Newsletter

Q3 2018

Challenges in the quarter

There was a lot to digest over the past three months including NAFTA negotiations, trade tensions between the world’s two largest economies and geopolitical concerns relating to Emerging Markets.  Investors were swayed by the 4 T’s – Tariffs, Trade, Turkey and Trump which provided headwinds for most global markets except for the United States.  Despite the negative sentiment, the global economy remained strong which led to strong corporate profits during the period. 

 

Canada
The Canadian stock market measured by the S&P/TSX underperformed its peers in the third quarter falling nearly 1.5 percent due to flat oil prices as measured by West Texas Intermediate (WTI) and uncertainty surrounding NAFTA negotiations.  Moving forward, the path of least resistance for oil is upward with supply constraints likely from impending sanction against Iran and economic deterioration in Venezuela which should help the S&P/TSX.  The recent resolution to NAFTA negotiation should increase investor confidence but confidence may be short lived as investor’s attention will focus on the impact of higher interest rates on the Canadian economy. 

 

The United States
New rounds of tariffs between the U.S. and China did little to impact the S&P 500 which rose in the quarter by approximately seven percent in U.S. dollar terms.  Investors focused on the continued strength in the underlying economy which led to strong corporate profits.  The U.S. economy grew at 4.2% in the second quarter leading to strong year over year sales and earnings growth.  Strong corporate profits were a result of higher business activity and favourable tax policy.  The benefit from tax cuts will roll off in 2019 and given that manufacturing is showing signs of slowing, the rate of earnings growth has likely peaked for the current cycle. 

 

Overseas
Despite sales and earnings growth of approximately 5 percent, flat returns were driven by trade tariff fears, Italian political instability, Turkey and a strong U.S. dollar.  International equities were down 0.8 percent in U.S. dollar terms as measured by the MSCI EAFE index.  There has been some economic slowdown, but the underperformance has likely been overdone.  Setting aside the potential for trade wars, Europe and Asia’s economic outlook continues to be robust and this will likely flow through to company earnings. Combined with accommodating interest rate policies, this part of the world will likely experience stronger market returns.

 

Central Bank Policy
In the third quarter, the U.S. Federal Reserve continued raising interest rates in one increment of 0.25 percent to 2.25 percent. The U.S. Federal Reserve is expected to continue to raise its benchmark rate one more time by the end of the year on the back of strong US economy.  The Bank of Canada raised its interest rates during the third quarter by 0.25 percent to 1.50 percent.  It’s expected that the Bank of Canada will raise one more time this year.   

 

Looking forward
The ‘war of words’ that have been used as a negotiation tactics in trade discussions has led to an increase in volatility in stock prices globally.  As we have witnessed with NAFTA negotiations, trade war rhetoric is likely to subside as cooler heads prevail. No one wins from a prolonged trade dispute.  Over the long run, market returns will likely be driven by fundamentals and interest rate policy. Fundamentals continue to be strong—the likely explanation for higher interest rates. In this environment, equity markets will likely be positive but may not experience the above-average returns we’ve seen in the past couple of years due to higher interest rates, oil and wages.

 

As always, if you have any questions about the markets or your investments, I’m here to talk.

Challenges in the quarter
Despite continued trade dispute chatter, North American equity markets finished the quarter in positive territory as investors focused on strong sales and earnings growth in the region. In Europe, political concerns in Italy bubbled to the surface as anti-Euro parties gained strength, creating concerns about more ‘exit’ talk like what we saw in Greece in 2011. Emerging markets weakened on concerns about the impact of a rising U.S. dollar on their fiscal positions. Looking forward, the market is likely to move sideways until the ‘tit for tat’ tariff policy settles.

 

Canada
The S&P/TSX outperformed in the second quarter, rising nearly six percent due to the increase in the price of oil. West Texas Intermediate (WTI) rose nearly 14 percent to finish the quarter at USD$74.15. Higher oil prices resulted from a lower-than-expected supply increase by OPEC and Russia and a continued draw on global oil inventories. In the coming months, attention will focus on the resolution to the North American Free Trade Act (NAFTA), and the impact on the Canadian economy of higher interest rates, stricter mortgage lending rules and minimum-wage-increases across many provinces.

 

The United States
There’s no doubt equity investors were reacting daily to news about tariffs between the U.S. and China or the European Union. Despite fears of potential trade wars, the S&P 500 rose nearly three percent in U.S. dollar terms. The impact that tit-for-tat tariffs between nations could have on global economic growth are concerning. Since it’s difficult to quantify geo-political chatter, until tariff measures are realized, investors would be better served to focus on the fundamentals.

 

Overseas
In overseas markets, international equities were down 2.3 percent in U.S. dollar terms as measured by the MSCI EAFE index. Internationally, returns were driven by trade tariff fears, Italian political instability, and a strong U.S. dollar. Setting aside the potential for trade wars, Europe and Asia’s economic outlook continues to be robust and this will likely flow through to company earnings. Combined with accommodating interest rate policies, this part of the world will likely experience strong market returns.

 

Central Bank Policy
In the second quarter, the U.S. Federal Reserve continued raising interest rates in increments of 0.25 percent to 2.00 percent. The U.S. Federal Reserve is expected to continue to raise its benchmark rate two more times by the end of the year, on the back of strong US economy.

The Bank of Canada didn’t raise interest rates during the second quarter and the overnight rate remains at 1.25 percent. It’s expected rates will increase very gradually with one more this year.

 

Looking forward
Recent market volatility, driven primarily on trade war rhetoric should subside as cooler heads prevail. Market returns are expected to be driven by fundamentals and interest rate policy. Fundamentals continue to be strong—the likely explanation for higher interest rates. In this environment, equity markets will likely be positive but may not experience the above-average returns we’ve seen in the past couple of years.

Market Update April 2018 

 

Challenges in the quarter

Wow! Volatility returned with a vengeance. After experiencing market pullbacks of less than five percent in 2017, we’ve already experienced two pullbacks of greater than five percent in 2018. This is still normal market activity considering 2017 and 1995 were the only two years in the past thirty without a pullback of greater than five percent. The increase in volatility was due to fears of a global trade war. However, the fundamentals of the global economy remain strong and over the long term, the capital markets will shift their focus to fundamentals and company earnings.

 

Canada
The S&P/TSX underperformed in the first quarter, falling nearly five percent on a broad-based sell off across most of the market. The S&P/TSX was dragged lower by concerns of a further weakening Canadian economy due to increases in interest rates, stricter mortgage lending rules, and increases in minimum wages across many provinces. Notably, the weaker Canadian dollar in the first quarter helped prop up global equity returns for Canadian clients.

 

The United States
There’s no doubt equity investors were reacting to the fear of a global trade war in the first quarter. The fear of a potential trade war between the U.S. and China, or other countries, drove selling pressure that resulted in the S&P 500 falling 1.2 percent in U.S. dollar terms. Looking at the numbers, the selling pressure may have been an overreaction. Bi-lateral trade between China and the United States amounts to low single-digit percentages of each country’s GDP. The tariffs would amount to a fraction of a fraction. Not to suggest the potential for a trade war is trivial but the magnitude of the reaction may have been greater than warranted.

 

Overseas
In overseas markets, international equities rose 0.51 percent in Canadian dollar terms as measured by the MSCI EAFE Index. Setting aside the potential of trade wars, Europe and Asia’s economic outlook continues to be very robust and this will likely flow through company earnings. With accommodative interest rate policies, this part of the world will likely result in strong market returns. 

 

Central Bank Policy
In the first quarter, the U.S. Federal Reserve saw a change in leadership with Jerome Powell taking over the helm from Janet Yellen. Jerome Powell continued Yellen’s rate hike policy in the first quarter by increasing the overnight rate once by an increment of 0.25 percent to 1.75 percent. The U.S. Federal Reserve is expected to continue to raise its benchmark rate another two or three times by the end of the year.

The Bank of Canada continued its interest rate increases from last year by increasing overnight rates by 0.25 percent to 1.25 percent. It’s expected rates will increase very gradually with one more increase this year.

 

Looking forward

Recent market volatility driven primarily on trade war rhetoric will subside as cooler heads prevail when it becomes evident there are no clear winners—only clear losers. Market returns are expected to be driven by fundamentals and interest rate policy. Fundamentals continue to be strong, likely resulting in higher interest rates. In this environment, equity markets will likely be positive but may not experience the above average returns we’ve seen in the past couple of years. 

The Liberal government delivered its third federal budget on February 27. While you’ve probably seen plenty of media coverage, I thought you’d appreciate an overview related to your investments and taxes.

 

The budget had no new personal or corporate tax rate changes. Instead, the big news was the passive investment measures for corporations. Here’s an overview of some of the proposals:

 

Business tax measures

The government is particularly concerned with the rising number of business owners who hold passive investments inside corporations, benefitting from a tax deferral advantage instead of distributing the assets from the corporation and personally investing. Rather than following through with their stringent 2017 proposals, it appears the government listened to the 21,000 submissions and simplified and narrowed their approach. They propose two new measures that will apply in taxation years that begin after 2018:

  1. For federal tax purposes, the first $500,000 or small business limit of active business income is taxed at a reduced rate called the small business tax rate, which the government has proposed to reduce from 10.5% to 10% for 2018. Any active income above this $500,000 small business limit is taxed at the higher general business tax rate, which is 15% for 2018. The amount of active income eligible for the small business tax rate will be reduced by five dollars for every dollar of passive investment income earned by a corporation and its associated corporations, above $50,000 in a given year. This means the small business limit is reduced to zero if $150,000 of passive investment income is earned in a year. ($500,000-(excess of $50,000 x $5)). Any active income earned above the small business deduction, as reduced by this calculation, is taxed at the higher general business tax rate.
  2. Passive investment income is taxed at a high rate within a corporation with a portion of the tax refunded to the corporation when the passive investment income is paid out to shareholders. Currently, a corporation can pay out dividends from its active income and still claim a refund—providing a tax advantage. The government is changing the rules by restricting the ability of a corporation to obtain a refund of taxes paid on passive investment income while distributing dividends from active income.

 

The taxation of passive investment income isn’t changing, just the ability to benefit from the small business tax rate and claim the refundable tax. In terms of investment choices within a corporation, tax efficiency and tax deferral continue to be important considerations.

 

Personal Tax Measures

  • Mineral Exploration Tax Credit for flow-through shares extended for another year.
  • Registered Disability Savings Plan (RDSP)
  • Where contractual capacity is in doubt for an adult entering into an RDSP with no provincially/territorially recognized legal representative; a parent, spouse or common-law partner can be the plan holder. This temporary measure was set to expire at the end of 2018 and the budget extends it by five years to the end of 2023.
  • The Medical Expense Tax Credit is extended to include eligible expenses incurred for service animals that are specially trained to perform tasks for a patient with severe mental impairment.

As you can see, the announced proposals can have significant implications particularly for certain business owners and professionals. I hope you found these highlights helpful.

 

If you’d like to discuss these or other federal budget initiatives and how they affect your financial strategies, please don’t hesitate to contact me.

Market Update Q4 2017

 

 

An incredible year for market returns and global economic growth.

 

In 2017, we saw one of the strongest years for global market returns since the great financial crisis. Global equity markets seemed unaffected by political rhetoric, and geopolitical tensions in the Korean Peninsula and the Middle East. Instead the markets maintained strong economic fundamentals, which resulted in another strong year for corporate earnings. It bears repeating that equity markets can move up or down each month for many reasons but over the long term, market valuations tend to return to their fundamentals—and the fundamentals during the past year have justified markets moving higher.

 

Canada
Despite high consumer debt levels, a potential Canadian real estate bubble, and uncertainty surrounding the North American Free Trade Agreement (NAFTA), the S&P/TSX Composite gained 6.0% in 2017. A very strong economy in the first half of the year and a rebound in commodity prices resulted in a broad-based rally in the index. Nine of the ten sectors had a positive price return for the year. Oil as measured by West Texas Intermediate (WTI) advanced throughout the year by nearly 12.5 per cent to US$60.40 per barrel, which is likely to provide support for the index in the early part of 2018. 

 

The United States
In President Trump’s first year in office, U.S. equity markets enjoyed double digit positive returns. The S&P 500, Dow Jones and Nasdaq were up 19.4, 25.1 and 28.2 per cent, respectively. American companies had another banner year with strong sales and earnings growth on the back of a strong economy. Employment continues to improve with a falling unemployment rate, recently at 4.1 per cent as of the end of November, after starting the year at 4.7 per cent. A tightening labour market will likely result in wage growth for the American consumer. Improving wages coupled with the recent U.S. tax overhaul should place many U.S. consumers in a strong fundamental position in 2018.

 

Overseas
In overseas markets, international equities rose 13.7 per cent in Canadian dollar terms as measured by the MSCI EAFE Index. Brexit and tensions in the Korean Peninsula aside, the European economic outlook has dramatically improved. European manufacturing, as measured by the IHS Markit Purchasing Managers Index® (PMI), is at its highest level since the European debt crisis. Asia is also showing improvement in its regional economies and stock markets—suggesting the growth we see is truly global in nature.

 

Central Bank policy
In 2017, the Bank of Canada tightened its interest rate policy to 1.0 per cent by announcing two rate increases of 25 basis points each, in July and September. The increases were considered significant, since the last rate increase was in September 2010. In 2018, it’s expected rates will increase very gradually as the Bank of Canada waits to see the impact to the economy from prior hikes, new stricter mortgage rules, minimum wage hikes in several key provinces, and NAFTA negotiations.

 

The U.S. Federal Reserve raised its overnight rate three times from 0.75 per cent to 1.5 per cent in 2017 and in October, started to reduce its $4.5 trillion balance sheet. The U.S. Federal Reserve is expected to continue to raise its benchmark rate another three times in 2018 on the back of an improving U.S. economy.  
 

Looking forward
We continue to believe the U.S., Canadian and International economies will grow in 2018 and that the risk of a recession is low. As a reminder, a positive economic environment doesn’t necessarily mean better returns. While we may be confident equity markets will deliver another year of positive returns, market volatility is likely to be much higher than we saw in 2017.

 

As always, if you have any questions about the markets or your investments, I'm here to talk.

 

Market Update Q3 2017

 

This past quarter exemplifies what you as an investor should consider regarding your portfolio. We’ve seen tensions increase in the North Korean peninsula and the Middle East and ongoing drama from the United States. You’d be forgiven if you thought the increased drama had negatively affected global equity markets. Equity markets can move up or down each day for many reasons but over the long term, market valuations tend to return to their fundamentals—and the fundamentals during the past three quarters have justified markets moving higher.

 

Canada


Oil prices advanced throughout the quarter by nearly twelve per cent to US$51.7 per barrel. A strong economy and a rebound in commodity prices helped S&P/TSX Composite earnings grow at nearly 32 per cent. Nine of ten sectors saw positive earnings growth in the third quarter, which helped the S&P/TSX Composite Index gain 2.9 per cent.

 

The U.S. is expected to produce 10 million barrels of oil a day by next year, which will offset recent increases in global oil demand. As a result, oil will likely average in the high US$40 range for the rest of the year.

 

The United States


U.S. corporations are reporting better year-over-year sales and earnings results. Employment continues to improve with a falling unemployment rate, recently at 4.4 per cent as of the end of August. This implies wage growth in the second half of 2017. Higher wage growth coupled with low gasoline prices means U.S. consumption is in a strong fundamental position.

 

Since U.S. consumption accounts for three quarters of U.S. economic output, the U.S. economy is on the right track. As a result, prospects for equities should be good for the rest of the year. The benchmark S&P 500 Index gained 4.0 per cent in the second quarter, in U.S. dollar terms, or slightly negative at -0.1 per cent in Canadian dollar terms, reflecting improved company results.

 

Overseas


In overseas markets, international equities rose 0.7 per cent in Canadian dollar terms as measured by the MSCI EAFE Index. Brexit considerations aside, the European economic outlook has improved. Asia is showing improvement in its regional economies and stock markets—suggesting the growth we see is truly global in nature.

 

Central Bank Policy


In the second quarter, the U.S. Federal Reserve did not tighten interest rates after raising them twice by increments of 0.25 per cent to 1.25 percent in 2017. However, they announced they will begin to reduce the $4.5 trillion balance sheet starting in October. The U.S. Federal Reserve is expected to continue to raise its benchmark rate another time by the end of the year.

The Bank of Canada began tightening its interest rate policy to 1.0 per cent by announcing two rate increases of 25 basis points each in July and September. As a result, the Canadian dollar rallied nearly four per cent versus the U.S. dollar. It’s expected rates will increase very gradually going forward. The recent increases were significant changes considering Canada hasn’t seen a rate increase since September 2010.

 

Looking forward


We continue to believe the U.S., Canadian, and international economic environment will improve over what it was a year ago but it bears repeating that a positive economic environment doesn’t necessarily mean better returns. While we may be confident equity markets will deliver another year of positive returns, market volatility is likely to remain through the rest of 2017, driven mainly by headline news and politics.

 

As always, if you have any questions about the markets or your investments, I'm here to talk.

 

Photo from I'd Pin That

Reach your financial goals

Building long-term wealth is simpler than you may think. Investing in mutual funds and working with an advisor can help you reach your financial goals.

Click here to see some interesting facts and figures on this topic.

Bonds and Interest Rates: Looking Ahead

Over the past few years, we've heard a lot in the financial press about rising interest rates and how this might affect bond/fixed income portfolios. However, as this piece illustrates, if yields continue to rise (which is far from a certainty), the outlook for fixed income investments is more favourable than it appears.

Taking an interest in interest rates

Investors usually look to fixed-income investments to provide a safe haven from equity market fluctuations and to provide steady, stable performance over time. Yet interest rates in Canada and around the world are at historically low levels and any rise can negatively impact what many investors consider to be the the less risky portion of their portfolio. Click here to learn more.
 

Market Update - Q2 2017

2017 Q2 Market Update

Challenges in the quarter

This past quarter exemplifies what investors should consider regarding their portfolios. We’ve seen tensions increase in the North Korean peninsula and the Middle East, and continued drama from the United States. You would be forgiven if you believed the increase in drama had negatively impacted global equity markets.

 

Equity markets can move up or down for any and all reasons on a daily basis. However, over the long term, market valuations tend to return to their fundamentals—and the fundamentals over the past two quarters have justified markets moving higher.

Canada

Starting in Canada, oil prices declined throughout the quarter by nearly nine per cent to US$46 per barrel. Concerns about the business operations of Canada’s largest subprime lender, Home Capital Group, and its impact on Canadian banks, helped the S&P/TSX Composite Index fall 2.4 per cent through the quarter.

 

Oil is likely to average in the high US$40 range for the rest of the year as the U.S. is expected to produce 10 million barrels of oil a day by next year. This will replace 80 per cent of OPEC’s production cuts discussed in November 2016.  

The United States

U.S. corporations are reporting better year-over-year sales and earnings results. Employment continues to improve with a falling unemployment rate, recently at 4.3 per cent, which implies wage growth in the second half of 2017. Higher wage growth coupled with the lowest gasoline prices we’ve seen in 2017 means U.S. consumption is in a strong fundamental position.

 

Since U.S. consumption accounts for three quarters of U.S. economic output, the U.S. economy is on the right track. As a result, prospects for equities should be good for the rest of the year. The benchmark S&P 500 Index gained 2.6 per cent in the second quarter in U.S. dollar terms or 0.2% per cent in Canadian dollar terms, reflecting improved company results.

Overseas

In overseas markets, international equities rose 2.6 per cent in Canadian dollar terms as measured by the MSCI EAFE Index. Brexit considerations aside, the European economic outlook has improved. Asia is showing improvement in its regional economies and stock markets—suggesting the growth we see is truly global in nature.

Central Bank Policy

The U.S. Federal Reserve continued to tighten its interest rate policy, raising its benchmark interest rate to 1.25 per cent in June. This marks the second rate increase this year and the fourth in two years since the Great Recession, which confirms the strength in the U.S. economy. The U.S. Federal Reserve is expected to continue to raise its benchmark rate another one or two times this year.

 

It appears the Bank of Canada is preparing to hike its benchmark interest rate supported by a strengthening Canadian economy. While it’s expected rates will increase very gradually, it’s a significant change since Canada has not seen a rate increase since September 2010.  

Looking forward

We continue to believe the U.S., Canadian and international economic environment will improve over what it was a year ago but it bears repeating that a positive economic environment doesn’t necessarily mean better returns.

 

While we may be confident equity markets will deliver another year of positive returns, market volatility is likely to remain through much of 2017, driven mainly by headline news and politics. We continue to advise a balanced approach to asset allocation matched to your individual goals.

 

As always, if you have any questions about the markets or your investments, I'm here to talk.

 

(Photo from IdPinThat)

Investing in Bonds: A Primer

Investing in bonds can often seem complex and confusing. However, bonds (or fixed income securities) are an extremely important asset class when it comes to making sure your portfolio is properly diversified. Take a look at this piece that helps simplify the concept of investing in fixed income. As always, if you have any questions after reading this please feel free to get in touch.

 

Market Update - Q1 2017

2017 Q1 Market Update - Pixabay.com

 

Considering the year began with such uncertainty, equity and fixed income markets performed exceptionally well in the first quarter. Investors overestimated the magnitude of market volatility that would ensue from an Obama to Trump transition of power and markets shrugged off the political drama and took equities higher.

 

Challenges in the quarter


This past quarter exemplifies what investors should consider with regard to their portfolios. There are many sentimental reasons to fear the stock market, including recent examples like Brexit, Grexit, the Fiscal Cliff, the Debt Ceiling, the election, and the budget. Markets can be swayed over the short term by daily headlines.

 

Equity markets can move up or down for any and all reasons on a daily basis. However, over the long term, market valuations tend to return to their fundamentals—and the fundamentals over the past two quarters have justified markets moving higher.

 

Oil prices


Starting in Canada, oil prices seem to have stabilized through the first quarter to nearly US$50 per barrel, bringing less volatility for Canadian stocks. The S&P/TSX Composite Index gained 2.4 per cent factoring in dividends through the quarter. Oil prices are expected to remain near their current level, which has multiple implications.

 

First, stable oil prices are positive for the Canadian energy sector and Canadian stocks overall. Secondly, as oil prices remain a strong influence on the Canadian dollar, stable prices should translate into a stable dollar with an average exchange rate near its current US$0.75.

 

The United States


South of the border, the newly appointed Trump administration added a new element to conversation–and not just for talk shows! Putting politics aside, companies are reporting better year-over-year results on sales and earnings. Unemployment continues to fall.

 

Economic growth continues to improve. In short, the U.S. economy is on the right track. And with it, come prospects for equities through the remainder of the year. The benchmark S&P 500 Index gained 6.1 per cent in the first quarter including dividends, in U.S. dollar terms, or 5.3 per cent, in Canadian dollar terms, reflecting improvements in company results.

 

Overseas


Overseas markets showed healthy gains with international equities up 6.6 per cent in Canadian dollars as measured by the MSCI EAFE Index. Brexit considerations aside, the European economic outlook has improved, akin to that of the United States. On the other side of the world, Asia is showing improvement in its regional economies and stock markets—suggesting the growth we see is truly global in nature.

 

Central Bank Policy


This quarter marked the third time in two years, and since the Great Recession, that the U.S. Federal Reserve raised its benchmark interest rate. The Bank of Canada didn’t and hasn’t followed suit as the Canadian economy hasn’t performed as strongly as the U.S. economy.

 

The U.S. Federal Reserve is expected to continue to raise its benchmark rate another two or three times this year. The environment is meeting the conditions of low unemployment and stable inflation, allowing the Fed to act.

 

Looking forward


We continue to believe the U.S., Canadian and international economic environment will improve over what it was a year ago but it bears repeating that a positive economic environment doesn’t necessarily mean better returns.

 

While we may be confident that equity markets will deliver another year of positive returns, market volatility is likely to remain through much of 2017—driven mainly by headline news and politics. We continue to advise a balanced approach to asset allocation matched to your individual goals.

 

As always, if you have any questions about the markets or your investments, I'm here to talk.

(Photo from IdPinThat)

A recap of the 2017 Federal Budget

The Liberal government delivered its second federal budget on March 22 in Ottawa.

While you’ve probably seen plenty of media coverage, I thought you would appreciate an overview of how some of the budget items relate to investments and taxes.

The budget focused on closing tax loopholes, cracking down on tax evasion, providing tax relief for the middle class and eliminating measures the federal government feels are ineffective, inefficient and disproportionately benefit the wealthy. But even then, there wasn’t that much.

Surprisingly, what was of most interest may be what was not in the budget. The budget does not increase personal or corporate income tax rates. Also, despite much speculation, it does not increase the capital gains inclusion rate. This is good news.

Here’s an overview of some of the budget1 proposals

Tax credits

  • The Canada Caregiver Credit system is to be simplified by replacing the Infirm Dependent Credit, Caregiver Credit and Family Caregiver Tax Credit with a new Canada Caregiver Credit for 2017 and subsequent years. The new credit is consistent with the amounts that could have previously been claimed and better targets those who need it most.
  • Nurse practitioners are to be added to the list of medical practitioners who can certify eligibility for the Disability Tax Credit.
  • The Medical Expense Tax Credit is extended to eligible expenses incurred by those who may not have a medical infertility condition but nonetheless incur costs for medical treatments to conceive a child.
  • The Tuition Tax Credit will be extended to tuition paid for occupational skills courses offered by a college or university that are below the post-secondary level.
  • The Mineral Exploration Tax Credit for flow-through shares is to be extended for another year.
  • The Public Transit Tax Credit will be eliminated effective June 30, 2017.
  • Confirmation that the first-time donor’s tax credit will expire in 2017.

Investments

  • Sales of new Canada Savings Bonds will end in 2017.
  • A number of anti-avoidance rules currently exist for registered plans like RRSPs, RRIFs and TFSAs to help ensure that the plans are in place for the right reasons and do not provide excessive tax advantages. Some of these are being extended to RESPs and RDSPs. They will generally not apply to conventional investments choices but could apply to “non-arm’s length” investments (e.g. investments from a related person) or to a “swap” for example.

Business tax measures

  • The government is particularly concerned with tax planning strategies using private corporations that provide unfair tax advantages. These strategies include:
    • Sprinkling income using private corporations to family members who are subject to a lower rate of tax.
    • Holding a passive investment portfolio inside a private corporation.
    • Converting a private corporation’s regular income into capital gains and taking advantage of the lower tax rates on capital gains.

The government is continuing to review these strategies and intends to release a paper in the coming months setting out the nature of these issues in more detail.

  • Elimination of the ability of certain professionals (i.e. accountants, lawyers, dentists, medical doctors, veterinarians and chiropractors) to elect to exclude their work in progress (“WIP”) from income, instead recognizing the income for tax purposes when billed. This election, which provides a tax deferral by allowing the costs associated with the WIP to be deducted in a year prior to the income being included is to be eliminated for tax years that begin on or after March 22, 2017 and includes a transitional period.

I hope you find these highlights useful. As you can see, the announced proposals are very broad and can have significant implications in particular for certain business owners and professionals.

If you’d like to discuss these and other federal budget initiatives and how they affect your financial strategies, please don’t hesitate to contact me.

 

[i] (Government of Canada, 2017)

Taxation of investment income within a corporation

For individuals with cash or investments within their corporation, the tax cost of withdrawing these funds or winding up the corporation can be quite high. However, having the corporation invest in a tax-efficient manner can make a big difference to its net after-tax return; unfortunately the taxation of investment income within a corporation is not well understood. To learn more, please click here or contact us.

 

 

Working with a professional financial advisor: Worth more than 1%?

Like many investors considering working with a financial advisor, you have probably asked: “What will I get for the fee I’m paying?” The simple answer: a professional dedicated to helping you stay focused on your financial plan to help achieve your financial goals.

Please click here to read more about the significant value you'll receive from working with a professional financial advisor.

A Primer on Exchange-Traded Funds

In the face of volatile markets, many investors have focused on reducing the cost of their investments. According to Investor Economics, assets in Exchange-Traded Funds (ETFs) rose to $89.5 billion in 2015 compared to $38.3 billion only five years earlier. Here's an informative piece from Russell Investments that talks about ETFs and the possible benefits they offer. Click here to download the piece.

Understanding your returns

There are different ways to calculate investment returns, and this video compares two of the most common calculations and explains where each is appropriate.  Click the image below to watch the video.

 

Executor’s Handbook

When you become an Executor you are really becoming a legal Trustee with all the rights and responsibilities that come with that position. This handbook provides you with a solid overview of estate settlement and will hopefully provide you with some useful information and tools to expedite your responsibilities in a timely and competent fashion. Read more.

Explaining two new sections on your Manulife Securities account statements

Your December 31, 2016 account statements from Manulife Securities will include two new sections. One explains how your account's rate of return is being calculated, and the other helps you understand the commissions you pay on your account holdings. Click here to take a look at a guide that explains these two sections in more detail, and please get in touch if you have any questions at all.

Update on the fixed income market

Learn more from Philip Petursson, Chief Investment Strategist at Manulife Investments on his view of bond yields and the bond market.

Update on the Canadian equities market

Watch the video below to learn more from Philip Petursson, Chief Investment Strategist at Manulife Investments, on his view of the relationship between oil and performance of the TSX.

Market Update - April 2017

Considering the year began with such uncertainty, equity and fixed income markets performed exceptionally well in the first quarter. Investors overestimated the magnitude of market volatility that would ensue from an Obama to Trump transition of power and markets shrugged off the political drama and took equities higher.

Challenges in the quarter
This past quarter exemplifies what investors should consider with regard to their portfolios. There are many sentimental reasons to fear the stock market, including recent examples like Brexit, Grexit, the Fiscal Cliff, the Debt Ceiling, the election, and the budget. Markets can be swayed over the short term by daily headlines. Equity markets can move up or down for any and all reasons on a daily basis. However, over the long term, market valuations tend to return to their fundamentals—and the fundamentals over the past two quarters have justified markets moving higher.

Oil prices
Starting in Canada, oil prices seem to have stabilized through the first quarter to nearly US$50 per barrel, bringing less volatility for Canadian stocks. The S&P/TSX Composite Index gained 2.4 per cent factoring in dividends through the quarter. Oil prices are expected to remain near their current level, which has multiple implications. First, stable oil prices are positive for the Canadian energy sector and Canadian stocks overall. Secondly, as oil prices remain a strong influence on the Canadian dollar, stable prices should translate into a stable dollar with an average exchange rate near its current US$0.75.

The United States
South of the border, the newly appointed Trump administration added a new element to conversation–and not just for talk shows! Putting politics aside, companies are reporting better year-over-year results on sales and earnings. Unemployment continues to fall. Economic growth continues to improve. In short, the U.S. economy is on the right track. And with it, come prospects for equities through the remainder of the year. The benchmark S&P 500 Index gained 6.1 per cent in the first quarter including dividends, in U.S. dollar terms, or 5.3 per cent, in Canadian dollar terms, reflecting improvements in company results.

Overseas
Overseas markets showed healthy gains with international equities up 6.6 per cent in Canadian dollars as measured by the MSCI EAFE Index. Brexit considerations aside, the European economic outlook has improved, akin to that of the United States. On the other side of the world, Asia is showing improvement in its regional economies and stock markets—suggesting the growth we see is truly global in nature.

Central Bank Policy
This quarter marked the third time in two years, and since the Great Recession, that the U.S. Federal Reserve raised its benchmark interest rate. The Bank of Canada didn’t and hasn’t followed suit as the Canadian economy hasn’t performed as strongly as the U.S. economy. The U.S. Federal Reserve is expected to continue to raise its benchmark rate another two or three times this year. The environment is meeting the conditions of low unemployment and stable inflation, allowing the Fed to act.

Looking forward
We continue to believe the U.S., Canadian and international economic environment will improve over what it was a year ago but it bears repeating that a positive economic environment doesn’t necessarily mean better returns. While we may be confident that equity markets will deliver another year of positive returns, market volatility is likely to remain through much of 2017—driven mainly by headline news and politics. We continue to advise a balanced approach to asset allocation matched to your individual goals.

As always, if you have any questions about the markets or your investments, we're here to talk.