Cfp - Fundamental Financial Planning

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Student Loans

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A student can claim 15% of the interest portion of the loan and will receive a non-refundable tax-credit.

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Registered Education Savings Plan (RESP)

Back 2

Educational savings account that uses investment income on a tax deferred basis

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Educational Assistance Payments (EAPs)

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The amount paid to a beneficiary from an RESP to help finance the cost of post secondary education

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EAP Rules

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1. Student must be enrolled in post-secondary school full time

2. Student must be 16 years old

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Limit on EAPs

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1. For full-time studies, $5000 for 13 consecutive weeks. After student has completed 13 consecutive weeks, no limit

2. For part-time studies, $2500 for 13 consecutive weeks

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RESP Contribution Limits

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50K lifetime limit per beneficiary

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Canada Education Savings Grants (CESG)

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1. Government matches 20% of annual contributions or 20% for every $100, up to $500/year for each beneficiary for regular CESG grants

2. Government provides $1000 maximum/year in CESG if there is unused grant room from a previous years

3. Lifetime maximum grant of $7200 for each beneficiary

4. Beneficiary cannot be older than 15-years-old to start a new plan

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CESG Eligibility for 16 and 17-year-old

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1. A minimum of $2000 of contributions were made with respect to the beneficiary before the year in which the beneficiary reached age 16

2. A minimum of $100 annual contributions were made with respect to the beneficiary in any 4 years before the year in which the beneficiary turned age 16

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Additional CESG

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1. 20% on the first $500, up to $100, if the child's family has a net income of $45 916 or less

2. 10% on the first $500, up to $50, if the child's family has a net income more than $45 916 but less than $91 831

3. Regular + Enhanced CESG can be more than $500/year

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Last day for CESG

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Beneficiaries qualify for grants up until the end of the calendar year in which they turn 17 years of age

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Maximum term of an RESP

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35 years for lifetime of RESP and 31 years of contributions permitted only

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RESP Taxation

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1. Only the growth portion of the RESP is taxable to the beneficiary

2. Contributions are paid tax-free to beneficiaries

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What happens when the beneficiary of an RESP does not go to school?

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1. Withdrawn CESGs will be withheld and must be repaid to the government

2. If no beneficiaries go to school, all contributions are returned to the subscriber

3. Subscriber will have to pay taxes on the interest earned

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Rolling an RESP into an RRSP

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If beneficiaries do not attend post secondary school, the RESP can be rolled into an RRSP, if there is enough RRSP room, in the form of an Accumulated Income Payment (AIP)

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Accumulated Income Payment (AIP)

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1. The amount of income earned from the RESP that is paid out to the subscriber (i.e. interest on contributions and CESGs)

2. To reduce taxes, subscribers can rollover AIPs into an RRSP from an RESP, subject to their RRSP contribution room

-Lifetime limit of $50K can be transferred to an RRSP

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Conditions to Receive AIP

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1. RESP must have existed for 10 years or longer

2. All beneficiaries must be at least 21 years of age and not attending post secondary education

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What if the RESP is not rolled into an RRSP?

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The AIP will be taxed at the subscriber's MTR with an additional 20% (i.e. if you're in a 45% MTR, then the total tax you pay is 65%)

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Over Contributions on RESP

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Subscriber will pay tax on 1%/month on the share of over contribution

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Canada Learning Bond (CLB)

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Government of Canada grant to help lower income families start saving for their child's post secondary education

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CLB Eligibility

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1. Your child was born after December 31st, 2003

2. Your monthly CCB includes the National Child Benefit Supplement

3. Your family net income must be less than $36 378

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CLB Amount

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1. Government will provide a first payment of $500 + $25

2. $100 per year for up to 15 years

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Lifetime CLB Limit

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$2000 lifetime limit per child

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RESP and disabled beneficiaries

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1. Maximum years funds can be tax-sheltered changes to 40 years instead of 35

2. Maximum years funds can be contributed changes to 35 instead of 31

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Home Buyers' Plan (HBP)

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Allows participants to withdraw $25K (interest-free and tax-free) from their RRSP to purchase or buy a home

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HBP Withdrawal

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1. The amount that can be withdrawn if deposited and stays in the RRSP account for at least 90 days

2. The last day to make a withdrawal is within 13 months of the calendar year the first withdrawal was made

3. The last day to make a withdrawal is within 30 days of the closing date

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When do you have to buy your home under HBP?

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Must acquire the home by October the year following the year of the withdrawal

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HBP Eligibility

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Have not owned a home which you occupied as your principal residence in any of the past 5 calendar years

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Disabled Person's Assistance

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An RRSP annuitant can withdraw funds under HBP for the purchase of a qualifying home for a disabled person, who may be himself or related to the annuitant

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HBP Repayments

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1. Must be repaid over the course of 15 years

2. Repayment period begin the 2nd year after the withdrawal was made

3. Repayments must be made on or before 60 days after December 31st

4. Any amount exceeding the minimum payments will be included as taxable income

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Lifelong Learning Plan (LLP)

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Withdraw (tax-free and interest free) to pay for full-time training or education for themselves or spouse

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LLP Rules

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1. Limited to $10K/year withdrawal

2. Maximum lifetime withdraw limit is $20K

3. Can withdraw from RRSP for a total of 4 calendar years

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LLP Eligibility

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1. Person must be attending an educational program full time for at least 3 months

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What happens if you do not finish educational program?

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1. Withdrawal can be still tax-free and interest free, if the student withdraws from the program more than 3 months after the year of the withdrawal

2. If less than 75% of the student's tuition is refundable for leaving the program then the withdrawal will be accepted under LLP

3. If the student enrols in another qualifying educational program before April of the year following the year of the withdrawal

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LLP Repayment

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1. Must be repaid over the course of 10 years

2. First payment must start no later than 60 days following the 5th year after the year in which the student has received the funds

3. Repayments must start earlier if the student fails to qualify for a full-time education program and repayments will start no later than 60 days after the 2nd year of the withdrawal

4. Repayments must start earlier if you complete the program and repayments will start no later than 1 year after the year you completed the program

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The Business Cycle

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1. Peak

2. Recession

3. Trough

4. Expansion

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Leading Indicators

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Indicators that change before changes in economic activity

-Examples: housing starts, manufacturers' new orders, changes in profits, spot commodity prices, average hours worked per week, stock prices

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Coincidence Indicators

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Indicators that change at the same time as changes in economic activity

-Examples: GDP, industrial production, personal income, retail sales

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Lagging Indicators

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Indicators that change after changes in economic activity

-Examples: business investment, unemployment rate, labour costs, inventory levels, inflation

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Yield Curve

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A graph that plots the yields of similar-quality bonds against their maturities

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Normal Yield Curve

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Short-term yields are lower than long-term yields

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Inverted Yield Curve

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Short-term yields are higher than long-term yields

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Expectations Theory

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The yield curve is representative of what people expect rates to be in the future

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Liquidity Preference Theory

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Investors always prefer the higher liquidity of short-term debt and demand a premium for longer holding periods

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Segmented Market Hypothesis

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Different investors are segmented into groups

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Canadian Deposit Insurance Corporation (CDIC)

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Provides coverage for Canadian deposit accounts in the event a financial institution becomes insolvent

1. Coverage of up to $100K per eligible account per institution (separate accounts at the same institution are grouped together)

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Eligible deposits covered by CDIC

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1. Savings accounts

2. Chequing accounts

3. Term deposits, GICs (with maturities of 5 years or less)

4. Debentures

5. Money orders

6. Cheques

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Canadian Investor Protection Fund (CIPF)

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Provides coverage for investment accounts in the event a financial institution becomes insolvent

-Coverage of up to $1M per account

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Eligible deposits covered by CIPF

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Cash, margin, RRSPs, RRIFs, Trusts, Personal Holding Companies

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Assuris

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Protects policy owners in the event the insurance company becomes insolvent

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Assuris Coverage

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1. $200K of life insurance death benefit

2. $2000/month of disability insurance benefit

3. $60 000 of cash value

OR

85% of promised benefits, whichever is higher

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Negotiable Instruments

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Is a contract in writing that contains an unconditional promise to pay a specified sum of money to the person designated on the instrument

-Examples: promissory notes, drafts and cheques

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Torts

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A private wrong caused by the offender against another individual who, because of the offender's actions caused the innocent person to suffer a loss

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Fiduciary Responsibility

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There is a special relationship of trust, confidence or responsibility in the professional-client relationship

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3 Parts of Agency Law

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1. Principal

2. Agent

3. Third Party

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Principal

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The party that uses an agent to make any decisions within the contract

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Agent

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The party that is acting on behalf of the principal

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Actual Authority

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1. Express Authority

2. Implied Authority

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Express Authority

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The principal has given the agent specific directions as to what is permitted (i.e. Advisor accepts initial premium and gives the insurance company the premium amount)

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Implied Authority

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Accompanies express authority (i.e. Advisor collects premium for insurance policy)

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Apparent Authority

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Occurs when the agent appears to a third party to have authority based on the circumstances, however, the agent has no authority, express or implied

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5 Key Elements of a Valid Contract

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1. Valid offer and acceptance

2. Legally competent parties (i.e. not minors)

3. Consideration (i.e. the exchange of money)

4. Genuine intent

5. Lawful object

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Reasons for Voiding a Contract

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1. A mistake in the contract

2. Misrepresentation (i.e. false statement)

3. Undue influence (i.e. one party holds a dominant position over the other party)

4. Duress (i.e. one party is threatened or forced into the contract)

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Methods to Discharge a Contract

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1. Performance

2. Agreement

3. Frustration

4. Operation of Law

5. Breach

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Features of Joint Tenancy

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1. Unity of Interest: each tenant has equal ownership

2. Unity of Title: each tenant has the same quality of title

3. Unity of Possession: each tenant has an equal right to the entire property

4. Unit of Time: created for each joint tenant at the same time

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Budgeting Strategies

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1. Reduce discretionary expenses (refinance high debt)

2. Reorganize investments

3. Increase income

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Discretionary Expenses

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Expenses that you do not require to survive. This is more of a want.

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Non-Discretionary Expenses

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Expenses that you need to incur in order to live (i.e. food, water, shelter). This is a need.

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Gross Debt Service Ratio (GDSR)

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GDSR = (Mortgage Payments + Property Tax + Heating Costs + 50% of any condo fees) / gross family income

-Should not exceed 32%

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Total Debt Service Ratio (TDSR)

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TDSR = [Mortgage payments + Property tax + heating costs + 50% of any condo fees + other debt payments + (3% of any consumer credit even if no balance*12)] / gross family income

-Should not exceed 40%