The smart way to say no to adult kids who ask for money, a question about the principal residence exemption and reasons you may not want to retire in Florida - Nicola Wealth

The smart way to say no to adult kids who ask for money, a question about the principal residence exemption and reasons you may not want to retire in Florida


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It’s always hard to say ‘no’ to your kids, from when they’re little and want one more bedtime story to when they’re adults looking for help to pay the rent, buy a car or purchase their first home.

With less job stability, the rising cost of living and skyrocketing rent and housing prices, it’s no wonder so many millennials and Gen Z adults are turning to the ‘bank of mom and dad’ for financial support.

A recent CIBC survey shows parents are giving their kids larger financial gifts to buy the first home, or an average of about $82,000 in 2020, up from $52,500 in 2015. Also, about 30 per cent of first-time buyers got help from parents last year, up from around 20 per cent five years earlier, the survey shows.

”People have a hard time saying ‘no’ to their kids,” especially as they point out the challenges they’re facing today, says Julia Chung, a senior financial planner with Spring Planning in Vancouver.

It’s not an issue, Ms. Chung says, unless it puts parents’ retirement and financial security at risk.

Ms. Chung has had clients who gave money to their adult kids and then ran into financial trouble in their retirement, despite her best efforts to show them the risks of doling out the cash.

”There’s only so much anybody can do,” Ms. Chung says. Gillian Livingston reports.

This couple wants to retire in their late 50s on $100,000. Can they do it?

At age 48, Gavin and Audrey have been diligently paying down the mortgage on their Calgary house, setting aside money to help with university costs for their two children, 15 and 17, and saving for their own eventual retirement. Gavin earns $84,000 in the non-profit sector; Audrey earns $165,000 in the oilpatch.

“Together, our income sounds big,” Gavin writes in an e-mail, “but there is never any money left over after the mortgage, savings and expenses are paid.”

Short-term, they want to spend about $100,000 renovating their house. As well, they made a big lump-sum payment of $50,000 to their mortgage this fall, money that came in part from Audrey’s annual bonus.

Their main question is a familiar refrain: “When can we retire? The sooner, the better.” They hope to escape the working world at age 58 with a spending budget of about $100,000 a year after tax – roughly the same as they are spending now.

Their second question is also one shared by many people. “Should we stay with our portfolio manager, find a different manager, or go with lower-fee self-management?” And finally, “What might we be able to leave as an estate?”

In the Globe’s latest Financial Facelift column, Ian Black, a fee-only financial planner at Macdonald, Shymko & Co. in Vancouver, examines Gavin and Audrey’s situation.

In case you missed it

Why your retirement years are the best time to get fit

Kathy Glazer-Chow likes her workouts to be challenging. So, the 71-year-old often ends her three-times-a-week training sessions with several sets of bicep curls using 20-pound weights or some 35-pound kettlebell lifts. “I always tell my trainer I want to be the senior GI Jane,” says Ms. Glazer-Chow with a chuckle, referring to the iconic movie starring Demi Moore as an astoundingly ripped female U.S. Navy Seal recruit.

The Toronto retiree was a mid-life convert to the benefits of physical fitness, getting active as a 48-year-old mother with a six- and eight-year-old. She’s since completed the 200-kilometre Ride to Conquer Cancer eight times and walks daily, but it is in recent years that she’s started to appreciate the real impact of her choices. “It makes me feel better. It makes me feel strong. It gives [me] self-confidence,” Ms. Glazer-Chow says.

When her husband was diagnosed with diabetes, he was reluctant to go to a gym. “He didn’t like the way he looked. Now he is so cut and muscled at 69, it’s frightening,” she says. “He had to get over that mindset, you know, that I’m embarrassed to go because I don’t want people to look at me because I’m older.”

That was 20 years ago. They’ve converted a room in their house to a gym and she does workouts there several times a week with her trainer. “The payoff is you feel strong; you are strong,” she says. “I mean, I’m 71; people tell me I look 60 and I feel 40.”

Studies are unequivocal: fitness activity has immeasurable physical and mental benefits for aging well and the Canadian Physical Activity Guidelines recommend adults 65 years or older get at least 150 minutes of moderate-to-vigorous physical activity every week, like brisk walking, cycling, swimming or any activity that makes you breathe harder and increases the heart rate. Dene Moore reports.

Why more retirees are looking to green their retirement portfolios

Many greying Canadians are adding a green hue to their investment portfolios to make money, manage risk and leave a better world for their children and grandchildren.

Responsible investing – which considers both financial returns and social/environmental good – has long been on the radar of baby boomers and aging Gen Xers, with ethical mutual funds being widely available since the 1990s. Still, it was often seen as a niche strategy that potentially added risk to an investment portfolio.

Consequently, considering only companies with strong environmental, social and governance (ESG) track records may seem ill-fitted for today’s retirees who seek steady, low-risk investment returns. But responsible investing has moved mainstream in recent years. ESG performance has become a critical metric used by large money managers such as BlackRock Inc. and institutional investment managers like the Canada Pension Plan Investment Board (CPPIB).

“Many mainstream institutional investment managers began to integrate ESG metrics and research into their investment processes in the 2000s,” says Simon MacMahon, head of ESG research at Sustainalytics in Toronto. Joel Schlesinger reports.

What else we’re reading

Thinking of retiring in Florida? Think again

Many Canadians dream of retiring in a warm, sunny climate and Florida is a popular destination. But it’s not for everyone. In this Kiplinger piece titled, “11 reasons why you don’t want to retire in Florida” the author looks at factors that might dissuade you including too many people your own age, the humidity and hurricanes, among other considerations.

Of course, these concerns haven’t stopped millions of retirees from flocking to The Sunshine State, nor will they likely in the future.

Retirees just want to have fun

There are two types of retirees, according to this article in MarketWatch, those who fill their days with fun activities and those who don’t.

To find out how to be the kind of person who enjoys retirement, author Brett Arends spoke with Catherine Price, author of a forthcoming book, “The Power of Fun,” who offers some advice on having a more fulfilling retirement.

For starters, it takes planning: “One of the biggest things for people to think about is that leisure time is not going be inherently enjoyable,” she says in the interview. “There is ‘work’ to be done… Watching Netflix for 6 hours a day for the rest of your life may entertain you but is not going to give your life meaning.”

Maybe it depends on what you watch?

Ask Sixty Five

Question: We have sold our house and moved to our condo (which we bought in 2015 and was rented out during the entire period). I believe under the Income Tax Act this change will be considered a “deemed disposition” and subject to capital gains tax. We would like to defer this gain by using section 45(3) and defer the tax until the condo is finally sold. Does this make sense and how should we communicate to the Canada Revenue Agency (CRA) about the 45(3) election? Further, when the condo will finally be sold how the capital gains will be calculated?

We asked Brad Coutts, a financial adviser at Nicola Wealth Management in Vancouver, to answer this. Mr. Coutts broke down the question into its different parts:

Part 1: We have sold our house and moved to our condo (which we bought in 2015 and was rented out during the entire period). I believe under the Income Tax Act this change will be considered “deemed disposition” and subject to capital gains tax. We would like to defer this gain by using section 45(3) and defer the tax until the condo is finally sold.

Answer from Mr. Coutts: Section 45(3) is a special section of the Income Tax Act that allows the taxpayer to avoid paying capital gains tax when they merely move into a rental property. Without the application of this section, a taxpayer could owe a large amount of tax without actually having received any cash from selling the property. Section 45(3) also allows the taxpayer some flexibility for converting four rental property years into principal residence years.

You are correct. When you move into your rental property and it becomes your principal residence, you will be deemed to have sold your rental condo at the fair market value at the time of this change of use. If your rental property has gone up in value since you bought it, there would be a capital gain for you to report and tax to pay despite not having actually sold the property yet! Section 45(3) is legislation that is in the Income Tax Act to help you with your unfortunate situation and defer this capital gain. If you elect to apply Section 45(3) to your tax return, you will avoid any deemed sale and you will defer realizing any potential capital gains until you eventually sell the property.

Note that the sale of your principal residence must be reported for tax purposes or the CRA can impose penalties. Your principal residence disposition should be reported on Schedule 3 and Form T2091 of your tax return.

Part 2: Does this make sense and how should we communicate to the CRA about the 45(3) election?

Answer: This should be done by sending a letter to the CRA to say that you specifically want section 45(3) of the Income Tax Act to apply and thus there is no capital gain to report. Instead of e-filing your tax return, you may want to paper file your tax return and attach this letter to your tax return to ensure that the CRA gets this and processes it correctly. I recommend that you speak with an accountant to ensure that this gets done right and you don’t have any issues with the CRA.

Part 3: Further, when the condo will finally be sold how the capital gains will be calculated?

Answer: When you do sell your home, you will be able to claim your principal residence exemption for the portion of time that you lived in the home. The 45(3) election does allow you to potentially increase the number of years that this property was considered to be your principal residence by four years. The capital gain will be calculated based upon the number of years that you designate it as your principal residence and the total number of years of ownership of the property.

This is a very complex area of taxation and these answers are general. I recommend that you engage an accountant to file your tax return in the year you sell your home in order to shelter as much of the capital gain as possible and avoid any hassles with the CRA.