what is an investment. To understand where you have specialist knowledge and where you don’t have specialist knowledge, that’s how you can make sure that you have a high chance of adding value as opposed to taking value away. I think advisors should not be knew to these sorts of questions, we’re talking about bitcoin today but five years ago it might have been marijuana stocks.

“In the decades I’ve been around I’ve seen some of these topical investment subjects come and go. Over the years I’ve become more outspoken when clients ask about something that doesn’t meet the quality filters we have, and I think clients really appreciate it when you give them your honest opinion about something that doesn’t make sense.”

Markets reverse in mid-afternoon slump, TSX loses more than one per cent Wednesday

December 20, 2023

Canada’s main stock index lost more than one per cent on Wednesday in a broad-based slump and U.S. markets also fell, as stocks took a dramatic turn in the later half of the afternoon.

The sudden weakness didn’t seem to be sparked by a particular news event, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.

But after an “incredible run” for markets over the past couple of months as rate expectations shifted, investors are likely taking a cautious step back, he said.

“There’s a lot of nervousness around the rally of the last 30 days.”

The S&P/TSX composite index closed down 238.82 points at 20,600.81.

In New York, the Dow Jones industrial average was down 475.92 points at 37,082.00. The S&P 500 index was down 70.02 points at 4,698.35, while the Nasdaq composite was down 225.28 points at 14,777.94.

Markets closed out their seventh straight winning week on Friday.

The U.S. Federal Reserve has continued to maintain a cautious front, Burkett said, even as markets are calling for more cuts than the central bank has said it expects to take.

“Monetary policymakers don’t want to show their hand because that diminishes the impact of the decisions they make at their meetings,” he said.

Last week, the Fed announced it would hold its benchmark rate steady in the last policy announcement of 2023. The central bank also signalled it expects to make three cuts of a quarter-point in 2024.

The Bank of Canada also recently held its key rate steady. In the summary of its deliberations released Wednesday, central bank officials agreed the odds of another hike have decreased with recent data pointing in the right direction.

The question in the U.S. and Canada heading into 2024 isn’t really whether central banks will raise rates again, said Burkett.

“The question is, how quickly will they start cuts? And how deeply will they cut from here?” he said.

New data in the U.S. showed consumer confidence improved in December, by more than economists expected. Sales of previously occupied homes in November also beat expectations.

Wednesday also saw some disappointing earnings reports from U.S. companies including FedEx.

The Canadian dollar traded for 75.01 cents US compared with 74.94 cents US on Tuesday.

The February crude oil contract was up 28 cents at US$74.22 per barrel and the January natural gas contract was down five cents at US$2.45 per mmBTU.

The February gold contract was down US$4.40 at US$2,047.70 an ounce and the March copper contract was up a penny at US$3.91 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Dec. 20, 2023.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

S&P/TSX composite down, led by energy and base metals; U.S. markets also in the red

December 4, 2023

TORONTO — Canada’s main stock index moved lower on Monday, dragged down by losses in energy and base metals, while U.S. markets also ended the day in the red, led by weakness on the Nasdaq.

After a strong November as rate hike pressures eased, with some of the big tech names posting strong performances, traders are taking stock of the sentiment shift, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.

“I think what we’re just seeing is a bit of a short-term reversal of some of the big moves we’ve seen in the last couple of weeks,” he said.

A similar shift is evident in the bond market, added Burkett.

“Some of the rapid fall in rates that drove bond prices higher for the month of November … it seems some of those have kind of given back a little bit today.”

The S&P/TSX composite index closed down 42.66 points at 20,410.21.

In New York, the Dow Jones industrial average was down 41.06 points at 36,204.44.The S&P 500 index was down 24.85 points at 4,569.78,while the Nasdaq composite was down 119.54 points at 14,185.49.

Investors are placing bets on rate cuts that Burkett thinks are too optimistic, with some calling for cuts as soon as the first quarter of 2024, he said.

“To me, that seems crazy, given all the things that the Fed and Bank of Canada have been saying over the last year.”

For cuts to come as soon as some currently expect them to, the economy would likely have to be at the start of a hard landing, said Burkett.

He thinks those expectations will have to be pushed down the road moving into the new year.

The Bank of Canada’s upcoming rate decision Wednesday is all but certain to be a continuation of its pause, said Burkett. The U.S. Federal Reserve will hold its meeting the following week.

The Canadian dollar traded for 73.85 cents US compared with 74.04 cents US on Friday.

Oil prices continued to fall Monday amid renewed concerns about demand as the economy weakens, said Burkett.

The January crude oil contract was down US$1.03 at US$73.04 per barrel and the January natural gas contract was down 12 cents at US$2.69 per mmBTU.

The February gold contract was down US$47.50 at US$2,042.20 an ounceand the March copper contract was down 10 cents at US$3.84 a pound.

This report by The Canadian Press was first published Dec. 4, 2023.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

Rosa Saba, The Canadian Press

A bespoke approach to tax loss selling

Discretionary PM outlines how he approaches the practice year-round and highlights where he sees the greatest potential for gain in tax loss selling season

November 30, 2023

Tax loss selling often begins with a calendar reminder. Somewhere in November, advisors start poring over clients’ non-registered accounts looking for unrealized losses that can help alleviate a tax burden or offset a tax bill coming from any realized gains. It’s a bread-and-butter value add for advisors, using technical skills to manage a client’s taxes.

Kevin Burkett thinks there’s an opportunity to demonstrate that value year-round. The portfolio manager at Burkett Asset Management looks for opportunities to realize losses throughout the year. When he does that, however, he tries to take a more holistic view, seeing how this particular sale can fit into a client’s overall plan.

“The traditional approach is to say ‘let’s find stocks that have fallen the most, and sell those stocks over a year, and when you take that simplistic approach you are potentially missing out on a recovery in those companies’ shares,” Burkett says. “You want to have in your scope a view as to whether you want to remain invested in that company and hope they realize share price recovery. I wouldn’t say what we do is drastically different than the conventional approach. I think we just try to zoom in more and consider a broader range of factors to get the client the best outcome, and to show the client that we’re thinking about their situation in a pretty deep way.”

Burkett notes a few considerations his team keeps in mind around tax loss sales. Holding companies, for instance, may have very different fiscal years. Therefore he and his team make note of when any sales needs to happen within the context of a particular holding company’s setup.

The rules around capital losses are crucial, too. Investors must adhere to the superficial loss rule, wherein a security is sold by a person and a party affiliated with that person — such as their spouse or holding company — buys the identical security. As well, the same position can’t be entered within 30 years of its disposition. Burkett educates his clients on these rules, as they might re-enter the same position via their spouse’s account or a holding company out of fear of missing out on a gain.

Burkett also has to combat that FOMO when tax loss selling comes. He notes, however, that given the incredible diversity of similar ETFs now available on the market, he can exit certain positions at a realized loss, move into another position with similar overall exposure, and not trigger any violations of the rules. That can keep his clients participating in any potential share price recovery and improving their overall tax efficiency.

After a volatile few years on the market, Burkett sees the greatest potential for tax loss selling advantages in fixed income. After three years of negative total returns on most fixed income, there is a significant opportunity to exit positions at a loss while moving into positions with very similar overall exposures, risk ratings, and potentially more advantageous yields.

Higher yields on bonds, however, add to the interest income portion of a client’s tax exposure. Burkett thinks that tax-sensitive clients could actually benefit from some of the lower-yield bonds issued during 2020 and 2021, which are coming to maturity soon. Those bonds are currently trading at a discount, and between the outlook for broad improvement on the bond market and the likely return they will provide at maturity in the form of capital gains, they could be a way to realize a tax loss on fixed income positions now and shift some interest income tax bills over to the more efficient rates delivered by capital gains.

Burkett notes that sometimes the temptation to realize a loss for tax sale purposes can be great, but argues that if the right alternative product doesn’t exist for clients, it might not be right to exit that position. Advisors approaching tax loss selling need to be careful and mindful of how exiting a position at a loss, only to add the same position at a higher cost down the road will make them look.

“If you sell and realize a loss, and you don’t put that in the market, you might get lucky, but I don’t know if clients are going to give you credit. I think they will hold it against you if you get unluck,” Burkett says. “You’d hate to have a client statement that shows you sold a position and bought it back much more expensively, I think if you can point to what you did with the funds in the interim, and show that you continued to participate, that’s a better story for your client than simply saying ‘I left it as cash for the required 30 days and then bought the position back.’”