Category Archives for "Budget"

Will Wage Subsidies Help Retail Businesses?

By Randall Orser | Budget , Covid-19 , Employees , Retail , Small Business

Though the lockdown of last Spring was the right thing to do to keep people safe and flatten the curve, but it did a huge amount of damage to the economy.  Canadian retailers saw a 26% fall in sales during quarantine and 40% of retailers had to close their doors.  

Stores offering non-essential products and services such as clothing stores were the hardest hit, along with gas stations as people were no longer travelling.  However those selling essential goods found themselves thriving and even experiencing surging sales such as in groceries, home renovations, alcohol and cannabis.

Canadian retailers have been slow to transition to on-line sales but the pandemic has forced them to adopt e-commerce techologies to try and keep themselves in business and as a result e-commerce sales have more than doubled year over year.  Although it means that Canadian retailers face competition from others worldwide it also gives them the opportunity to expand their market share at home, especially if they sell niche products.  

In 2021 it is likely that retail business will still suffer a bumpy ride.  As we are seeing now there will probably be sporadic shut downs due to minor outbreaks but these are likely to be more regional.  During this time retailers can expect sales to fall and they will have to deal with high labour costs and the costs of having to comply with health regulations but it is hoped that on-line sales will be a stop-gap solution to keep them in business.

The federal government is continuing to support businesses by extending the Canada Emergency Wage Subsidy program into 2021, coving 75% of employees wages for those that are eligible.  This will help retailers to avoid bankruptcy and will give employees more disposable income to spend.  

Even with these new ways of doing business and federal help it is unlikely that many in the retail sector will survive another major lockdown.  However localized shutdowns will allow the majority of retailers to stay open and keep some revenue coming in until a vaccine arrives.

From an article by Ali Amad

Need Money? Should you Withdraw from your RRSP?

By Randall Orser | Budget , Personal Finances , Personal Income Tax , Retirement

Most of us do not think about withdrawing from our RRSP until we retire, but in some instances it might make sense to cash in a portion of your savings early to help finance your studies, buy a home or help you get through financial difficulties during the present pandemic.  Here are some examples of times you might want to access your RRSP funds.

  • If you want to become a homeowner but you are finding it difficult to save up enough for a down payment, through the Home Buyers' Plan (HBP) you may be able to get the financial boost that you need.  Under this plan you can withdraw up to $35,000 from your RRSP to buy or build a home provided that you are a first time buyer (defined as not having owned a home in the four year period preceding a home purchase).  The amount that you take out is repayable over 15 years.  Repayments are made as a RRSP contribution designated as a repayment on your tax return.  If you don't make a repayment the amount required will be included as income on your tax return.  Contributions must be in the RRSP for 90 days before they can be withdrawn under the HBP.
  • If you want to further your education by learning new skills or training for a new career you can enrol in the Lifelong Learning Plan (LLP) that allows you to withdraw funds from your RRSP to fund your tuition and help with other costs.  The plan allows you to withdraw up to $10,000 in a calendar year up to a total of $20,000.  The funds have to be repaid over a period of ten years avoid it being included as income.  
  • If you have income volatility an early withdrawal might make sense. Only the HBP and the LLP allow you to withdraw funds from your RRSP tax free if you have no other income in the withdrawal year your tax rate may be low.  Alternatively you could move the money from to a TFSA without paying much tax.  In both your RRSP and TFSA you need to make sure when you are making withdrawals and paying back that you do not go over your contribution limit in a year.    
  • If you expect to have a clawback on your OAS and you decide to retire at 60.  In that instance your income will probably drop until you reach age 65 when you will start to receive your company pension, CPP, OAS and money from your RRSP.  As your total income at age 65 may exceed the OAS clawback limit ($79,054 in 2020) your OAS will be subject to a clawback and 15% tax.  It would make sense to withdraw money from your RRSP over these five years probably saving you a lot of tax.  If you don't need the money it might make sense to use your RRSP for income until you reach age 70 as each year you defer claiming your government benefits means that they will increase.

However you decide to use your RRSP you need to do it with caution bearing in mind that the intent of a RRSP is to contribute regularly to a fund and let the money grow over the years until you retire.  Don't forget that any withdrawals are taxable.

From an article by Margaret Craig-Bourdin

Think Carefully Before Lending Money to Relatives or Friends

By Randall Orser | Budget , Personal Finances , Retirement

In this time of Covid-19 it is important to consider all the implications of loaning money to friends or relatives. The pandemic has resulted in many Canadians having financial problems due to losing their job and they inevitably turn to friends and relatives to help them out.  Before you make the decision to loan them money you need to consider the following:

  •  It is important to put yourself first, especially now,  you need to ask yourself if you can really afford to lend money.  Everyone wants to help their friends and family but extending a loan should not cause you to be in financial straits.  It would be better for the loved one to consider applying for the various government programs available especially those for small businesses. You need to keep all the cash that you need and be prepared for the worst case scenario in your own circumstances.   You should not sacrifice your retirement plans to help your kids out even though you want to and you need to be realistic about the risk of not getting your money back.
  • Be prepared to never see your money again, the loan that you make may become a gift as even with their best intentions their circumstances may mean that they are unable to pay you back.  You could ask for collateral against the loan, but that depends on how far you are prepared to go to collect and also protect your relationship with that person. A parent who lends money to a child should also consider other family members and and view the loan not as a debt but as an advance on their inheritance.
  • Ask why they need the money, if you are advancing a loan then you should know why the money is needed so ask questions.  If you are loaning someone money to help maintain a lifestyle that they cannot really maybe it would be better to ask questions to understand their circumstances and advise them as to how they can reduce their spending.  You may be able to help in other ways rather than loaning money such as buying groceries.  
  • Set the terms, establish terms for the loan, specify the amount, the date the loan should be repaid or a repayment schedule and whether or not you will be charging interest. To secure the loan you could register an asset such as a debt free vehicle or the borrower could name you as an irrevocable beneficiary in a life insurance policy.  This makes it possible to protect the loan amount up front from other creditors for example in the event of bankruptcy.
  • Think twice about guaranteeing a loan, as this can be risky, you may end up on hook for not only the debt but the accrued interest.  A lender may not feel that they are involved in the loan if they do not provide the funds but in fact they are taking on a new debt obligation if the borrower defaults.  Be aware that your children may have their eyes on your assets and what they may inherit and may use emotional blackmail to get the money they want.  It can be difficult to say no to them if you have loaned them money before.  Even if you do help out especially to keep a business afloat, it may be a short term solution and the business may not improve its financial situation under the current circumstances and closing down may be inevitable.

If you seriously considering extending a loan to a friend or relative, it might be prudent to get some guidance from a professional beforehand.

From an article by Mathieu de Lajartre

Financial Literacy Lessons Should Begin Early in Life

By Randall Orser | Budget , Investments , Personal Finances , Personal Income Tax

For most of us money management was not a subject taught in our schools.  Today it is recognized that financial literacy should start at an early age and should be taught in schools.  The Ontario government recently announced that this would be a subject that would be included in the 2020 curriculum which would be a win-win situation for both children and their parents enabling children to achieve a more stable financial future.  Other provinces across the country are now also making financial literacy a priority in schools. 

According to Doretta Thompson CPA Canada's financial literacy leader, "financial wellness is a continuum from knowledge, to competency to confidence in making sound financial decisions". "Kids who learn the basics of budgeting, saving, credit and wants versus needs are better prepared to make good financial decisions through post secondary education and beyond." In BC a new provincial curriculum was introduced in 2019 after it was shown that a number of students were graduating with a lack of financial skills.

Experts believe that talking about money and financial management goes beyond dollars and cents, it is also about making choices and being aware of the trade-offs those choices require.  The classroom setting gives children the opportunity to ask questions about money such as creating a budget to allow them to save up for a toy.  It is important that teachers are comfortable teaching financial literacy especially if they are struggling in their own financial situation.

Teaching money management in school is a good foundation for kids to learn but it is important that parents engage with their children about what they are learning.  Other strategies for parents including giving kids an allowance and teach kids about spending and saving, involving them in family financial decisions where appropriate for their age and reviewing the kid's first pay stub to make sure that they understand about deductions and taxes.

Although it can be difficult for parents to discuss money with their kids it is a good idea to use every day examples to teach about money in a way that make it relevant to them.  Examples can pop up all the time such as when grocery shopping or getting gas. 

From an article by Ethan Rotberg

Paying Digitally? – Tips to Stay on Top of Your Finances

By Randall Orser | Budget , Personal Finances

I never thought that debit cards would catch on but plastic has now taken over as most people's most used method of payment. During the pandemic many retailers and other businesses no longer accept cash, instead opting for contact-free forms of payment such as e-transfers, payment apps, and debit or credit cards.   This can make it difficult for some people to control their spending and stick to their budget.

Cashless transactions eliminate the need to go to the bank to withdraw cash or carry it around with you which may be a plus. However there are serious downsides to going cashless such as the risk of identity theft and credit card fraud, and it is so easy to spend more when using plastic. Researchers say that paying with a credit or debit card reduces the "pain of payment" so that it doesn't feel the same as paying with cash even though the expense is the same.

Here are some tips to help you to keep your spending in line when using your cards:

  1. Keep track of your transactions as you go using a budgeting app or a spreadsheet.  
  2. Limit your options, don't use multiple credit cards try and keep your methods of payment to your bank account on a debit card and one credit card.  Once you have control of these payment sources you can add more options but keep things simple.
  3. Pay off your credit cards, in 2019 only 56% of Canadians paid off their credit cards in full by the end of the month and the other 44% were paying the high interest from having a balance.  This is not a good situation to be in because it means that you are spending more than you make.  If you do have a credit card balance with high interest think about getting a card with a lower interest rate and no annual fees even if you have to forgo the travel points for now.
  4. Going cashless means we are more likely to impulse buy.  If you are buying on-line pause before you finalize the sale to consider if you really need the item.  Also companies track whether you have completed a transaction or not and if not they may contact you with a better price to encourage you to buy.
  5. When your mortgage comes up for renewal don't just accept your bank's offer.  Shop around to  see if you can get a better deal.  Reducing your interest rate by only 0.5% could mean that you will save thousands of dollars.
  6. Stay away from targeted ads.  Everyone is on-line a lot these days and ads on social media will target you using information from previous purchases.
  7. Check your credit score - this will not always affect your credit score as many banks offer a credit-checking feature using a simple button on their app.  Use it to check for any errors or discrepancies.

From an article by Margaret Craig-Bourdin

Benefits and Impacts of Deferring your Mortgage Payments

By Randall Orser | Budget , Covid-19 , Personal Finances

The impacts of Covid-19 have been felt by everyone in Canada, and many are struggling financially due to loss of work or decreased hours.  For those needing help there are financial relief programs that can offer much needed breathing room.

The ability to defer a mortgage payment is an option that has been offered by most lenders. It enables people to free up cash for the short term by deferring a significant financial obligation but it is not the right decision for everyone.   Here are some of the pros and cons of deferring your mortgage payments:

1. Being able to defer your mortgage payments can provide much needed peace of mind in these difficult times.  It will improve your monthly cash flow which will cover your urgent life expenses if you are experiencing a reduction of income .

2.  Don't just miss a payment as this comes with negative consequences such as your mortgage becoming delinquent causing a negative impact to your credit rating and risking potential foreclosure.  It is important to seek advice sooner rather than later to explore your options and make informed decisions.  Work with your mortgage lender to set up the deferral if you decide that this the best action for you to take.

3. When making the decision to defer your mortgage payments it is important to understand that the unpaid interest accrued during the skipping period will be added to the outstanding principal on your mortgage, which means that you will owe more on your mortgage in the long run than if you did not defer any payments.  Reducing your monthly payments will also lead to a longer repayment period and payment of more interest over time.

4. There are other ways to free up funds if you don't think that deferring mortgage payments is a good idea for you:

  • Refinancing your Mortgage - if you have equity built up in your property you may be able to access it to pay out other debts or create some cash flow.
  • Increasing your Mortgage Amortization - this will help you to lower your monthly payments but you will be spreading out your payments over a longer period of time.
  • Adjusting your Monthly Budget - staying at home will probably have decreased your monthly spending so it is a good idea to identify where you are saving money and make sure you allocate it to necessities rather than things that you don't need.
  • Look at other deferral options - you may be able to defer your property taxes, utility payments and payments on credit cards and loans these might be better options than deferring mortgage payments.

Deferring your mortgage payments can help your immediate financial situation but you need to carefully consider the potential future financial impacts.  You should speak with your financial advisor to determine if this is the best thing for you to do or if there are better options for you to free up cash to tide you over.

From an article by Diane Amato

Tips for Pivoting your Business During Covid-19

By Randall Orser | Budget , Business , Covid-19 , Employees

In the past few months we have seen companies take amazing leaps to change the way they do business and manufacturing businesses retool to make new products to meet changed market demands.  From distilleries and hair product manufacturers making hand sanitizer, to clothing manufacturers making surgical gowns, other industries making ventilators and fine dining restaurants turning to take-out and delivery.

It used to take companies a long time to develop strategies to change manufacturing plans but during the pandemic it has been necessary for businesses to make new plans at lightening speed in order to stay in business and keep their workers employed.

However many companies are struggling to meet this new reality and need help to reinvent themselves.  Lior Zehtser from Connect CPA says that "To pivot, you really need to think outside the box and be comfortable with taking a risk and experimenting with a different or unique business model.  Your idea obviously has to take the friction away from close contact, so that anything delivery based or "contactless" would be a great start.

Here are some ideas that might help you to make some decisions:

1. Solving Delivery Dilemmas - the need for delivery especially in the food services sector is insatiable. An outside of the box way of shopping and delivering unique goods to customers is a good idea for a new business. It can be expanded from food to all kinds of products that people would like to have but are not shopping for if they are only going out for necessities.   

2. Going Back to Basics - instead of producing your whole range of products concentrate on the ones that are most popular to make best use of your resources.  Companies are listening to what consumers want the most and are limiting their production to those high demand products instead of producing their whole range of products.

3.  Provide Entertainment -  as families are spending more time together at home offering them a diversion to relieve the boredom is a great idea.  Specialty bookstores and game stores are offering delivery services which are successfully increasing their bottom line.

4. Add to your Product Mix - for example if you are a company that usually delivers drinks or snacks to offices pivot to making home deliveries and add other basics such as milk, eggs and bread and fruit and vegetables.  Many restaurants are doing this by adding many of their sauces and desserts etc to their menus so that people can cook at home with gourmet foods as well as having meals delivered.

5. Make a Product to Help to Fill Health Needs - many distilleries are making hand sanitizers and hand wipes and offering them for free or at a discount to essential service providers.  This is a way to give back to the community and builds brand loyalty.   Many clothing manufacturers have pivoted to making face masks and surgical gowns as well as fashion face masks for sale direct to customers.  

6. Take your Business Online - live streaming and video conferencing are the new ways to stay connected and do business.  By doing this you can keep in touch with your customers and suppliers but at the same time have the chance to acquire a completely new audience.  

7.  Join a Group of Other Companies Seeking Solutions - to build contacts and nurture ideas to help to create opportunities for your business and others.

8.  Get Inspired Globally - look online and find inspiration from what others are doing.  Learn how other businesses around the world are adapting and discover new inventions from companies and individuals that are helping in the pandemic.

9.  Support your Community - connect with charities in your area to see how you can help your neighbours.  Offer discounts on the purchase and delivery of your products, everyone loves a deal and it brings in customers which will help your bottom line.

10. Keep yourself up to date with the latest trends - no matter when the crisis ends the way that businesses operate has changed forever.  It is important to stay on top of changing consumer demands and have a flexible plan to allow your business to keep adapting to meet those demands.

From an article by Margaret Craig-Bourdin

What Small Businesses can do to Survive the Pandemic

By Randall Orser | Budget , Covid-19 , Employees , Small Business

Businesses are doing all they can to navigate the unknown and to stay afloat during the pandemic, including laying off staff and reduced hours.  However up to 30% of small businesses are going to be unable to survive according to Jasmin Guenette from the CFIB.  

Here are a few actions that small businesses could take that might help them to deal with their situation.

  1. Check your reserves and insurance - talk with your accountant about your cash flow and reserves and how they can be best used.  Also check your insurance policy to see if there is anything that can be covered for lost income.  Even though many businesses have business interruption insurance, as this is a pandemic it does not count. 
  2. Have honest conversations with your staff about how you are going to try and keep them on the payroll but what might need to be done if your situation worsens.  
  3. Brainstorm with your staff for any ideas about how things could be done differently to save money and layoffs.
  4. Think about allowing your employees to work from home if it is possible in your business. If you can save on rent and utilities for your small office that could help your bottom line.
  5. Think about reducing business hours if possible.  This will give employees extra time to carry out cleaning and sanitizing for the office or if your are open to the public.
  6. If your business is open make sure that you follow all health and safety protocols to ensure a safe environment for your staff and the public.  Make sure all staff are fully trained and know what is expected of them.  
  7. Talk to your suppliers and lenders about stretching your payments and make sure that you take advantage of all the government, provincial and municipal help available to you.
  8. Get help from your accountant and business advisors to decide which government programs are most appropriate for your business.
  9. Continually think and plan ahead to see what you can do to minimize the impact of Covid-19 on your business. 
  10. Consult useful resources geared to small business:

From an article by Margaret Craig-Bourdin                              

How the Pandemic is Affecting Canadian Businesses

By Randall Orser | Budget , Covid-19 , Employees , Small Business

Even though many small businesses have fully or partially reopened the financial effects of the pandemic have been disastrous.  The serious decrease in revenue has meant that many have had to take on debt in order to stay afloat and many are calling for further government financial help.

The Canadian Federation of Independent Business (CFIB) has been tracking small businesses through the pandemic and the most recent survey of more than 4000 businesses found that 40% of them have seen revenues drop by 70% and & 70% have seen revenues drop by at least 30%.  

Even with the easing of restrictions by provinces and municipalities allowing for small businesses to reopen it is going to be a long time until sectors such as hospitality and entertainment will start to show a profit again.  Ted Mallet the vice president and chief economist of the CFIB has said it is more difficult for small businesses to operate now and despite being patronized by people who love unique products and services, many of these businesses will not survive.

The new reopening rules mean that restaurants are only able to have 50% of their normal capacity.  They usually have a profit margin of 3-5% when times are good so despite having curtsied pick up and home delivery it is difficult for many to continue to hang on. 

The CFIB survey found that 34% of respondents were behind on their major bills such as rent, credit card bills and critical suppliers, that number is 47% in the hospitality sector.  More than 25% said that their biggest worry was having to close their business, they are borrowing money to keep going but are building up debt that is going to be difficult to pay down.  In addition they have the costs associated with the changes necessary to operate their business post lockdown.

Though it is doom and gloom for many businesses, due to a change in consumer behaviour there are some business that are thriving, including home-gym products, those selling renovation products on-line, hobby shops and bike shops but these businesses are in the minority.

From an article by Ethan Rotberg CPA Canada

How to Manage your Personal Finances During the Pandemic

By Randall Orser | Budget , Covid-19 , Personal Finances

The Covid-19 pandemic is causing financial stress for most Canadians as they are seeing their income reduced or eliminated and they are wondering how they will be able to pay their bills.

All levels of government have implemented emergency response plans including financial support and many financial institutions have stepped up to help by allowing people to defer payments and avoid penalties.  Here are some ways that you can reduce the financial impact of Covid-19.

The federal government started the $107 billion Covid-19 Emergency Economic Response Plan, with $52 billion direct support for employers and workers and $55 billion in tax deferrals for workers and businesses. Other financial assistance to families include:

  1.  A one-time increase to the GST tax benefit and increases to the Canada Child Benefit.
  2. A six-month interest free moratorium on the repayment of student loans'
  3. A 25% reduction in minimum withdrawals from a RRIF and variable benefit payments under a RRSP to help reduce the impact of volatile markets on senior's retirement savings.
  4. There are additional benefits to Canadians available from their province and municipality and they should visit the relevant websites for more details.
  5. Financial institutions are offering deferrals of mortgages up to six months for some customers as well as loans and relief on credit card payments and interest.

What can Canadians do to help themselves financially during the pandemic?

  • If you need to borrow money make sure that you consider the interest rates and how you will repay the loan, do not dig yourself too far into debt that it will be difficult to get out of once the pandemic is over.
  • If you have to tap into your emergency funds do it strategically, maximize all income sources first, create a more stringent budget and spending plan then consider tapping into your savings if you need to.  Always start with cash funds and TFSA's as you will not have to pay tax on that income and withdraw RRSP's on non-registered tax investments as a last resort.
  • If you are still working making saving money a priority after you have covered your necessary expenses this will help you should your job become affected.
  • Maximize help programs from utility companies that can include lower rates, deferred payments and flexible payment plans to assist residents and companies.  Many cell phone providers have removed data caps on internet and data plans and waived countrywide long distance fees.  They are also offering flexible payment plans.
  • Consider which bills you can eliminate such as subscriptions to digital services or retailers, and monthly donations.

It is important to continually assess your financial situation and if you can make changes that will help you to be more prepared for the future.

From an article by Sophie Nichols Jones 

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