Q. What is the difference between a Broker and an Investment Counsellor? ( A )
Q. How much money do I need to retire? ( A )
Q. How are mutual funds taxed in a non-registered account? ( A )
Q. How do mutual fund distributions impact the value of my account holdings? ( A )
Q. How much tax would my Estate have to pay on my death? ( A )
Q. How will these taxes be funded? ( A )

Q: What is the difference between a Broker and an Investment Counsellor?

A: There are 3 major differences, as follows:

			Investment Counsellor		Broker
	Level of Discretion Over Clients' Portfolio		Full		None
	Method of Compensation		Charge a fee based on the value of the portfolio		Charge a commission on each transaction
	Minimum Level of Education and Experience		CFA charter and five years' experience		Canadian Securities Course and six months' training

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Q: How much money do I need to retire?

A: The short answer is "It depends"...

It depends on the costs associated with the type of lifestyle you desire in retirement. Many Financial Planners' rule of thumb is to assume a person's retirement lifestyle need is about 70% of his or her pre-retirement need. In our practice, we tend to be more conservative. Our retirement projections are based on the assumption that a retiree will need 100% of his or her pre-retirement lifestyle need, indexed for inflation. Then we try to build in extraordinary expenses over time, such as vehicle replacement, which requires a capital lump sum.

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Q: How are mutual funds taxed in a non-registered account?

A: There are two aspects of taxation of a mutual fund:

1) When the investor redeems units of a fund creating a personal capital gain/loss
2) When the portfolio manager sells investments within the fund creating a capital gain/loss for all investors

Throughout the year a portfolio manager may make changes to the mutual fund. If securities are sold at a profit, a capital gain results. Any losses from the fund are deducted from the gains before distributed to individual investors.

At year-end, the mutual fund is required to flow-through all taxable income in the form of income (dividend or interest) and/or capital gains to individual investors. If not, the mutual fund will have to pay tax on these distributions at the highest marginal tax rate. A T3 Supplementary slip outlines the various types and amounts of income received by the investor for the year.

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Q: How do mutual fund distributions impact the value of my account holdings?

A: Mutual Fund distributions are added to the adjusted cost base (ACB) of the mutual fund units. This results in a lower capital gain being paid when eventually redeemed. Otherwise, the investor will be paying tax on these distributions twice - throughout the year when realized, and again when the units are eventually sold. Investors will also notice that after the fund company makes a distribution, the unit price of the fund will drop by the same amount as the distribution, but the investor will now own more units of the fund. Therefore the market value remains the same.

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Q: How much tax would my Estate have to pay on my death?

A: Tax on death is income tax payable on income earned to the date of death, and on the disposition of various assets: RRSPs, non-registered investments and real estate that is not your principal residence. If you die leaving a spouse, these assets can be transferred to your spouse without income tax implications. However, on the death of your surviving spouse, the assets are "deemed" to have been disposed of, and the tax liability is quantified.

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Q: How will these taxes be funded?

A: Your Executor might be forced to sell some assets, or to borrow against the value of the estate to cover this income tax liability. Then, assets would have to be sold to pay off the loan. Either way, the value of your estate for your heirs would be eroded. There is a better solution; contact us for further information.

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