Important to pay attention to the federal government's fall economic statement

What Ottawa is saying

Photo: Contributed

Finance Minister Chrystia Freeland presented her fiscal update in the House of Commons last week.

Canada's fall economic statement, released by the federal government on Nov. 21, was a document that outlineed the country's economic priorities and policies.

For Canadian consumers, staying informed about the key elements of this statement is essential. In today’s column, I’ll summarize the most noteworthy components that directly impact the everyday lives of Canadians across the country:

1. Support for individuals and families—One of the asserted focuses of the fall economic statement was the well-being of Canadian households. The government outlined plans to extend financial support for individuals and families affected by the ongoing economic challenges. That included measures such as continued assistance for those who are unemployed or underemployed, helping to alleviate financial stress for some Canadians. It is important to be aware of what programs you may qualify for, including two new Employment Insurance (EI) benefits that were announced.

2. Healthcare investments—The statement emphasized the importance of bolstering Canada's struggling healthcare system. Increased funding for healthcare infrastructure, mental health services and pandemic preparedness was outlined. Consumers should be aware of those investments as they directly impact the accessibility and quality of healthcare services available to them.

3. Climate action and green initiatives—The federal government's expressed commitment to environmental sustainability was a recurring theme in their fall economic statement. The government again stated it will invest in green technologies, renewable energy projects and initiatives aimed at combating climate change. Consumers should pay attention to how those investments may influence the cost and availability of sustainable products and services in the market.

4. Job creation and economic recovery—The economic recovery post-pandemic is still a top priority, and the economic statement outlined measures the government hopes will stimulate job creation and economic growth. Those include support for businesses, infrastructure projects,and innovation initiatives. Canadian consumers should keep an eye on how these measures contribute to job opportunities, wage growth and the overall economic prosperity of the nation.

5. Housing affordability—Soaring housing prices across Canada have been a growing concern and are impacting almost everyone at this point. The government's statement attempted to address the issue by introducing measures to improve housing affordability. Those included incentives for first-time homebuyers, increased support for affordable housing projects and efforts to address speculative activities in the real estate market. Consumers, especially those in the housing investment market, should be aware of these initiatives and how they might impact their ability to buy or rent a home.

6. Digital transformation—As the world becomes increasingly digital, the economic statement recognized the importance of investing in technology and innovation. That included funding for digital infrastructure, expanding broadband access and supporting the growth of the technology sector. The hope is, that will lead to improvements in digital services, increased connectivity and potential advancements in the tech products and services available to Canadians.

The fall economic statement was meant to be a roadmap for Canada's economic future, and its impact is far-reaching. Staying informed about the key elements outlined in the statement is crucial for making informed decisions about your finances, healthcare and overall well-being.

Canadians must be vigilant in understanding the policies and initiatives that will shape their economic reality in the months and years to come.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

How early should you talk to your children about finances?

Money lessons for kids

Photo: Pixabay

In the ever-evolving landscape of managing your finances, imparting financial knowledge to the next generation is more critical than ever.

For Canadians, instilling a sense of financial literacy in their children is not just a good practice; it's an essential one. The question arises: when is the right time to start these conversations about money and finances?

Experts agree that the earlier parents begin discussing financial matters with their children, the better and this conversation can start as early as preschool. While young children may not grasp complex financial concepts, introducing them to basic ideas about money can lay the groundwork for a strong financial foundation and future lessons.

One effective way to introduce the concept of money to young children is through hands-on activities. Creating a play store at home, complete with toy money and items for sale, can help children understand the basic principles of buying and selling. This interactive play not only makes learning fun but also serves as a practical introduction to the value of money.

As children enter elementary school, parents can gradually introduce more complex financial concepts. Teaching them about the importance of saving money, setting goals, and making choices within a budget can be done through relatable scenarios. For instance, giving children a weekly allowance and encouraging them to save for a desired toy or treat can instill the value of delayed gratification and saving for future needs.

Middle school is an opportune time to delve into more advanced financial topics. Parents can introduce the basics of budgeting, explaining how income and expenses work together. Discussing the concept of interest, both earned through savings and paid on debts, can help children understand the impact of financial decisions over time.

High school marks a crucial period in a teenager's life when they are preparing for greater independence. Parents should take advantage of this stage to provide more in-depth financial education. Topics such as credit scores, loans, and the importance of responsible borrowing become particularly relevant as teenagers approach adulthood.

Moreover, parents should initiate discussions about the cost of post-secondary education and the various financing options available, including RESPs (Registered Education Savings Plans) in Canada. By involving teenagers in decisions about their education and the associated financial implications, parents can empower them to make informed choices about their future.

In addition to formal financial education, parents should leverage real-life situations as teachable moments. Involving children in everyday financial activities, such as grocery shopping, comparing prices, and understanding sales and discounts, can reinforce practical financial skills.

As technology becomes an integral part of daily life, teaching children about digital financial tools and online security is crucial. Explaining the basics of online banking, the importance of strong passwords, and the risks associated with sharing personal financial information online prepares children for the increasingly digital financial landscape.

It's important to note that financial education is an ongoing process. As children grow and their financial responsibilities evolve, so too should the depth and complexity of the financial conversations. Encouraging an open dialogue and being responsive to children's questions fosters a positive attitude towards money and finances.

The journey toward financial literacy in Canada begins early, and parents play a pivotal role in shaping their children's financial attitudes and behaviors. By starting the conversation in the preschool years and progressively introducing more advanced concepts as children grow, parents can equip their children with the knowledge and skills needed to navigate the complex world of finances in Canada and beyond.

Regardless of what age your children are today, and if you feel like you’ve missed the opportunity to start early, it’s never too late to begin this learning process with them.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Tax planning strategies to consider before the end of the year

Minimize your tax liabilities

Photo: Pixabay

As 2023 draws to a close, Canadians are once again presented with the opportunity to take advantage of various year-end tax planning strategies.

While common practices like tax-loss selling and charitable donations are widely discussed (and important to consider), there are other less conventional methods to also be aware of.

Here are a few additional ideas to consider to further enhance your financial strategies and minimize your tax liabilities:

1. Utilize the Home Accessibility Tax Credit (HATC)—The Home Accessibility Tax Credit is often overlooked but can be a valuable benefit for Canadians who have made home renovations to accommodate individuals with mobility impairments. Eligible expenses may include the installation of ramps, grab bars, walk-in bathtubs, or the widening of doorways. This tax credit can reduce your overall tax liability and improve the quality of life for your family members.

2. Family income splitting—While pension income splitting is a well-known strategy for Canadian retirees, income splitting within families can be a powerful tool. For example, if one spouse is in a lower tax bracket than the other, you can consider income splitting by transferring investments or assets that generate income to the lower-earning spouse. This can help lower your overall tax bill as a family.

3. Maximize the First-Time Home Buyers' Tax Credit (HBTC)—For those looking to enter the housing market, the First-Time Home Buyers' Tax Credit is a valuable resource. This credit provides a non-refundable tax credit of up to $750 for eligible first-time homebuyers. By ensuring you meet the criteria and file for this credit, you can reduce the financial burden of buying your first home.

4. Renovate your home for energy efficiency—Did you make energy-efficient upgrades to your home this year? The Home Renovation Tax Credit for 2023 (HRTC) provides tax incentives for eco-friendly renovations, such as installing solar panels or upgrading insulation. This not only reduces your carbon footprint but also offers tax savings.

5. Invest in “flow-through” shares—Flow-through shares offer unique tax benefits for Canadians who invest in resource exploration companies. These investments allow you to deduct exploration expenses, which can be particularly beneficial for high-income individuals looking to reduce their tax liability.

6. Explore employee stock options—If you're an employee with stock options, consider the potential tax advantages of exercising these options before the end of the year. This can be especially advantageous if you anticipate a significant increase in the value of the underlying stock.

7. Maximize the Lifetime Capital Gains Exemption (LCGE) - The Lifetime Capital Gains Exemption allows Canadians to shelter a portion of the capital gains from the sale of qualified small business corporation shares, farm properties, or fishing properties. With careful planning, you can maximize the LCGE to reduce or eliminate the tax on the sale of these assets.

8. Consider investment loan strategies—While investment loans carry risk, they can also offer tax advantages. By leveraging borrowed funds for investment purposes, you can potentially deduct the interest expenses from your taxable income. This strategy should be approached cautiously and with the advice of a financial professional.

9. Explore family trusts and estate planning—Estate planning can significantly impact your financial situation. By establishing family trusts or implementing tax-efficient estate planning strategies, you can minimize the tax burden on your heirs and ensure a smoother transition of assets.

10. Dividend income splitting—If you have a corporation, consider income splitting through the payment of dividends to family members in lower tax brackets. This can be a tax-efficient way to distribute income and reduce your overall tax liability.

While the traditional year-end tax planning tips you hear each fall are important and valuable, it's equally essential to explore innovative and lesser-discussed strategies to optimize your financial situation and minimize your tax liabilities. The less conventional approaches mentioned in this column can provide unique opportunities for Canadians to reduce their tax burden, invest in energy efficiency, and ensure a comfortable financial future.

It's advisable to consult with a tax professional before implementing any of these strategies, as individual circumstances vary, and tax laws are subject to change. With careful planning and consideration, Canadians can make the most of their year-end tax planning efforts and position themselves for a more financially secure future.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Will interest rates start going down?

Impact of interest rates

Photo: The Canadian Press

Bank of Canada governor Tiff Macklem

Recent news headlines have included a lot of commentary on interest rate hikes potentially being over and even the possibilities of seeing rates starting to come back down.

This potential shift in policy makers’ direction could have a significant impact on consumers financial plans, including mortgages, savings, investments, and more—but the time to start celebrating is not here just yet.

For this week’s column, let me start by explaining why we’ve seen such dramatic rate increases, why we may see a reversal in these policies soon and the implications this shift may have on your finances:

Why did they go up?

In response to rising inflation and the need to cool down an overheated economy, central banks have increased interest rates over the past few years. For instance, the Bank of Canada (BoC) has been raising its benchmark interest rate steadily since March 2022. These rate hikes have had various consequences, including affecting borrowing costs, savings account yields, and investment returns. However, recent economic developments have raised the possibility of a change in this trajectory.

Why might this stop?

Economic conditions can shift rapidly, and central banks like the BoC continually monitor indicators to guide their monetary policy decisions. If economic growth slows, inflation remains under control, or other concerns arise, central banks may pause or even lower interest rates. This reversal is a significant departure from the tightening cycle seen in recent years.

Why should you care?

1. Mortgage borrowers—Canadians with variable-rate mortgages may benefit if interest rates stop rising or are reduced. Their mortgage payments would likely become more affordable, freeing up funds for other financial goals, such as debt repayment or investing. However, those with fixed-rate mortgages won't experience an immediate change in their monthly payments.

2. Savings accounts—In a rising interest rate environment, Canadians may have seen modest increases in the interest earned on their savings accounts. A reversal of interest rate hikes could lead to lower yields on savings accounts. This could prompt savers to seek higher-yield alternatives, such as high-yield savings accounts, certificates of deposit (CDs), or other investment options.

3. Investors—The impact on investments can be mixed. Lower interest rates can stimulate borrowing and spending, potentially benefiting businesses and stocks. On the other hand, bond prices tend to rise when interest rates fall, which can be good for existing bondholders but may result in lower yields for new bond buyers. Equity investors should monitor market conditions and consider diversification to mitigate risks associated with interest rate fluctuations.

4. Debt management—Lower interest rates can offer opportunities for Canadians to manage and pay down high-interest debt more efficiently. Consider refinancing high-interest loans or credit card balances if you were forced to take out a loan during the peak. Reducing high-interest debt can free up more funds for long-term savings and investment goals.

5. Savings and planning—Canadians may need to adjust their financial plans based on the shifting interest rate environment. If yields on traditional savings accounts and fixed-income investments decrease, consider exploring alternative investments or asset classes with potentially higher returns. Diversification remains a key strategy to manage investment risks effectively.

6. Economic uncertainty—While a reversal of interest rate hikes may provide temporary relief, it's essential to remember that rates falling are due to economic conditions changing. A prudent financial plan should consider various scenarios and emphasize long-term financial goals. Consumers should focus on building a diversified and resilient financial portfolio that can withstand economic uncertainties.

7. Monitoring inflation—You should keep an eye on inflation trends, as they play a significant role in central banks' interest rate decisions. Rising inflation can erode purchasing power, making it important to seek investment opportunities that outpace inflation and protect long-term wealth.

The potential for stopping and reversing interest rate hikes underscores the dynamic nature of the financial landscape. Canadians should approach these developments with a strategic mindset and a long-term perspective as much as possible.

Seeking advice from a certified financial planner about how to adapt your plans for a shifting rate environment can help ensure a secure and resilient financial future, regardless of interest rate fluctuations.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.