Transcript: OAS changes should delight older clients
- April 20, 2021 April 20, 2021
Welcome to Soundbites – weekly insights on market trends, and investment strategies, brought to you by Investment Executive, and powered by Canada Life.
For today’s soundbites, we discuss the 2021 federal budget with John Yanchus, a tax and estate planning consultant with Canada Life’s sales enablement team. We talked about the resurrection of some new annuities, a new tax on luxury vehicles, and issues that were not addressed in this year’s budget. We started by asking what had the biggest implication for the financial service industry.
John Yanchus (JY): The one main point that financial advisors and their clients would be interested in would be the increasing of the old age security in a couple of different manners. One section of that proposal provided for a one-time benefit, to those ages 75 and older, of $500 that will be paid out in August of this year. And there is an additional amount that would increase the OAS payments by 10% ongoing in July of next year. The one important piece on that OAS increase is on the $500 one-time payment. Because that 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. This is important to those people receiving OAS that have income in excess of generally $125,000. They would still receive that $500 payment.
About the Liberals’ second attempt to introduce new annuities.
JY: An interesting resurrection from the past budget were the two new types of annuities for registered plans. Both of these types of annuities — the advanced life deferred annuity or ALDA, and the variable payment life annuities or the VPLA — will allow further deferrals of retirement income past the age of 71. Those original proposals did seem very interesting and quite exciting. Many of our advisors and clients, when preparing retirement plans, look for different mechanisms or different structures to help defer taxation into future years. And this was one new method of potentially accomplishing that. Because [the ALDA is] limited to 25% of your fair market value, up to a lifetime dollar limit of $150,000, it really it is geared toward high-net-worth clients.
What people are talking about.
JY: I think the big buzz item in this year’s budget may fall to the luxury tax. The budget proposes an extra tax on expensive luxury goods: namely cars, personal aircraft and boats over a certain price threshold. These proposals won’t affect common folk, as the limits are $100,000 for your cars and $250,000 when you’re looking at the other items. It is an interesting proposal in that it does provide for further tax but, again, it probably does not affect the majority of people in Canada.
What anticipated items didn’t make it into the budget.
JY: We had a lot of speculation in terms of the capital gains inclusion rate, measures that affect principal residence exemptions and the potential tax on capital gain when selling a personal property, tax measures helping intergenerational transfers of business, a wealth tax overall. I was a little surprised that we didn’t have a little bit more affecting some of these speculations.
And finally, how he’d describe the budget to someone who missed it.
JY: In 10 words or less I think I would say, you didn’t miss much. It was a heavy spending budget but from a financial services or a fund management perspective there is very little to digest.
Well, those are today’s Soundbites, brought to you by Investment Executive, and powered by Canada Life. Our thanks again to John Yanchus, tax and estate consultant with Canada Life’s sales enablement team.
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