Two senior ladies hiking in the woods

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This year’s federal budget left personal and corporate tax rates untouched, and there was good news for older clients.

“The one main point financial advisors and their clients would be interested in would be the increasing of the old age security in a couple of different manners,” said John Yanchus, a tax and estate planning consultant with Canada Life.

The 2021 federal budget proposed to provide a one-time $500 benefit to those aged 75 and older (as of June 2022) that will be paid out in August of this year. Old age security (OAS) payments are proposed to increase for that same cohort by 10% beginning in July 2022.

The $500 benefit has special characteristics, Yanchus noted.

“Because [the $500] is paid out under the budget legislation and not through the Old Age Security Act, this portion would not be subject to the recovery tax or the clawback mechanism,” he said. “So that would be a little boost for even those pensioners that normally have their OAS clawed back.”

People who receive OAS with annual income above about $126,000 normally have their payments fully clawed back. The recovery tax begins at $79,054 for the 2020 tax year; for every dollar above that amount, 15% of the OAS payment is clawed back in the following year.

“Generally, as a client you would like to avoid the recovery tax if possible,” Yanchus said.

The return of new annuities

The 2021 budget revisited several proposals from the 2019 budget, including the introduction of two types of annuities for registered plans: the advanced life deferred annuity (ALDA) and the variable payment life annuity (VPLA).

“Both are quite interesting in the fact that they will allow further deferrals of retirement income past the age of 71,” Yanchus said.

The ALDA would allow annuity payments to be deferred until the end of the year in which the annuitant turns 85. The annuity premium may not exceed 25% of the value of all the property held in the qualifying registered plan, up to a lifetime dollar limit of $150,000 from all plans (rounded to the nearest $10,000 and indexed).

The 2019 budget also proposed that pooled retirement plans and defined-contribution plans be allowed to provide VPLAs to members directly from those plans. A VPLA provides payments that vary based on the performance of the underlying annuities fund and the rate at which annuitants die.

“In 2019, when these first arose, we were actually quite excited,” Yanchus said. “Many of our advisors and clients when preparing retirement plans look for different mechanisms to help defer taxation into future years. And this was one new method of potentially accomplishing that.”

Yanchus cautions, however, that ALDAs are primarily meant for high-net-worth clients.

“Because [ALDAs are] limited to 25% of your fair market value up to a lifetime dollar limit of $150,000, it really limits the practicality of it. If you had a client in a scenario where they required these amounts for living and lifestyle expenses, then they would not be able to take advantage of them.”

Other 2021 budget measures

“The big buzz item in this year’s budget may fall to the luxury tax,” Yanchus said.

The budget proposed to levy an extra tax on expensive luxury goods, namely luxury cars, personal aircraft and boats over a certain price threshold. The tax would be either 10% of the purchase price, or 20% of the amount by which the purchase price exceeds the threshold.

“These proposals won’t affect your common folks,” Yanchus said, as the limits are $100,000 for cars and aircraft, and $250,000 for boats. “It is an interesting proposal in that it does provide for further tax [revenue], but it probably does not affect the majority of people in Canada.”

Another proposal was to levy a 1% tax on the value of foreign-owned residential real estate that is deemed to be vacant or underused.

“This tax will be levied annually beginning in 2022, and it does follow measures on foreign buyer taxes previously announced in British Columbia and Ontario,” Yanchus said. “This measure is really aimed at cooling down the hot housing market.”

Yanchus said that otherwise the budget was “very light” from a financial services perspective — which is good news for advisors.

“There were not very many components of this budget that an advisor would be required to reach out to a client, or where a client would [reach] out to their advisor for that understanding that may be required under other budgets,” he said. “It was a heavy spending budget across the board, but from a financial services or a fund management perspective, there’s very little to digest.”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

Read John Yanchus’ 2021 federal budget analysis for Canada Life in English (aussi disponible en français).