The cost of a good education may be delayed retirement for Ontario woman

are likely to rise. The better move is to cut debt, Moran explains.

Alice can have more retirement income if she prunes her investment portfolio. She has 27 mutual funds and exchange traded funds for a $32,000 portfolio. Her management expense ratio is about 2.13 per cent, which works out to $682 per year. At present, Alice does not have sufficient familiarity with financial management and investments to take over her own portfolio. She would need guidance and for that she would need to pay professional fees or do a great deal of study. A plan to cut fees is a goal rather than an immediate move she can make. If she were to raise returns by even half the amount she now pays for fund management, her added returns could help pay for things not in the present budget such a few more holidays in retirement.

Alice has an indexed defined benefit job pension that will pay her $15,540 per year at 65. She can add Canada Pension Plan benefits of $12,456 per year and Old Age Security of $7,040 per year. If Alice adds $500 from her TFSA to her $32,500 RRSP and $500 every month thereafter, then with 6 per cent annual growth less 3 per cent for inflation, net 3 per cent per year, it will become $87,950 by her age 65. If that money is spent for the next 30 years to her age 95, then with growth continuing at 3 per cent after inflation, it would generate about $4,500 per year. Add $12,000 annual net rent from her apartment in her home and her total pre-tax income would be $51,536 per year. After 10 per cent average income tax based on age and pension income credits, she would have about $3,870 per month to spend. That is a little more than $5,400 current income with $1,600 of non-mortgage debt paid off and RRSP and TFSA savings eliminated, Moran says. Her way of life could be maintained.

“This is a workable plan that relies on debt management and, of course, sticking out the job to age 65,” Moran explains. “Alice would have the freedom she craves. If she does get a major raise, then earlier retirement as early as 60 would be possible, assuming she pays off the mortgage and raises her savings rate.” of dividends and current and deferred capital gains, which would further complicate our math.

The new rule means that, starting in 2019, Jeff ’s corporation would only be entitled to the SBD rate on $250,000 of his professional income ($500,000 – ($100,000 – $50,000) X 5).

Does that mean he actually pays more tax? Yes, but only slightly more on a fully integrated basis (i.e. once the funds are distributed corporately as a dividend to Jeff ’s hands).

Jay Goodis of Tax Templates Inc. has crunched the numbers and concluded that for an Ontario CCPC with an Ontario-resident shareholder taxed at the highest marginal personal tax rates, the integrated tax cost of being subject to the general ABI rate instead of the SBD rate is only an additional 1.51 per cent.

The main purpose of this new rule is to reduce Jeff ’s future corporate tax deferral from 40 per cent down to 27 per cent on the $250,000 of 2019 income no longer subject to the SBD rate.

As Mr. Goodis says, “It’s a huge relief for many that the Federal Government rethought its approach towards passive income. It’s a better tax policy to limit access to the SBD rate to reduce the tax deferral rather than manipulate investment decisions.”