The Difference between Segregated Funds and Mutual Funds-Infographic

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Segregated Funds and Mutual Funds often have many of the same benefits such as:  

  • Both are managed by investment professionals. 

  • You can generally redeem your investments and get your current market value at any time. 

  • You can use them in your RRSP, RRIF, RESP, RDSP, TFSA or non-registered account. 

There are key differences including:

  • Contract

  • Fees

  • Guarantees

  • Resets

  • Creditor Protection

  • Probate

Contract:

  • Segregated Funds: Policy owner, Annuitant and Life Insurance company

  • Mutual Funds: Account holder, Mutual fund and Investment Company

Fees

  • Segregated Funds: Management Expense Ratio & Insurance Fee (Typically higher)

  • Mutual Funds: Management Expense Ratio

Why is this important?  

  • Since Segregated funds are offered by life insurance companies, they are individual insurance contracts. Which means….

  • Maturity Guarantees

  • Death Benefit Guarantees

  • Maturity and death benefit resets

  • Potential Creditor Protection (depends on the setup)

  • Ability to Bypass Probate

Mutual Funds do not have these features with the exception of possible creditor protection of RRSP, RRIF dependant on provincial legislation.

What are these features?

Maturity and Death Benefit Guarantees mean the insurance company must guarantee at least 75% of the premium paid into the contract for at least 15 years upon maturity or your death. 

Resets means you have the ability to reset the maturity and death benefit guarantee at a higher market value of the investment.

Potential Creditor Protection is available when you name a beneficiary within the family class, there are certain restrictions associated with this. 

Bypass Probate: since you name a beneficiary to receive the proceeds on your death, the proceeds are paid directly to your beneficiary which means it bypasses your estate and can avoid probate fees. 

We can help you decide what makes sense for your financial situation. 

2019 Federal Budget

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2019 Federal Budget

The 2019 budget is titled “Investing in the Middle Class. Here are the highlights from the 2019 Federal Budget.

We’ve put together the key measures for:

  • Individuals and Families

  • Business Owners and Executives

  • Retirement and Retirees

  • Farmers and Fishers

Individuals & Families

Home Buyers’ Plan

Currently, the Home Buyers’ Plan allows first time home buyers to withdraw $25,000 from their Registered Retirement Savings Plan (RRSP), the budget proposes an increase this to $35,000.

First Time Home Buyer Incentive

The Incentive is to provide eligible first-time home buyers with shared equity funding of 5% or 10% of their home purchase price through Canada Mortgage and Housing Corporation (CMHC).

To be eligible:

  • Household income is less than $120,000.

  • There is a cap of no more than 4 times the applicant’s annual income where the mortgage value plus the CMHC loan doesn’t exceed $480,000.

The buyer must pay back CMHC when the property is sold, however details about the dollar amount payable is unclear. There will be further details released later this year.

Canada Training Benefit

A refundable training tax credit to provide up to half eligible tuition and fees associated with training. Eligible individuals will accumulate $250 per year in a notional account to a maximum of $5,000 over a lifetime.

Canadian Drug Agency

National Pharmacare program to help provinces and territories on bulk drug purchases and negotiate better prices for prescription medicine. According to the budget, the goal is to make “prescription drugs affordable for all Canadians.”

Registered Disability Savings Plan (RDSP)

The budget proposes to remove the limitation on the period that a RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit. (DTC) and the requirement for medical certification for the DTC in the future in order for the plan to remain open.

This is a positive change for individuals in the disability community and the proposed measures will apply after 2020.

Business Owners and Executives

Intergenerational Business Transfer

The government will continue consultations with farmers, fishes and other business owners throughout 2019 to develop new proposals to facilitate the intergenerational transfers of businesses.

Employee Stock Options

The introduction of a $200,000 annual cap on employee stock option grants (based on Fair market value) that may receive preferential tax treatment for employees of “large, long-established, mature firms.” More details will be released before this summer.

Retirement and Retirees

Additional types of Annuities under Registered Plans

For certain registered plans, two new types of annuities will be introduced to address longevity risk and providing flexibility: Advanced Life Deferred Annuity and Variable Payment Life Annuity.

This will allow retirees to keep more savings tax-free until later in retirement.

Advanced Life Deferred Annuity (ALDA): An annuity whose commencement can be deferred until age 85. It limits the amount that would be subject to the RRIF minimum, and it also pushes off the time period to just short of age 85.

Variable Payment Life Annuity (VPLA): Permit Pooled Retirement Pension Plans (PRPP) and defined contribution Registered Retirement Plans (RPP) to provide a VPLA to members directly from the plan. A VPLA will provide payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of VPLA annuitants.

Farmers and Fishers

Small Business Deduction

Farming/Fishing will be entitled to claim a small business deduction on income from sales to any arm’s length purchaser. Producers will be able to market their grain and livestock to the purchaser that makes the most business sense without worrying about potential income tax issues. This measure will apply retroactive to any taxation years that began after March 21, 2016.

To learn how the budget affects you, please don’t hesitate to contact us.

Manitoba Budget for 2019

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The big news from the Manitoba Budget was the reduction of the Provincial Sales Tax (PST) from 8% to 7%. The change will come into effect July 1st, 2019.

According to the Manitoba.ca website:

“This will save families $30 when buying furniture worth $3,000, $350 when buying a car or truck for $35,000 or $1,500 when buying a new home for $300,000.”

Also, this Provincial Sales tax will NOT be applied to the upcoming Federal Carbon Tax to be levied on natural gas and coal. This is estimated to save Manitoba families and businesses $3.6 million in 2019/2020.

For business, the focus is on business growth. Some initiatives include:

  • Film and Video Production Tax Credit is made permanent with no fixed expiry date. The amount allocated will increase from $16 million to $31.5 million.

  • Cultural Industries Printing Tax Credit is extended by one year to December 31, 2020. In addition, the annual maximum tax credit claim is capped at $1.1 million per taxpayer. This measure is effective for qualified expenditures as of the 2019 tax year.

  • To grow the book publishing industry, the Book Publishing Tax Credit is extended for five years to December 31, 2024.

  • To support individuals and corporations who acquire equity capital in eligible Manitoba enterprises, the Small Business Venture Capital Tax Credit is extended for three years to December 31, 2022.

The full Manitoba budget can be found at Manitoba.ca

Manitoba Budget 2018

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Manitoba Finance Minister Cameron Friesen delivered the province’s 2018 budget update on March 12, 2018. The budget anticipates a surplus of $521 million for 2018 to 2019.

Corporate and personal tax rates remain unchanged.

The biggest changes are:

●     The increase in the amount of income eligible for the small business deduction.

●     The increase in Basic Personal Amount

●     Carbon tax

Corporation changes

  • Small Business Deduction Limit Increased – Although there were no announcements about changes to the province’s corporate tax rate, it does increase the small business income limit eligible from $450,000 to $500,0000 effective January 1, 2019.
  • Child Care Centre Development Tax Credit – A new refundable corporation income tax credit to encourage the creation of licensed child care centres in workplaces. The credit will be a total benefit of $10,000 per new infant/preschool space created, claimable over 5 years. (This is for corporations that are not primarily engaged in child care services.)
  • Small Business Venture Capital Tax Credit – The 45% investment tax credit is intended to promote the acquisition of equity capital in emerging enterprises that require larger amount of capital. Effective, March 12, 2018 the minimum investment is lowered to $10,000 (from $20,000) and the elimination off the $15 million revenue cap on the size of an eligible corporation.

Personal tax changes

  • Basic Personal Amount – The Basic Personal Amount will be increased by $1,010 each year for 2019 and 2020 (approximately 10% per year) resulting in additional savings of $109 for 2019 and $218 for 2020 or “$2,020 by 2020”.
  • Primary Caregiver Tax Credit – Effective immediately, the budget implements a flat $1,400 Primary Caregiver Tax Credit available to all eligible caregivers.
  • Education Property Tax Credit – Effective January 1, 2019, the calculation of the education property tax credit will be based on actual school taxes and the $250 deductible will be eliminated.
  • Tobacco Tax – Effective March 12, 2018, there will be an increase to the tobacco tax rate for fine-cut tobacco to 45¢ per gram (from 28.5¢ per gram)
  • Carbon Tax – Effective September 1, 2018, there will be an imposed tax of $25 per tonne of greenhouse gas emissions. This new provincial carbon regime will apply to gas, liquid, solid fuels intended for combustion.

Carbon Tax Rates by Select Fuel Type (2018-2022)

To learn how these changes will affect you, please don’t hesitate to contact us.