Q: I co-signed a loan for my cousin three years ago and never thought about it again since the payments were his responsibility. But I got a call from the lender the other day. The loan is a few months in arrears, and my cousin won’t return the lender’s calls. What are my options? —Darren

FP Answers: A call like that can be a real surprise, especially when you had put the loan out of your mind. But the lender is right to contact you. When you co-signed, you became equally responsible for the full debt, not just a portion of it. Your cousin’s missed payments are now yours as well, and the impact on your credit rating has very likely already started.

While the situation may feel uncomfortable, you do have options. The key is to understand them before the debt grows any further.

Start by asking the lender for a written statement of the account that shows the total arrears, any penalties that were added and the amount needed to bring the loan up to date.

At the same time, request your free credit reports from Equifax Canada and TransUnion Canada to see how the missed payments have been reported and whether the account has already gone to collections.

If your budget can absorb it, paying the arrears and taking over the payments is the most direct way to stop further damage to your credit rating. It is not what you signed up for when you chose to help your cousin, but it stops the accumulation of fees and interest while you sort out your longer-term options.

If you take over the payments, try to discuss the situation with your cousin and put a repayment arrangement in writing, one that both of you sign and date and that spells out what happens if he defaults again. Even a simple document is worth having.

Co-signers generally cannot remove themselves from a loan, but some lenders will consider a co-signer release once the primary borrower qualifies independently and the account is back in good standing.

Refinancing into your cousin’s name alone could also end your joint debt responsibility , but only if he co-operates and still qualifies despite the missed payments. Offering collateral will strengthen his chances.

If you expect to carry the debt, ask your own lender about a consolidation loan at a lower interest rate. While the balance is then only in your name and your cousin owes you directly, you control the loan.

If the loan is secured by an asset, such as a car, telling the lender where the asset is may help resolve the debt sooner. Repossession will hurt every borrower’s credit, but it may reduce or eliminate what is still owed, depending on your province’s regulations.

A lump-sum settlement may also be possible if neither of you can keep paying but one of you can come up with some cash. It will not undo the credit damage, but it can close the account.

If none of these options feels workable, reach out to a non-profit credit counsellor as soon as possible. A counsellor can walk you through realistic debt relief options, including bankruptcy and alternatives , such as a debt repayment program.

The lender has every legal right to pursue you for the full outstanding balance, and interest and fees continue to accumulate whether you engage or not. Acting sooner preserves more options and typically costs less in the end.

Co-signing for a family member comes from a good place, but it is hard when the trust is broken. But acting quickly and getting professional advice can help you limit the damage and regain financial stability.

Mary Castillo is a Saskatoon-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt since 1996.

Do you have a debt question for FP Answers? Email wealth@postmedia.com

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Q. I have loaned $500,000 to my wife at the Canada Revenue Agency’s (CRA) prescribed low interest rate of three per cent and she has been paying the required interest. I am gifting $100,000 by bank transfer to my adult son, who is 21 years old. He will transfer the same amount by bank transfer to his mother (my wife). My wife will then transfer the same amount to me by bank transfer to reduce the outstanding loan amount by $100,000. The gift deed will be signed by the donor (the son) and the donee (his mother) mentioning gifting is voluntary .

By doing several of these transfers, my wife will repay the entire loan amount and build up her own capital to invest, without having to worry about attributions on capital gains, interest, etc. At the time of transfers, none of us have any debts, owe creditors or CRA or have unsettled claims. Please give me your opinion on whether these gifts are considered legitimate? And could you confirm that attributions would not apply to her investment gains and losses, interest, etc.? Your response will be highly appreciated. —Daniel in St. John’s

FP Answers: Prescribed rate loans are a tool for families looking to split investment income and reduce their overall combined tax bill. The most common application is when you have family members with a big difference in their incomes who have lots of taxable investments.This strategy can save tax, but if done incorrectly, it can also trigger CRA scrutiny.

To avoid attribution of income from the loaned funds back to the lender, there are strict conditions. When it is between non-arm’s-length parties such as certain family members, the interest rate charged must be at least the prescribed rate at the time the loan is made. This rate is locked in for the life of the loan, regardless of future changes in interest rates.

Right now, the CRA prescribed rate is three per cent. A few years ago, it was only one per cent and the concept was understandably more popular. The interest must be paid annually within 30 days after the end of the calendar year in which it becomes payable. The interest is taxable to the lender and tax deductible by the borrower if they invest the borrowed funds in eligible income-producing assets. This must be properly documented with a written loan agreement and clear records of payments to stay compliant.

Repayments should come from the borrower’s resources. If the borrower uses funds that ultimately originated with the lender, whether directly or through gifts or other family members, there is a risk CRA may treat the arrangement as circular and apply attribution rules. This is where your approach could raise red flags , Daniel.

If the repayment is made indirectly, such as through your son in your example, CRA could challenge whether this repayment constitutes a genuine repayment or merely a continuation of the original loan. If the original loan is not truly repaid, because repayment comes from the lender, directly or indirectly, the attribution rules could continue to apply to income from your wife’s investments. This is sometimes referred to as the “novation” or refinancing risk.

So, routing repayments through your adult son introduces an element of risk. If funds move indirectly from lender to borrower, CRA could deny the prescribed rate loan exception if one of the main purposes of the transfers is to reduce tax. Circular arrangements can trigger attribution even if each individual step — the gifts, in this case — appear legal.

This is because even if all technical conditions are met, the General Anti-Avoidance Rule (GAAR) can apply if a transaction lacks economic substance or is primarily tax motivated in a way that abuses the Income Tax Act . GAAR gives CRA broad powers to question taxpayers and circular or paper-based arrangements without real change in economic position, and may therefore be challenged.

Prescribed rate loans can be a powerful income-splitting tool but only if the rules are followed carefully. Interest must be paid on time, repayments must come from independent sources and circular gifting can trigger attribution and anti-avoidance issues.

Your proposed strategy is creative, Daniel. It may have risks. There are formal ways to seek input from CRA on a proposed transaction by requesting an advance ruling from them, but this could invite future scrutiny. This is probably a situation where you would want to consult a qualified tax professional to avoid an unexpected surprise and understand the potential repercussions.

Andrew Dobson is a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc. in London, Ont. He does not sell any financial products whatsoever. He can be reached at adobson@objectivecfp.com.

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Q. We are thinking of retiring within one or two years and are curious what tips you have for us. I’m 61 years old and my wife is 58. We adopted two children late in life who are only 13 and 12½ years old, and we have net assets totaling $4.2 million and zero debt.

My issues are: 1. we have our investments at multiple institutions; 2. we are looking for overall forward investment advice ; 3. we are seeking an overall retirement withdrawal strategy that will minimize taxes and 4. we are seeking estate advice for our kids’ inheritance. —Thank you, Greg

FP Answers: When approaching a pre-retirement analysis, identifying income sources and associated tax payable is a good place to start, Greg. For instance, someone with $1 million in tax-free savings accounts (TFSAs) versus $1 million in registered retirement savings plans (RRSPs) could spend much more in retirement due to how each account is taxed. Rules of thumb can be helpful to understand what best practices are for most situations but are not enough to assess retirement readiness.

You may also be curious about how much you can sustainably spend during your retirement. As an advice-only financial planner, my main area of focus for retirement planning is getting a good idea of a client’s historical and expected future spending. There is limited use in designing an efficient decumulation plan if your budget is unrealistic.

Many families that I have worked with over the years tell me that they don’t budget because their income from employment meets all their needs, including some long-term savings. Stepping into retirement with no concept of spending and how long your savings could last can be dangerous. In fact, some savers with high spending may have to save for even longer to maintain their lifestyle during retirement. Others overestimate how much they need and oversave, and this can be a problem too.

Consolidating investments may help you have better visibility to plan your investment strategy and for retirement withdrawals in a tax efficient manner, Greg. You may also benefit from lower fees if you’re working with a portfolio manager since higher account balances tend to have lower management fees, as they are almost always based on assets under management (AUM) with lower priced tiers when you invest higher balances.

Investment strategy should be based in part on projected withdrawals but also risk tolerance and tax strategy. There may or may not be advantages to withdrawing early from RRSPs, for example, or converting an RRSP to a r egistered retirement income fund (RRIF) before those withdrawals start. Scenario planning with a professional financial planner may help. You can plan how much to take from each of your accounts and when to start private and public pensions. Whether you manage your own investments or work with a portfolio manager, cash flow planning can be beneficial to enhance financial outcomes and peace of mind.

• With $7 million, does Andrew still need to work part time to afford to retire at 50?
• Should Caroline, 62, defer CPP and OAS until age 70, or even delay retirement entirely?

Tax minimization is tricky because you need to balance this year’s tax with your lifetime tax. You may be able to defer RRSP withdrawals until age 72 but could benefit from using low tax brackets and taking some withdrawals in your 60s. Using these lower tax brackets in early retirement to withdraw taxable income could be strategic for many reasons, whether spending on yourself or gifting to your kids. For many retirees, once they get into their 70s, most of their income has started and it could get expensive to take more from RRSPs, RRIFs or taxable non-registered accounts as time goes on.

Estate planning is important given your children’s ages, Greg. If you died today, ignoring any life insurance, they could have up to $2 million each, depending on the deferred tax on your assets. If your will is a standard one with money going to children at the age of majority, that could be too much money at too young an age in the case of your early death. You also have a risky period over the next 10 years when your kids are too young to act as your powers of attorney or executors.

Andrew Dobson is a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc. in London, Ont. He does not sell any financial products whatsoever. He can be reached at adobson@objectivecfp.com.

In 2020, during the depths of the pandemic, new parents Paul* and Elizabeth, were sheltering in place with their newborn when they decided to take a chance with their investments . Energy stocks had taken a severe hit and Paul recognized the situation as a “black swan” event. He opened a tax-free savings account (TFSA), did his research, identified historically profitable, dividend paying Canadian energy companies, and went all in.

Today, the couple’s TFSAs are worth $3.5 million and generate $12,000 in dividends each month. Paul, 48, and Elizabeth, 44, are looking to retire — the sooner, the better. If possible, they would like to retire when they each turn 55 , or even 50, just two years from now for Paul.

Paul and Elizabeth have a combined, equally split, pre-tax annual income of $160,000, are debt-free, pay off their credit cards each month, and, because of Ontario’s prohibitive real estate market, have chosen to rent rather than own. While they have about $120,000 in two first home savings accounts they have no plans to purchase a home, though this may change in the future. Their current monthly expenses are about $15,000 including rent of $2,900. They would like to generate about $20,000 in after-tax income in retirement.

In addition to their TFSAs, Elizabeth has about $290,000 in two registered retirement savings plans (RRSPs). She has $250,000 in a self-directed RRSP fully invested in Canadian equities and $40,000 in an employer-supported RRSP fully invested in U.S. equities with a predicted valuation at age 65 of $300,000 or $18,000 a year, assuming she and her employer continue contributions for the next 20 years.

Paul has a defined benefit employer pension indexed to inflation with a commuted value of $250,000. If he retires at age 50, he will receive a reduced pension of $14,000 a year. At age 58, he will receive $40,000 a year, and if he retires at age 64, he will receive $48,000 per year.

“Would lower pensions be a net benefit to us?” asked Paul. “This would mean paying no tax, as our annual incomes would be below the individual amount for deductions.”

Paul and Elizabeth would also like to know how to structure Elizabeth’s RRSP withdrawals in the most tax efficient way and when they should each start taking Canada Pension Plan (CPP) and Old Age Security (OAS) benefits.

The couple have a self-directed registered education savings plan (RESP) for their son, which is currently valued at $70,000. It is also invested in Canadian energy stocks. “We maximize contributions each year and hope to grow it to at least $150,000 within 10 years. Is this a realistic goal and timeline?” asked Paul.

As the couple prepare to retire, they are looking to diversify their portfolio beyond Canada’s energy sector.

“What is the right mix of investments to be able to generate about $20,000 per month. Is that even feasible?”

What the expert says

Shifting focus from growth to diversification and preservation of assets as they start drawing down their investments will be a big mindset change for Paul and Elizabeth, said Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management.

“An independent certified financial planner or portfolio manager can create a comprehensive long-term retirement income plan that will give them a clear view of their finances over the next 50 years. The plan will include how small changes in key assumptions, such as investment returns, inflation, and future income needs, can have major lifetime impacts,” he said.

“For example, if Paul and Elizabeth both retire when Paul turns 50, or even if Paul alone retires in two years and they use all their assets to generate $20,000 a month in after-tax, fully indexed income to age 95 leaving nothing for the estate, their investments need to achieve an average annual return of 7.22 per cent. If their assets only generate an average annual return of 6 per cent, they could be depleted by age 80. However, if they both retire when Paul turns 55, a rate of return of 6 per cent will meet their needs throughout retirement.”

Einarson said another option to retire at 50 is to plan for a 30 per cent reduction in annual income from age 70 to 95, which would be $14,000 net of tax in today’s dollars.

In terms of repositioning their portfolio to reduce risk, Einarson recommended a balanced mix of liquidity, income, and long-term growth. This could include cash to meet immediate short-term needs, a three- to five-year bond ladder to provide income and meet future cash flow needs as the bonds mature, and 70 to 80 per cent of the portfolio invested in dividend-paying equities diversified by sector and geographies for income and long-term growth. If this is too conservative an approach for the couple, Einarson said that a 100 per cent well-diversified equity portfolio could also see them through retirement.

“Diversification, including diversification outside Canada, is essential. Using a portfolio manager, who can provide fiduciary oversight and build a transparent portfolio tailored to their goals and risk tolerance, to buy shares over time in up to 40 individual companies and possibly individual bonds will help create a more balanced portfolio, similar to how pension funds manage their investments.”

• Can Greg, 61, with adopted younger kids, afford to retire on $4.2 million
• With $7 million, does Andrew still need to work part time to afford to retire at 50?

Given their current spending and with some planning, Einarson said Paul and Elizabeth could compromise and each work part time from age 50 until age 55. “This would allow them to create a gradual transition into retirement, adjust their portfolio and get comfortable spending from their assets.”

While he believes the couple’s goal to grow the RESP to $150,000 is realistic, Einarson said there is the risk that their focus on Canadian energy stocks could underperform when the funds are needed and recommended they diversify.

Because most of their assets and future income are in TFSAs, Einarson said their overall tax burden should remain low.

“They could convert Paul’s pension at retirement for added flexibility and start drawing from registered accounts in lower tax brackets before starting CPP and OAS at age 70. Deferring, will allow them to maximize the guaranteed, inflation-indexed income and provide them a 15-year window to strategically draw down the RRSP mostly tax-free.”

Einarson said a retirement plan will help them weigh the pros and cons of taking government benefits early versus deferring them.

“The key is to complete the plan before making the transition.”

*Names have been changed to protect privacy.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

My sister and I recently took my 82-year-old French mom to Northern France for a two-week vacation. We booked several short-term rental accommodations, all of which were excellent with one exception. That unit turned out to be a three-storey property with a narrow, steep spiral staircase that was genuinely dangerous, particularly for her.

I was irritated and went back to the listing. Not one review, photograph or description line mentioned it. The property had been deliberately misrepresented and we had no recourse once we were standing at the bottom of that staircase with our luggage.

Governments do this too, but with considerably higher stakes than a missed staircase.

Politicians who cannot defend a tax policy on its merits create a marketing name . The label is designed not to inform, but to disarm: to make the financially illiterate feel reassured and the financially literate hesitant to object. It is one of the more cynical features of modern fiscal governance, and it is accelerating.

For nearly a decade, the Justin Trudeau government insisted that Canada’s carbon tax was not a tax, but rather a price on pollution. The distinction was entirely rhetorical.

A government charge that is compulsory, reduces disposable income, and raises consumer prices qualifies as a tax. Calling it a price on pollution was a marketing decision, not an economic one, and one designed to neutralize opposition by borrowing the language of environmental responsibility. It worked well enough on the politically sympathetic. It fooled nobody who actually read the legislation.

More recently, the federal government rebranded the GST credit — a long-standing, well-designed offset to a regressive consumption tax introduced by the Brian Mulroney government in 1991 — as the Canada groceries and essentials benefit.

This was not the first time Ottawa had reached for the GST credit’s plumbing to manufacture good news. Since 2020, it has done so four times: a special payment that doubled the credit during COVID-19, a six-month doubling in 2022 under the Making Life More Affordable banner, a grocery rebate in 2023 that was simply a second cheque equal to double the January credit, and now the 2026 top-up tied to renaming the credit itself.

Each was mechanically the same GST credit adjustment, but with changed marketing. Of course, the government can’t help but brag about it. Yep, redistributing after-tax payments of extracted funds as a gift is a neat trick.

The tax branding arms race is not limited to Canada. In January, the incoming Dutch government announced what it called a freedom tax — a surcharge on personal income and corporate taxes designed to generate approximately five billion euros annually to fund a dramatic expansion of defence spending toward North Atlantic Treaty Organization targets. The name is almost admirably brazen. A tax increase has been repackaged as a patriotic contribution to liberty.

You can debate whether the defence investment is wise or necessary. What you cannot do is pretend that calling a surcharge a freedom tax changes what it is. The Dutch taxpayer reaching into his pocket will feel no freer for the branding. A more appropriate use of the freedom tax phrase would be to honour the lives lost in prior wars that preserved such freedoms.

South of the border, the United States offered perhaps the most celebrated recent example of tax-policy nomenclature as misdirection. The 2022 Inflation Reduction Act was, by any serious analysis, primarily a climate and industrial policy bill. Its projected effect on inflation was negligible at best , a conclusion reached by both its critics and some of its architects. Some television contributors praised the name as “marketing branding genius.”

But marketing genius and sound fiscal policy are not the same thing and conflating them is precisely the problem. There is a useful rule buried in all of this and it is close to a law: the more appealing the name, the worse the policy underneath it.

Freedom, groceries, fairness, inflation reduction are all advertising copy words. A government usually reaches for emotional language to describe a fiscal measure because the measure cannot survive a dispassionate description of its actual mechanics.

The antidote to marketing is better policy. Canada’s tax system has accumulated decades of politically motivated complexity: boutique credits, targeted incentives, rebranded transfers and piecemeal amendments layered atop one another. The result is a system that is expensive to comply with, difficult to understand and chronically uncompetitive.

Which is exactly why Canada desperately needs Big Bang tax reform with less complexity, broader bases, lower personal tax rates, genuine neutrality and the elimination of measures that exist primarily for political optics rather than economic logic as its core objectives.

A simpler system is harder to misrepresent. That alone is a reason to build one. I have argued for years, including in my recently updated book Making Life Less Taxing , that Canadians deserve a tax system they can actually understand. Branding makes that harder, not easier.

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But reform can take years , which brings us back to the rule. You should ask a government that announces a new tax measure with an appealing name what it actually does, who pays for it and whether the so-called benefit being celebrated was extracted from you first. The answers are rarely as warm as the label suggests and often misleading.

The short-term rental host who misrepresented her unit with the dangerous staircase knew exactly what she was doing: the right pictures and words, but the wrong reality. Governments have mastered the same art. The freedom tax sounds noble. The groceries benefit sounds generous. The Inflation Reduction Act sounds responsible. None of them were what they claimed.

Check the staircase before you book.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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Q. My dad recently moved into assisted living and is about to sell his paid-off house. He has a long-term care plan and a generous company pension, so for now he will have about half a million dollars and growing at age 88. He’s in fairly good health, other than his body failing. I have power of attorney. Dad doesn’t need the money now, but if something goes sideways, he might at some point.

I’m thinking of putting most of the money in a solid fixed-income fund and keeping $30,000 in cash for an emergency. Seeing that he’s 88 years old, I’d like to focus more on preservation of capital and less on growth. But I was wondering if there’s something else that might be a better place to stash it for now. Most of the money will be in a trust. —Thanks, Peter

FP Answers: Hi Peter, I am sure you appreciate the confidence your dad has placed in you to be his power of attorney. It is an honour that comes with a lot of responsibility and work to make sure your dad, and his wishes, are looked after. At the same time, you and possibly your siblings may have differing thoughts and needs which can make the role of a power of attorney a little more challenging.

If your dad’s future needs will be looked after with his generous pension, why not invest in something that will grow his money rather than something designed for capital preservation? Assuming you are going to receive the money when your dad dies, invest it the way you would invest your own money. Of course, it may lose value and if you have siblings they may complain it’s down, but they also may complain that you didn’t try to grow it and they could have had more. Plus, who knows what the future holds: Your dad may need the money.

What if you gift the money to yourself? If you are going to get the money anyway, why not take it and use it today, especially if you are having some financial difficulty? It will save your dad some tax, avoid probate, and besides, if the money goes through the estate, who knows how long it will take before it gets to you? If your dad needs more money in the future you can always help him out, assuming you haven’t spent it all.

Those are a couple of thoughts I sometimes hear, but they come with risks. It sounds like you want to be prudent with your dad’s money and ensure it is safe and available to him if it is ever needed. That is one reason why you are in the role of the power of attorney.

The big risk with taking a capital preservation-only mindset is inflation. But inflation is normally a long-term risk and as a person ages, inflation risk reduces. Your dad also has Canada Pension Plan (CPP), Old Age Security (OAS) and a company pension, which are all indexed to inflation.

The first investment decision to make is which type of account this money should go in and for your dad that will be either a non-registered account or a tax-free savings account (TFSA). Maximize the TFSA first and the rest can go to a non-registered account.

Don’t discount guaranteed investment certificates (GICs).. If you are just looking to preserve capital, then a GIC works. Yes, you may pay a little more in tax on the amount earned, but the G in GIC stands for “guaranteed.” Whenever you move your investments away from a GIC, you are taking some risk. How far do you want to step away from a guarantee in order to increase the rate of return? There are good high-income investment funds available, but the downside is that they can lose value.

You mentioned a trust and that tells me your dad, or both you and your dad, have been giving this some thought. I assume it is an alter ego trust the money is going to go into but I am curious to know why you are adding the money to a trust.

The two main reasons I can think of are to add more safeguards to the money and avoid it passing through the estate. Avoiding the estate means no probate fee and the beneficiaries get the money right away.

• Can Greg, 61, with adopted younger kids, afford to retire on $4.2 million
• Peter, who may be about to be laid off, wants to take the opportunity to retire at 49. Is his plan ‘pie in the sky?’

Your dad will know that once the money is in the trust he is the only beneficiary until he dies. In some ways this reduces pressure on you, Peter, if you have siblings that need or want the money. It is in a trust and they can’t get at it.

If you are in a high-probate province such as British Columbia, Ontario or Nova Scotia, you will save probate fees, which on $500,000 range from about $6,500 to $7,800.

Have you balanced out those benefits with the costs of setting up the trust? There are legal fees to set it up and then ongoing annual tax returns, which is more work for you.

Peter, it sounds like you want the best for your dad and you have a very good handle on things. I wish your dad well.

Allan Norman, M.Sc., CFP, CIM, provides fee-only certified financial planning services and insurance products through Atlantis Financial Inc. and provides investment advisory services through Aligned Capital Partners Inc., which is regulated by the Canadian Investment Regulatory Organization. He can be reached at alnorman@atlantisfinancial.ca.

Tell a 60-year-old Canadian with a $4,200 per month defined benefit pension that they are sitting on an asset worth close to $1 million, and they might shrug it off as an abstraction.

Offer that same person that lump sum up front, and it’s a different story, says Jeremy Phillips, president and chief executive of Regina-based Plannera Pension and Benefits, which administers Saskatchewan’s Public Employees Pension Plan, the largest defined contribution (DC) plan in Canada.

“I heard someone say one time when they were offering their plan members (the opportunity) to take the cash balance … 90 per cent chose the money and would rather manage it for themselves,” he said of the popularity of commuting, or taking a pension’s value up front.

Defined-benefit (DB) plans have become revered as gold-plated pension perks, something reserved for the likes of public servants and a shrinking number of lucky private sector workers. But as stock market returns have soared in recent years, DC pensions have been staging a comeback .

Phillips said that when you start out with no money a defined benefit plan looks great for its security and predictability. But once balances start to grow, he finds that his members love defined-contribution plans and would be loathe to change.

Frothy stock markets will do that. The S&P/TSX composite index rose 28 per cent last year and is up almost nine per cent year to date. The performance of major public pension plans, which pursue more conservative asset mixes, is nowhere near these gains.

While most DB plans today are in the public sector, Phillips said it’s an interesting question as to whether the rest of the country, with employer matches, might prefer a DC plan.

Ana Nunes, an actuary and investment professional, said a rule of thumb is that a pension taken at 60 can be worth 18 to 20 times the monthly amount you will get for life, so for $50,000, those payments indexed or partially indexed to inflation could be worth $1 million today.

“The DB plans tend to favour people who stay in their jobs for a long time,” Nunes said, adding that people like them because “you really don’t have to lift a finger.”

Phillips noted that DC plans are evolving, and can offer structures that recreate aspects of that security, such as through Variable Payment Life Annuities (VPLAs), which create at DB-like structure within a DC plan and can ensure retirees don’t outlive their savings.

“We will give you a pension for the rest of your life and guarantee you don’t run out of money,” said Phillips.

Bernadette Chik, the leader of the defined contribution advisory business at Mercer Canada, a business of Marsh & McLennan Cos. Inc., said a top concern for employees remains covering monthly expenses.

“The construction of investments has changed, and they are increasingly including alternatives in their asset mix,” said Chik, about defined benefits, adding that exposure to investments such asprivate markets is allowing participants to retire earlier by achieving higher returns.

She said VPLAs are just starting to emerge, with Quebec finalizing legislation allowing them. Ontario is looking at the same thing.

“Basically, they allow for longevity pooling within a DC plan and to convert a portion of savings into a stable income,” she said, adding that the key difference is that the outcome is still not a promised benefit like a defined benefit.

Nunes, a fellow and director of the Canadian Institute of Actuaries, said the while the predictability of DB plans drives demand, the features matter, with a key issue being whether payments are indexed to inflation.

“A good time to be in a defined benefit plan was when interest rates were low, and markets were not performing well. Think about the tech bust in 2000 or 2001,” said Nunes, noting those people managing their own money lost a massive chunk of their retirement overnight. “Historically, when there is a big correction, things recover. But if you were at a point in time where you wanted to retire, your plans got kiboshed. You have to withstand some ups and downs.”

In the 1990s, she noted employees “put up their hands” for defined contribution because they didn’t want to be in defined benefits plans where the employer kept the money if the plan was overfunded.

Typically, defined contribution plans offer less generous employer matches. Nunes said in a government-operated defined benefit plan, the employer might be putting in something equal to eight per cent or nine per cent of pay to match the employee contributions. Defined contributions are more typical at five per cent match, said Nunes.

“The value of your defined benefit could be worth more than your house,” said Nunes, adding a caveat of those plans is how much can be transferred to a spouse if you die early. “Other people argue I would rather have my (retirement account) where I can see $1 million and leave it to my spouse or children.”

Kevin Cork, a Calgary-based certified financial planner with Investia Financial Services Inc., said he recommends a defined contribution plan for those under 30 because a defined benefit is conservative in its investing strategy.

“This is provided they are investing properly,” said Cork, who will sometimes deal with people in their 60s who have done nothing with their DC accounts for decades and end up with little appreciation. “They will have it sitting in a savings account option for 20 years.”

Even with better employer contributions, Cork said he believes defined contribution can create more money if people are properly invested, but that means having the stomach for the market, which can be a roller coaster at times.

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“Human nature is the stumbling block. If they don’t have someone holding their hand, they will bail the next time the markets go down,” said Cork. A panic sale during the COVID-19 panic looks pretty ugly, with the S&P/TSX composite index almost three times its low from 2020.

“We haven’t had a multi-year bear market for a long time,” said Cork, noting it’s easier to talk people into investing when markets are up. “I like to tell people about (events like) 1987. But for something like a global financial crisis, they have to know they can survive that test. Historically, stocks make the most money, but you have to handle the volatility.”

Cork said the shift from corporate responsibility in a DB plan to greater individual responsibility in a defined contribution plan is unlikely to go away. “They’ll give a seminar on how to invest it, but in the end, it’s your choice,” he said.

Sure, it looks cushy to have a better-funded, likely government-backed, defined-benefit plan. Not everyone will embrace defined contribution, but it’s an opportunity to create your own wealth.

• Email: gmarr@postmedia.com

Recently, I learned that a grandmother had sold her home and put $1 million into a joint account with her three adult children. When one of her children unexpectedly predeceased her, that child’s own adult children were effectively cut out of their expected share of the inheritance from the joint account. Because the account was structured as a joint tenancy with rights of survivorship rather than as tenants in common, the deceased child’s legal interest passed automatically to the surviving joint owners instead of flowing through the estate . The adult grandchildren no longer speak to the aunt and uncle they were once extremely close to.

It is easy to understand how families end up in arrangements like this. A parent might want to avoid probate fees and the delay that can come with settling an estate. Or it might be about convenience, making day-to-day banking or administration easier as they get older. But what looks like a practical shortcut can carry unintended consequences that are easy to overlook.

In the case of the grandmother and her three children, the outcome ultimately depended on both the structure of the account and evidence of her intentions.

This is just one example of how joint ownership, often intended as a simple estate-planning shortcut , can create serious tax, legal, and family consequences if not structured properly.

The risks of joint ownership

First, and often most consequentially, is that once a child becomes a true joint owner, they may also have a say in future decisions involving the asset. If the parent later wants to sell, refinance or renew a mortgage, the child may need to be involved in that decision. What appears to offer convenience can lead to a loss of control, particularly if disagreements arise or family circumstances change over time.

Another often overlooked risk is how the child’s personal circumstances can affect the asset. If the child faces marital breakdown, creditor claims or legal proceedings, their ownership interest or even the perception of ownership can complicate matters and potentially expose the asset to claims or litigation.

The extent of that exposure will often depend on the true beneficial ownership arrangement and the applicable provincial family and creditor laws. In a divorce, jointly owned property can affect how net family property is valued and how assets are divided, depending on the applicable provincial rules and any prenuptial agreements in place. Because these rules vary by jurisdiction, families should seek professional advice on how joint ownership and family law apply to their situation.

Tax consequences can also follow . Some parents assume that adding a child to the title of their principal residence will have no tax impact. However, if the child has a true beneficial ownership interest and does not ordinarily inhabit the property, part of the future gain attributable to the child’s interest may not qualify for the principal residence exemption. In addition, while joint ownership may avoid probate in some cases, it does not necessarily avoid the deemed disposition and potential income tax consequences that can arise on death.

But the fallout is not always legal or financial. In many cases, the greatest damage is emotional.

Avoiding family conflict

In families with multiple children, naming one child as a joint owner can quickly become a source of resentment, especially if the reasoning was never clearly documented or explained.

This often happens when one child has taken on more of the caregiving responsibilities for a parent and the parent wants to recognize that contribution. While that intention may be understandable, if it is not clearly communicated, siblings, spouses and other relatives may see the arrangement as unfair.

Once families begin arguing over whether an asset was truly intended as a gift or should be part of the estate, legal costs can quickly dwarf the probate fees the parent was trying to avoid in the first place.

In fact, Canadian estate lawyers often point to joint accounts between parents and adult children as a common source of estate litigation. Courts have repeatedly been asked to determine whether a parent intended a joint account to be a true gift to the surviving child or whether the funds were meant to remain part of the estate. Following the Supreme Court of Canada’s decision in Pecore v. Pecore, transfers to independent adult children are generally presumed to be held in trust for the estate unless there is evidence showing the parent intended a gift.

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Alternatives to joint ownership

Before adding a child as a joint owner, families should first ask what problem they are trying to solve. If the concern is day-to-day banking or planning for incapacity, a power of attorney over a bank account may be more effective. If the goal is to help manage an investment account, giving trading authority can provide the necessary access without changing ownership.

Simple steps such as updating wills and reviewing beneficiary designations are often overlooked as life gets busy and family circumstances change.

Saving on probate fees and simplifying estate administration through joint ownership may sound appealing, but those benefits are only part of the equation. Before making an adult child a joint owner, parents should understand the tax, legal and estate implications and consider whether a different approach would better achieve the intended result. The desire to simplify an estate today should not come at the cost of creating confusion, conflict or unintended tax consequences tomorrow.

Ida Khajadourian is a senior portfolio manager and senior investment adviser at Richardson Wealth.

If you filed your 2025 tax return late, or you have yet to file, you could face a late-filing penalty of five per cent of any balance owing, plus one per cent of the balance owing for each month your return is late, to a maximum of 12 months. (Self-employed taxpayers and their spouse or partner still have until June 15 to file on time for 2025.)

If it’s not the first time you’ve filed late, and you’ve been assessed a late-filing penalty in any of the prior three years, the penalties can double to 10 per cent of the unpaid amount, plus a two per cent penalty for each late month, to a maximum of 20 months.

When you add to this the non-deductible arrears interest, compounded daily, charged at the current prescribed interest rate of seven per cent, the penalties and interest charges can really add up.

Should you be hit with penalties and interest this tax season, you can ask the Canada Revenue Agency to waive or cancel them under the taxpayer relief provisions . Should the CRA refuse your request for relief, you can have the CRA’s decision reviewed by a Federal Court judge to determine whether the CRA officer’s decision was “reasonable.” That’s ultimately what happened in a recent case that was heard in court last month, involving two late-filed personal tax returns.

The taxpayer, who works in the Canadian film and television industry as a specialized technician, appeared in a Halifax courtroom last month seeking relief from late-filing penalties and arrears interest for his tax debt arising from the 2020 and 2021 taxation years.

In his request for relief, the taxpayer testified that he suffered “financial, familial and medical issues” during the COVID-19 pandemic that affected his ability to meet his tax filing and payment obligations. These issues included an inability to reach his long-time accountant, despite numerous calls that went unanswered, after the taxpayer and his spouse relocated from Western Canada with an infant and into a home that needed significant repairs. While the taxpayer eventually found a new accountant in Nova Scotia, it took that new accountant time to get up to speed on the taxpayer’s financial situation. In addition, the taxpayer’s health situation meant he suffered from periodic debilitating pain. To make matters worse, the film and television industry experienced significant declines in activity during the pandemic, and again in 2023.

The initial CRA officer who reviewed his submission expressed sympathy for his situation, but nonetheless denied his request for relief. The taxpayer then requested a second review by a different CRA officer, which also resulted in a denial of his request for relief. The second CRA review officer determined that the taxpayer’s household income and tax-free savings account (TFSA) were sufficient to pay his tax balance owing without a prolonged inability to afford basic necessities of life. The CRA officer noted that the taxpayer continued to make annual contributions to his TFSA while the interest on his tax debt was accruing. The officer was also unable to find a connection between the taxpayer’s non-compliance and the circumstances he presented in his relief request.

The taxpayer thus turned to federal court seeking a judicial review of the CRA’s second review decision. He challenged the reasonableness of the decision, arguing that the CRA failed to consider his evidence in its totality, relied on irrelevant considerations, and failed to apply its own policy .

At trial, the taxpayer submitted that the CRA officer “did not engage meaningfully with key facts he presented,” which included his medical documentation, the breakdown in his relationship with his accountant, his cross-country move in 2019, pandemic disruptions and the cumulative strain of these factors. He felt that, in his view, the CRA “assessed his circumstances too narrowly and individually rather than considering their cumulative and prolonged impact over time.” According to the taxpayer , this lack of engagement demonstrated “a failure in justification.”

The CRA countered that, under the Income Tax Act, the agency has broad discretion to accept or reject a taxpayer’s request for a waiver or cancellation of penalties and interest otherwise payable to the CRA.

The taxpayer essentially disagreed with the CRA officer’s decision, and was essentially asking the court to reweigh the evidence and come to a different conclusion. But this is not the court’s role on a judicial review. Rather, the federal court’s role is to consider whether, based on the arguments and evidence presented to the CRA officer, the reasons given and conclusion drawn were “intelligible, transparent and justified when read holistically.”

As the judge wrote, “The fact that a different decision-maker might have made different inferences or drawn different conclusions from the facts, in itself, does not make a decision unreasonable. The Court generally will intervene only where it is satisfied that the evidence overwhelmingly is against the decision-maker’s findings.”

The taxpayer then argued that the CRA’s decision was unfair because his company did not receive any grants from the government during the pandemic and that, because of this, he had to drain his company’s bank account to pay his taxes owed for the tax years 2020 and 2021. As he put it, “A fair approach would have prevented this endangerment of the survival of his company.” The judge dismissed this argument, finding it irrelevant.

The taxpayer also tried to argue that his income, TFSAs, and registered retirement savings plan (RRSP) were “irrelevant considerations.” The judge disagreed, referring to the CRA’s own Information Circular on the Taxpayer Relief Provisions , which explicitly mentions that the “CRA will review in detail a taxpayer’s financial situation to determine their ability to pay amounts owing and the interest charges that will continue to accrue. A financial review considers such things as: income and expenses; assets and liabilities; ability to borrow funds and sell assets; actions and efforts to pay amounts owing.”

In the end, the judge was simply not persuaded that the evidence the taxpayer submitted in support of his requests for relief were sufficient to call into question the reasonableness of the CRA’s decision, and thus the judge dismissed the taxpayer’s application for review.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com .

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Younger Canadians in search of low-cost and low-pressure avenues for financial advice are turning to artificial intelligence tools in higher numbers than other demographics, according to a recent survey.

Nearly half (47 per cent) of young Canadians aged 18-34 said they sought online advice over the past year, according to a report released this week by Money Mentors, an Alberta-based non-profit credit counselling agency, in partnership with Angus Reid.

Among generation Z, 37 per cent said they used social media, including TikTok, Instagram, YouTube or Reddit, and 22 per cent said they used AI tools , such as ChatGPT, Claude and Gemini — the highest use of these sources across all generations for financial guidance.

Overall, about one in three Canadians sought financial information online over the past year, with 15 per cent turning to AI tools and 16 per cent using social media, according to the survey.

“(Canadians) prefer to educate themselves first,” said Stacy Yanchuk Oleksy, chief executive officer of Money Mentors. “Online is more accessible, and … it’s relatable, especially if it’s social media.”

Nearly three-quarters of younger Canadians who use online sources for financial information said these resources can be accessed quickly, while 46 per cent said they feel relatable, personal or easy to understand.

About 39 per cent of younger respondents said they prefer educating themselves before speaking with a professional, 30 per cent value being able to access information anonymously and 27 per cent say they can get advice online without feeling judged.

“When it comes to money, there’s a deep amount of shame associated with it, especially debt and credit issues,” Yanchuk Oleksy said. “You don’t get judged by ChatGPT, whereas perhaps you might feel judged by your banker.”

Yanchuk Oleksy said there is more social acceptance among younger Canadians when it comes to tapping into technology as a financial resource , especially when they are unsure whether their situations warrant seeking or paying for professional advice. “I think they’re turning to those sources because they’re low-barrier entry — they’re low cost or no cost.”

In fact, about 28 per cent of younger respondents in the report said they don’t feel their situation is serious enough to warrant professional advice, and 20 per cent said the cost of professional advice is deterring them from seeking it.

The top three financial decisions that younger Canadians cited using online information for included savings decisions (42 per cent), budgeting and day-to-day money management (42 per cent) and investment choices (41 per cent).

But Yanchuk Oleksy and regulator groups have concerns about the use of AI tools for financial advice.

“It’s unregulated and uncontrolled,” Yanchuk Oleksy said. “Financial advice needs to be tailored to an individual.”

The Ontario Securities Commission (OSC) and other regulators across the world are actively studying AI as it is increasingly being used for financial information and advice, especially amid a rise in do-it-yourself investing, said Theresa Ebden, vice-president, investor office at the OSC.

The OSC warned there are several risks when it comes to using AI tools for financial guidance, such as biases (for example, toward a particular company’s products) and the potential for poor data quality.

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There are also concerns with bad actors using these tools to commit scams. The Canadian Investment Regulatory Organization cautions on its website about sharing personal information online and noted AI can help enable personalized fraud attacks and account takeovers.

And the OSC said the “black box” nature of AI systems and limitations around data privacy and transparency means there is less accountability in situations where AI recommendations lead to adverse outcomes for investors.

“Treat AI as a starting point for investing decisions, not a final decision maker,” the OSC advised, adding that Canadians can verify AI recommendations with trusted or regulated sources.

• Email: slouis@postmedia.com