The “Rule of 72” is a simple formula that can yield powerful insights. For example, Canadians are not getting paid very much to hold cash. The average bank savings account in Canada is paying 0.83%. At today’s average savings account interest rate of 0.83%, it would take 87 years to double your money

Some are paying a bit more, some a bit less, but by and large, bank accounts aren’t the way to grow your savings. They are good for security and for quick access to cash, but not much else. However, by investing at least some of your savings, you can grow your wealth.

Last year, many Canadians decided not to invest. Market turmoil from late 2008 and early 2009 created a deep mistrust, and a sense of fear. However, from the month of March 2009, the markets staged one of the biggest comebacks in history.

The key is to remember that investments benefit from time, and from playing the averages. In the short term, investments such as equity and balanced mutual funds can go down. Over longer periods, the results have generally been reasonable.

The 15-year average annual return for a Canadian equity-focused balanced mutual fund is 6.77%. Using the Rule of 72, with a 6.77% return, you would double your money in 10.6 years. The lesson from this example is important: even taking into account two very serious stock market downturns in the past 15 years – the dotcom bubble burst and the credit crisis of 2008-2009 – balanced funds delivered in the long term.  It pays to be an investor.

1. Budget. If you analyze where your money is going, you can find expenses to cut and the dollars will add up.

2. Pay yourself first. Just as we manage to pay our bills as they come in, we should also put money into our RRSPs every month.

3. Start a pre-authorized chequing plan (PAC). To help you save, consider setting up a PAC. This simple investment strategy lets you set aside money on a regular basis to purchase mutual funds. Amounts as small as $50 per month can be deducted from your personal bank account and invested in your RRSP.

4. Open a Tax-Free Savings Account (TFSA). You can put $5,000 annually into a TFSA. And you can have access to your investments in a TFSA at any time and never pay tax on the money it earns.

5. Pay down your mortgage. Make a few extra mortgage payments every year and you’ll not only pay it off years earlier, you’ll save thousands of dollars in interest.

6. Get a financial checkup. Set regularly to determine if your financial goals are still in sync with your investments.

7. Check your insurance. When was the last time you looked at your home, auto and life insurance? Are you covered adequately and have you shopped around to make sure you’re not overpaying?

8. Do you have a will? Review and update your estate plan annually to make sure it reflects your age and family circumstances, and protects your family from unnecessary taxes.

9. Pay off your credit cards. To help you get started, look at the monthly interest charges on the card and then consider all the better uses you have for that money

With a Tax-Free Savings Account (TFSA), if you are over 18 years old, you can save up to $5000 each year.  You won’t get a deduction, like you would with the RRSP, but you do get a nifty bonus.  Any investment return you get – interest, savings, or capital gains – is not taxed, not while it builds up inside the plan, and not when you withdraw it.  This is a great companion strategy to help pay for education, plan for retirement, and buying a home.  You can even set up a TFSA to help you budget for Christmas presents and annual vacations. 

If you felt the crunch of the recession this year, and weren’t able to make a TFSA contribution, don’t worry.  Any unused room from this year will carry forward.  So if you only made a one-time $50 deposit into your TFSA, you still have $4950 in contribution room that carries forward to 2010.  This means you have a total of $9950 of contribution room for next year.  If you don’t contribute at all in 2010, you will have contribution room of $14,500 in 2011. 

You get the idea.

Another important item: if you are saving your TFSA for future use, the withdrawals won’t affect any income-tested benefits.  The Canada Child Tax Benefit, Old Age Security, and the Guaranteed Income Supplement aren’t altered when you make a withdrawal. 

If you are thinking about making some big personal and financial changes next year, the TFSA is definitely a good starting point.  Keep in mind, though, that you need to put together a financial plan, and find out where the TFSA fits in, in order to get the most out of it.

For the past several years, only Nova Scotia, Newfoundland & Labrador and New Brunswick have operated under the HST. Quebec introduced the Quebec Sales Tax (QST) in 1992, which quite closely resembles the HST. In 2009, both Ontario and British Columbia introduced plans to harmonize their respective provincial sales taxes with the federal GST to create an HST, effective July 1, 2010. In Ontario, the new HST would have a combined tax rate of 13 percent and would include the current general Ontario RST rate of 8 percent and the federal GST rate, currently set at 5 percent.*  As a result, a greater proportion of Canadians will be subject to HST. This paper will discuss what harmonization means to consumers and more specifically, how HST will affect your mutual fund investments.

* In British Columbia, the new HST would have a combined tax rate of 12 percent and would include the current B.C. Social Service Tax (SST) of 7 percent and the 5 percent federal GST rate.

How does Harmonization affect Canadian mutual fund investors?

Mutual fund investors pay a management fee on their mutual funds in order to obtain the benefit of professional money management advice and other services. Since professional money management is considered a service, mutual fund investors currently pay 5 percent federal GST on the management fee and certain operating expenses of the investment funds. These costs are included in the Management Expense Ratio (MER) of each particular mutual fund. As a result of the HST, investors will now be required to pay an additional provincial tax on management fees (and certain other expenses of the MER) where it did not apply previously. Therefore, this will result in a proportional increase in the MERs of mutual funds and an additional cost to investors. Higher taxes on mutual funds will result in lower returns to investors.

Using Ontario as an example, assume a mutual fund has a pre-tax MER equal to 2.28 percent1  and earns an 8 percent rate of return. Under the current rules, the MER is equal to 2.39 percent when GST is applied2. In this case, the investor would receive a net return of 5.61 percent. If the HST legislation is approved, the MER will increase by a further 0.18 percent to 2.57 percent. As a result of the additional taxes imposed by the government on mutual funds, the investor’s return would be reduced to 5.43 percent.

In other words, this tax increase imposed by the government will directly result in a lower net return to the investor. The following chart summarizes the implications to investors on investments returns because of HST.

1 MER is comprised of a 2.00% management fee, 0.25% fixed administration fee plus 0.03% other fund costs

2 It is assumed that GST/HST is only applied on the management fee and fixed administration fee

Without HST

Rate of Return 8.00%

Less Total MER:

Pre-tax MER 2.28%

GST (5%):  0.11%

8.00% Rate of Return minus total MER (2.39%) = Net Return 5.61%

With HST

Rate of Return 8.00%

Pre-tax MER 2.28%

GST (5%): 0.11%

Ontario RST 0.18%

8.00% Rate of Return minus total MER (2.57%) = Net Return 5.43%

What is the rationale for the HST?

The HST provides a single tax base and consistent administration across federal and provincial governments. Without it, there are multiple tax bases, each with their own set of rules and processes.  One of the fundamental differences between GST and a separately operated provincial sales tax is the ability for businesses to recover sales taxes paid on inputs required in the course of providing goods and services to consumers. Under the GST, businesses are reimbursed for any GST paid on inputs while they are not reimbursed for any provincial sales tax. Therefore, the added costs of provincial sales tax becomes embedded in the prices paid by consumers on goods.

The adoption of the HST will help remedy this situation and allow businesses to recover not only the GST paid on inputs, but also the provincial sales taxes. This will help reduce costs and allow businesses to be much more competitive in Canada and internationally.  In addition, harmonization will simplify the sales tax collection process and significantly reduce administration and compliance costs associated with the collection and remittance of sales taxes to the government.

Summary

The HST can have a positive impact for the Canadian economy and for many industries, especially in manufacturing. Unfortunately, the same benefits will not apply universally to all industries, particularly to investment managers where cost recovery on inputs is minimal. More importantly, the HST represents an additional cost to investors and can impair investor savings. Mackenzie Financial Corporation, among other fund companies, strongly opposes the proposals as they currently stand.  Government should be encouraging investors to save for their retirement and should not impose additional tax on savings. Accordingly, Mackenzie is actively engaged with industry groups and government officials working diligently to promote alternative strategies that would protect your savings and those of investors like you.

This article was prepared by Mackenzie Financial Corporation for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management.

Read the rest at Investment Executive

Have you ever thought about going back to school as an adult, but wondered how you would be able to afford it? In this post, we look at using money from an RRSP to finance a Lifelong Learning Plan. Click here for a comprehensive overview.

What is the Lifelong Learning Plan?

In 1998 the Federal Budget contained a new education funding plan called the Lifelong Learning Plan (LLP), which allows people tax-free withdrawals from an RRSP to finance post secondary education and skills training, either for themselves or their spouse, under certain conditions.

How the LLP works

Withdrawal limit: Individuals can withdraw a maximum of $10,000 in a single year from their RRSPs. More than one withdrawal may be made in a given year from any number of RRSP accounts, provided that the annual limit is not exceeded.

RRSP owner: Either the student using the funds, or a spouse must be the owner of the RRSP.

Full-time program only: LLP withdrawals must be used to finance full-time education or training of at least three month’s duration.

Disabled student: A disabled student, who is entitled to the federal disability tax credit, can qualify as a student under the LLP, whether or not he or she is studying on a full-time basis.

Repayment rules: LLP withdrawals must be repaid over a 10-year period, without interest, in equal or greater amounts – and can be repaid in less than 10 years if so desired. The repayment must be made no later than 60 days after the fifth year of the first withdrawal. Amounts not repaid must be included in the RRSP holder’s taxable income in that year.

Participation frequency: There is no limit on the number of times an individual may participate in the LLP. However, an individual may not participate in a new LLP before the end of the year in which all repayments from any previous participation have been made.

Canadian residents only: Recipients under the plan must be Canadian residents. Amounts outstanding under the LLP will generally be included in income for the year if the recipient dies or becomes a non-resident of Canada.

RRSP deduction: No deduction will be allowed for an RRSP contribution made less than 90 days before its withdrawal under the LLP. Due to this, any existing pre-authorized contribution plans should be suspended until after the LLP withdrawal.

Who can benefit from the LLP?

• A student who has had summer jobs for several years, and contributed annually to an RRSP (or whose parents have contributed on behalf of the child.)
• A child who works in a family business and has contributed to an RRSP
• A person who has been in the workforce and is going back to school to enhance his or her career
• A person who has decided to change careers but requires more education to do so

This article was prepared by Mackenzie Financial Corporation for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management, Inc.

© 2009 Mackenzie Financial Corporation. All rights reserved.

How much do I need to retire?

The answer to that question depends very much on the lifestyle you envision in retirement.

Perhaps you want to travel the world or trade your expensive house in the city for a smaller one in the country, and just enjoy yourself. But no matter what your goals are in retirement, financial planning at this stage forces you to admit that your retirement is almost here and you have to make some critical decisions. For example, have you considered gradually moving to a more conservative portfolio. An independent financial advisor can walk you through a new strategy and introduce you to ideas that fit with this period of your life.

For a complete analysis of investing in your 50s click here.

Your retirement checklist

Here are some questions to ask as you move closer to retirement.

• How many years before I retire?
• How much money will I need on a monthly basis?
• What are my guaranteed sources of income in retirement?
• How much money do I have in investment assets?
• How much money will I need to generate from my investment assets?
• How much more money do I need to save?
• How can I invest to reach my ultimate savings goal?

Developing your retirement strategy

It’s important to sit down with your financial advisor and develop a plan of action that answers a number of questions, including: how much time is left before you retire, how much money you’ll need and how comfortable you are with risk. Striking a balance between what’s ideal and what’s realistic is your challenge.

For example, on the one hand this is your last opportunity to build your assets through aggressive saving and investing. On the other hand, with retirement quickly approaching you may want to protect the wealth you’ve already accumulated.

Setting your course to retirement

To figure out the ideal proportion of investment growth versus income that you’ll need, you’ll have to decide when you want to retire, or more specifically, when you need to rely on your money (rather than work) to support you. The most difficult part of devising an investment strategy is being realistic about how much risk you want to take. Your advisor can help run some scenarios to see how you may react. The key is to be honest. Don’t take more risk than you can comfortably handle.

Building an investment portfolio in your 50s

Until recently, equity funds may have dominated your portfolio. That’s a good thing since historically equities have offered average annual returns of about 8%. The problem is, from one year to the next, you never know what will happen in the markets.

As you get closer to retirement, you need to be able to count on the money in your portfolio. You don’t have the luxury of time to recover from significant stock market losses. But swinging to an ultra-conservative stance could also backfire. A portfolio that’s 100% in fixed income and cash – while less volatile compared to equities – may not generate sufficient returns to fund a rewarding retirement.

For many of us, the best strategy is the middle road: a mix of stocks and bonds to provide income and growth opportunities. In fact, many of the first mutual funds sold to investors took this balanced approach, and balanced funds remain popular to this day. Your financial advisor can help you determine the optimal asset allocation, after looking at your personal situation, your appetite for risk and the amount of time you have to invest.

Cash flow in retirement

A good way to get monthly income – rather than through a straight withdrawal – is through investment funds that make monthly payouts. These can be in the form of fixed or variable distributions. With a regular, monthly income stream, you can better plan your finances and support your lifestyle. Your financial advisor can recommend an appropriate income fund.

Creating your retirement investment portfolio

When you start seeing each of your investments in context of your investment strategy, the choice of what to actually invest in becomes easier. You’ll see how each element of your portfolio contributes something different toward your overall investment goals. Work with your financial advisor to develop a consolidated view of all your investments. Your asset allocation – the portions you will divide into equity, fixed income, cash and other assets such as gold and
commercial real estate – will depend on your investment strategy.

What if you’ve fallen behind in your retirement plan?

Studies show that many of us haven’t saved enough for retirement. If you’re in your early to mid-50s and have several years until retirement, here are some suggestions for catching up:

Boost your savings. Figure out where you can cut expenses to save more. You’d be surprised how the changes you make can translate into extra dollars for retirement.

Add to your RRSP or employee pension plan. Make catch-up contributions for those years you didn’t contribute. As well, be sure to contribute to any plan where your employer matches contributions – this is free money.

Raise your risk. If you’ve switched your portfolio into bonds, consider switching a portion back to equities to provide some growth. Be careful not to increase investment risk beyond your comfort level.

Get a second job. You or your spouse may be able to take on a second job to earn extra income. Alternatively, one of you may be able to make more money by switching jobs.

Push back your retirement date. Working an extra year or two may help you meet your retirement target. Alternatively, you may continue to work part-time or on a freelance basis during retirement.

Downsize your home. Moving into a less expensive home, or renting, can provide you with a lump sum to help finance your retirement.

Rethink your retirement lifestyle. If there seems to be no way that you’ll be able to retire in the manner you envision, you have no choice but to live a more modest lifestyle in retirement. Be sure to talk to your financial advisor to see if they can provide ideas to bridge the gap between what you’d like and what you have.

This article was prepared by Mackenzie Financial Corporation for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management, Inc.

© 2009 Mackenzie Financial Corporation. All rights reserved.

The beauty of GICs is that they are straightforward and easy to understand. Because market values for GICs aren’t readily available, there’s a built-in discipline to commit to the maturity date. There’s no point in monitoring the financial pages every day, nor in worrying that you won’t get your money back. Once you’ve decided to put your money into, say, a five-year GIC, there’s really nothing to think about until it matures.

Short-term thinking leads to rash decision-making

The approach many investors take can be very different when it comes to mutual funds. That’s because with mutual funds there’s always the option to redeem or to switch into a different fund that appears more attractive. This can lead to the temptation to track the performance of mutual funds on a daily basis. Unfortunately, this focus on the short term can lead to rash decisions that are made without proper perspective.

It’s similar to driving in heavy traffic on the highway and being convinced that every other lane is moving faster than the one you’re in. You typically won’t get to your destination any faster by switching back and forth between lanes, although it can be tempting. And in the same way, it takes discipline to see beyond all the day-to-day fluctuations in the markets – but it’s still the best way to reach your financial goals over the long term.

Treat your mutual funds like they’re GICs

The secret to successful investing is to focus only on the information that’s relevant to you over the long term. While it takes far more self-discipline to invest in mutual funds, the potential returns can make it worthwhile. Cut back on how frequently you check the value of your funds, as it doesn’t matter how the markets perform on a daily basis. Invest in mutual funds in the same way that you invest in a GIC. Once you’ve made the decision to invest, it can be detrimental to start second-guessing yourself. Your advisor can also help you by ensuring that your investment portfolio is meeting your long-term objectives and by helping you filter the information that’s relevant to you.

Example: Trimark Canadian Fund - the benefits of thinking long term

Let’s take a look at how this strategy paid off for investors in the past. For example, the following chart shows Trimark Canadian Fund’s rolling five-year returns since inception (September 1981) through December 2007. As you can see, the Fund did not lose money over any five-year period. Instead, investors who took a long-term view and weren’t sidetracked by short-term market value were well rewarded – the average five-year rolling return annualized since inception was 10.99%.

(Note: The current 5 year average, as at Sep. 30 2009, is 2.7%)

Invest and leave well enough alone

Treating your mutual funds like they’re GICs can be the most effective way to ensure you stay on track to meet your long-term financial goals. That’s because, to be successful over the long term, you have to think long term. It’s as simple as that.

Mutual fund securities unlike GICs are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. The indicated rates of return are the historical annual compounded total returns, including changes in security value and reinvestment of all distributions, and do not take into account sales, redemption, distribution or optional charges, or income taxes payable by any securityholder, which would have reduced returns. Mutual funds values change frequently and past performance may not be repeated. Please read the prospectus before investing. Copies are available from Andray Domise, Independent Financial Advisor, or from Invesco Trimark Ltd. 
 
* Invesco and all associated trademarks are trademarks of Invesco Holding Company Limited, used under licence.
Trimark and all associated trademarks are trademarks of Invesco Trimark Ltd. © Invesco Trimark Ltd., 2008

Common-law partners

Same-sex common-law partners are treated the same as opposite-sex common-law partners. Same-sex common-law partners are eligible for the same tax benefits, and are subject to the same obligations as married couples and opposite-sex common-law couples.

Same-sex partners who meet the definition of being in a conjugal relationship for more than 12 months are required to declare themselves common-law partners on page 1 of the Canada Revenue Agency (CRA) Income Tax and Benefit Return form by checking off the “living common-law” box. Note that this definition encompasses both opposite-sex and same-sex common-law relationships. This means that same-sex common-law partners who do not correctly declare their status, for example, to avoid losing benefits that are based on the combined net income of both partners, can be reassessed and asked to repay the benefits. This is currently true for legally married or opposite-sex common-law couples who can be reassessed if they collect benefits they are not entitled to because they fail to correctly identify their status as married or common-law.

Conjugal Relationship

The question has arisen as to how the CRA will know if same-sex partners are living in a “conjugal relationship,” as married persons have their status legally registered in a public document, the marriage certificate, whereas same-sex partners do not. The same issue arises currently with common-law opposite-sex couples whose status is not registered anywhere. The CRA proceeds exactly as they have proceeded in the past with opposite-sex common-law couples. The CRA has a self-assessment system in which taxpayers are expected to tell the truth and in which persons who make false statements on their tax returns can be penalized. Whether or not two persons (opposite-sex or same-sex) are living in a conjugal relationship is a question of fact, and this can include whether or not the couple presents itself publicly as a conjugal couple and has claimed the status of a couple for purposes of a pension or health plan, etc.

In determining whether two people are in a conjugal relationship, the issues in the postscript are examined.

Tax considerations

Transfers of property to a common-law partner

Transfers of capital property made to a spouse or common-law partner automatically “roll over” at the adjusted cost base, although a spouse or partner can “elect out” of the rollover on his or her tax return and request a transfer at the fair market value.  Note, however, that the attribution rules also apply to same-sex partners.

Income splitting and the attribution rules

Income attribution rules generally block attempts to shift income from a higher-income person to a lower-income person by attributing the income back to the higher-income earner.

Generally, where an individual has transferred or loaned property to or for the benefit of the individual’s spouse or common-law partner, any income (loss) from the property and any capital gain (loss) on the disposition of the property will be attributed back to the individual.

Common-law partners may consider the strategy of having the higher-income partner pay all the household expenses, thus preserving the lower-income partner’s income, which can be used solely for investing, as any returns on such investments would then be taxed in the hands of the lower-income partner.

Common-law partner loans at prescribed interest rates

One of the exceptions to the preceding attribution rules applies where an individual makes a loan to a spouse or common-law partner to allow the spouse or partner to invest. As long as interest is charged on the loan at a rate at least equal to the CRA’s prescribed interest rate at the time the loan was made, the attribution rules will not apply. The interest, however, must be paid each year or within 30 days after the end of the year for the attribution rules not to apply.

Spousal RRSPs

Contributions made to a spousal RRSP (registered retirement savings plan) are deductible by the contributing spouse or common-law partner within the applicable contribution limits. When funds are withdrawn, they will be taxed in the hands of the annuitant spouse or partner.

Even though the term “spousal RRSP” continues to be used throughout tax literature, the rules certainly permit a common-law partner to take advantage of this significant income-splitting opportunity. A spousal plan generally makes sense where one partner’s income is significantly higher than the other’s, and therefore the higher-income partner can claim the deduction for the contribution on his or her return. The lower-income partner may pay little or no tax on the ultimate withdrawal of the funds from the RRSP or its successor (an annuity or RRIF [registered retirement income fund]).

Note, however, that the spousal attribution rules for RRSPs or RRIFs also apply to common-law partners. These rules state that if the annuitant spouse or partner withdraws any funds from a spousal RRSP or withdraws more than the minimum amount from any spousal RRIF within three years of any contribution being made to any spousal RRSP, the withdrawal will be attributed back and taxed to the contributing spouse or partner.

Home Buyers’ Plan (HBP)

The HBP is a plan that permits first-time homebuyers to withdraw funds from an RRSP for the purchase of a home without the withdrawal being included in income. A first-time homebuyer is an individual who has not occupied a principal residence owned either by him/her or by his/her spouse or common-law partner during the period that begins January 1 five years prior to the year of withdrawal and ends 31 days before the withdrawal.

Superficial loss

A capital loss is generally deemed to be superficial if, during the period that begins 30 days before and ends 30 days after the disposition of a property, the taxpayer or his/her spouse or common-law partner acquires substituted property that is identical to that disposed and, at the end of that period, the taxpayer or his/her spouse or common-law partner owns or has a right to acquire the substituted property. The denied loss is added to the adjusted cost base of the acquired property.

Principal residence exemption

A principal residence is generally a residence that is owned by a taxpayer and was inhabited during the year by the individual or certain family members. A gain on the sale of a principal residence is exempt from tax. Married or common-law couples can designate only one property between them as a principal residence.

Estate planning

Generally, upon death, an individual is deemed to dispose of all of his or her capital property at fair market value. The main exception to this rule is that any property that is left to a spouse or common-law partner may be transferred at its adjusted cost base without incurring a capital gains tax liability upon death.

Transfers under the refund of premium rules of a deceased’s RRSP to a spouse or common-law partner shift the income inclusion from the deceased to the spouse or partner. The spouse or partner may obtain an offset for this income inclusion by investing the proceeds into his/her own RRSP or RRIF. This opportunity is available to common-law partners who can avoid the significant tax burden often levied on the fair market value of the RRSP or RRIF upon death. Common-law partners should carefully review their RRSP or RRIF beneficiary designations to ensure that, where appropriate, their partner is named as the beneficiary on the plan.

Finally, the first $10,000 of a death benefit, which is an amount paid by a former employer after an individual’s death, usually in recognition of the former employee’s service, can be received tax-free by a spouse or common-law partner.

Testamentary spousal trusts

The ability to achieve post-mortem income splitting is also available to common-law partners. A partner who is planning to leave money to his or her partner (who is also earning income) can take advantage of an extra set of graduated tax rates to accomplish post-mortem income splitting.

Scenario one – Outright inheritance

Two years ago, Jack inherited his partner’s investment portfolio. Last year the portfolio generated $100,000 of income. Jack’s marginal tax rate is 40%. Looking only at the investment income from the inherited portfolio, his tax bill is approximately $40,000.

Scenario two – Inheritance placed in a testamentary trust

Tom inherited his partner’s investment portfolio. Under the terms of his Will, Tom’s partner set up a trust and instructed that the portfolio be placed in it. Tom is also at a 40% marginal tax rate, but the tax payable on the annual income of $100,000 can be taxed in the trust, applying the graduated taxation rates used by individual taxpayers in their personal income tax returns. This results in tax payable by the trust of approximately $30,000.

The savings in tax dollars between the two scenarios is approximately $10,000 each year.

Alter ego and joint partner trusts

An estate planning opportunity exists allowing an individual to establish a trust to help meet his or her various estate planning objectives while minimizing the tax implications. The strategy involves the transfer of assets to an alter ego trust or joint partner trust, primarily to avoid probate tax on the value of assets that pass to a surviving spouse or partner.

The joint partner trust is available to same-sex partners who may wish to transfer all of their assets to a trust. The legislation allows a tax-free transfer to a joint partner trust. On the death of the last survivor of the two partners, the assets in the trust will be deemed to be disposed of at fair market value, and tax will be payable at that time on capital gains realized because of the deemed disposition.

A joint partner trust requires that it be set up by an individual who is at least age 65 and that the individual and the individual’s partner, togetheror separately, are entitled to receive all of the income of the trust until the last partner dies. Also, during the time the trust is in effect, no one else is entitled to receive or have access to any income or capital growth of the trust.

Once assets have been placed in either an alter ego or joint partner trust, those assets no longer form part of the estate, and therefore are not subject to probate tax.

Deductions, tax credits and benefits

There are a number of deductions, credits and benefits that are based on the “family income of both partners.”

Goods and Services Tax Credit and Child Tax Benefit

The Goods and Services Tax Credit and the Child Tax Benefit are determined by reference to the combined net income of both spouses or partners. A household in which both partners earn income may result in a reduction or elimination of either of these benefits. Before 2001, this was not a concern for same-sex partners, as their net incomes did not have to be combined to determine eligibility for these benefits.

Married or common-law partner credit

A married or common-law partner credit is available if an individual lives with and supports a spouse or common-law partner. This credit is reduced based on the net income of the other partner.

Equivalent-to-married credit

The ability of one person in a relationship to claim an equivalent to married credit for a child is no longer available to same-sex partners who are considered to be common-law partners.

Child care expenses

Where both parents earn income and child care expenses are incurred, the spouse or partner with the lower income must claim those expenses.

Transfers of credits

A partner can transfer to another partner any part of the following credits:

• the age amount
• pension income amount
• disability amount
• tuition and
• education amounts (if he or she does not need the credits to reduce his/her federal income tax to zero.)

Medical expenses

An individual can claim medical expenses for both oneself and his/her partner. Thus, the partner with the higher net income will generally claim the medical expense credit and achieve a greater level of tax savings than the partner with a lower net income, provided both partners each have sufficient income so that the 3% net income test does not affect them. Otherwise, the lower-income earner should claim the expenses.

Charitable donations

Either spouse (or common-law partner) can claim the credit regardless which one made the charitable donation. As the dollar amount of the credit is the same for both, it doesn’t matter which taxpayer claims the credit.

Provincial tax credits

Provincial tax credits generally take into account the total of both partners’ net income in determining the amount of the credits available.

Family law issues must be considered

Each province in Canada has legislation granting rights to partners in a marriage or spousal common-law relationship when that relationship ends, whether because of relationship breakdown or the death of one of the partners. This legislation may also extend to same-sex relationships.

What does the term “common-law partners” mean?

For tax purposes, same-sex common-law couples are referred to as “common-law partners,” which is defined as two persons, regardless of sex, who:

• Cohabit in a conjugal relationship and have done so for a continuous period of at least 12 months, or
• Are parents of a child together and have not been living separate and apart for a period of at least 90 days because of a breakdown of their relationship.

What does the term “conjugal relationship” mean?

1. Shelter: Do the parties live under the same roof and what are the sleeping arrangements?
2. Sexual and personal behaviour: Do the parties have sexual relations and do they maintain an attitude of fidelity to each other?
3. Services: What is the conduct and habit of the parties in relation to domestic services such as preparing meals and performing household maintenance?
4. Social: Do the parties participate together in social activities?
5. Societal: How does the community view the parties, both individually and as a couple?
6. Support (economic): What are the financial arrangements of the parties in terms of their relationship?
7. Children: What is the attitude and conduct of the parties concerning any children?

The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the specific circumstances before taking any action. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Trimark.

For more information about this topic, contact Andray Domise, Independent Financial Advisor, call us at 1.800.874.6275, or visit our website at www.invescotrimark.com.

* Invesco and all associated trademarks are trademarks of Invesco Holding Company Limited, used under licence. Trimark and all associated trademarks are trademarks of Invesco Trimark Ltd. © Invesco Trimark Ltd., 2008

A mutual fund is a professionally managed pool of money invested by people like you. There are many different types of mutual funds, each designed for a different type of investor with a different financial profile. When you buy a mutual fund, you are pooling your money with other investors who share your investment profile and your objectives.

There is strength in numbers. By pooling your money with other investors who have similar objectives, you can enjoy increased purchasing power and reduce your investment costs. Professional mutual fund managers trade securities at discounted institutional rates. Consequently, the savings they realize are passed along to you.

Keep your options open. A key benefit available through mutual fund ownership is diversification. The range of security types and asset classes offered in mutual funds can help to shield your investments from market fluctuations. If the value of one security held in a fund falls, the loss may well be offset by a rise in the price of another security. By investing in a variety of asset classes, you can profit from the growth of one type of security, while shielding your portfolio from potential losses in another. Whether it is by security, company, industry, or country, mutual funds offer investors a level of diversification that would be difficult to achieve on their own.

Mutual funds come in a variety of shapes and sizes. The most familiar mutual funds are equity funds, bond or fixed-income funds, money market funds, and balanced funds. A basic equity fund invests in the shares of various corporations. Equity funds differ in their selections of individual company characteristics, industries, or geographic locations. Bond funds offer investors the benefits of steady interest income and the opportunity to realize capital gains over the long term. For the interim investor, money market funds provide the chance to insulate capital while receiving returns superior to those offered by a bank savings account. Finally, balanced funds (or asset allocation funds) exist for those investors who want the benefits of greater diversification along with the convenience of owning bonds, money market instruments, and equities in one mutual fund.

Do you need ready access to your capital? Mutual funds are structured in such a way that accessing your money is as simple as calling your Investment Professional. As your investment needs change, your personal financial plan can also be easily changed. Your Investment Professional can move money from one fund to another or cash in all, or part, of your investment at any time. To help build assets over the long term, you can institute a plan of regular investment contributions or, conversely, a plan of regular systematic withdrawals.

Mutual funds give every investor the advantage of continual professional money management. These mutual fund experts have access to some of the best quality investment research in the world monitoring both domestic and foreign markets around the clock. The knowledge, experience, and resources available to these professionals ensures that your investments will keep pace with today’s ever-changing markets.

When selecting a mutual fund, remember to choose a fund that matches your personal objectives. Look for consistency in the long-term performance of the fund and the professional who manages it. Try to select a mutual fund that invests in securities you understand and that has a portfolio manager whose style you are comfortable with. Your Investment Professional, who has reviewed your unique investment objectives and understands your concerns is positioned to provide you with information on mutual funds and help you select mutual funds that add value to your portfolio.

Mutual funds are an excellent way to protect and build your capital. As you go through life, your financial goals change, and so too should your portfolio. Your Investment Professional is there to monitor your investments and help you modify your portfolio on a regular basis to ensure long-term, consistent growth.

This article was prepared by Fidelity Investments for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management.

Read a fund’s prospectus and consult your investment professional before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss.