My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with BDO. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, December 17, 2018

Year-End Financial Clean-up

This is my last post for 2018 and I wish you and your family a Merry Christmas and/or Happy Holidays and a Happy New Year.

In prior years, my last post of the year would often be on undertaking a "financial clean-up" over the holiday season. I thought I would revisit this topic again this year, with some comparative assistance to review your portfolio's 2018 performance.

So, what is a financial cleanup? In the Blunt Bean Counter’s household, it entails the following in between eating and the 2019 IHF World Junior Championship.

Yearly Spending Summary


I use Quicken to reconcile my bank and track my spending during the year. If I am not too hazy on New Year’s Day, I print out a summary of my spending by category for the year. This exercise usually provides some eye opening and sometimes depressing data, and often is the catalyst for me to dip back into the spiked eggnog :)

But seriously, the information is invaluable. It provides the basis for yearly budgeting, income tax information (see below), and amongst other uses, provides a starting point for determining your cash requirements in retirement.

Portfolio Review


The holidays or early in the New Year is a great time to review your investment portfolio, annual rates of return (also 3,5 and 10 year returns if you have the information) asset allocation, and to re-balance to your desired allocation and risk tolerance. The $64,000 question is how your portfolio or advisor/investment manager did in comparison to appropriate benchmarks such as the S&P 500, TSX Composite, an International index and a Bond Index. This exercise is not necessarily easy (although some advisors and most investment managers provide benchmarks, they measure their returns against). I hope to write something in more detail on this topic next year.

PWL Capital on their resource page has market statistics and model portfolio's that you can use as guidelines or to create your own benchmarks which I find useful.

Rob Carrick of The Globe and Mail in an article (it is behind a firewall) last year, pointed me to this Suggestus site which offers a no cost comparison against thousands of portfolios'. This is a good test check, but since no two portfolios are exactly alike, you need to understand the limitations of this site as an exact bench-marker.

Tax Items


As noted above, I use my yearly Quicken report for tax purposes. I print out the details of donations and medical receipts (acts as checklist of the receipts I should have or will receive) and summaries of expenses that may be deductible for tax purposes such as auto expenses. If you use your home office for business or employment purposes (remember you need a T2200 from your employer), you should print out a summary of your home related expenses.

Where you claim auto expenses, you should get in the habit of checking your odometer reading on the first day of January each year. This allows you to quantify how many kilometres you drive in any given year, which is often helpful in determining the percentage of employment or business use of your car (since, if you are like most people, you probably do not keep the detailed daily mileage log the CRA requires).

Medical/Dental Insurance Claims


As I have a health insurance plan at work, I also start to assemble the receipts for my final insurance claim for the calendar year. I find if I don’t deal with this early in the year, I tend to get busy and forget about it.

To facilitate the claim, I ask certain health providers to issue yearly payment summaries. This ensures I have not missed any receipts and assists in claiming my medical expenses on my income tax return. You can do this for physiotherapy, massage, chiropractors, orthodontists, and even some drug stores provide yearly prescription summaries.

Year-end financial clean-ups are not much fun and somewhat time consuming. But they ensure you get all the money owing back to you from your insurer and ensure you pay the least amount of taxes to the CRA. In addition, a critical review of your portfolio and/or investment advisor could be the most important thing you do financially in 2019.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

4 comments:

  1. Hi sorry if this is the wrong post to ask this under.

    I am being offered the possibility of purchasing my grandmother's home at a reduced rate of 60k. The home was originally purchased at 25K 10+ years ago but significant upgrades (livability (not cosmetic) were applied. It now appraises at 120K.

    This is not my grandmother's primary residence but it will be my primary residence.

    My questions are as follows

    1) Who is eligible for capital gains to be added to their tax return (grandma's income is much lower than mine so there will be significant difference in costs)

    2) How does CRA deal with costs above the purchase price for upgrades ?

    3) Is there anyway to reduce tax burden by going through a different process? I saw something about gifting vs inheritance but wasn't sure if this changes anything really.

    ReplyDelete
  2. Hi Anon

    I do not provide specific personal tax advice on the blog, but note the following considerations:

    1. Your grandmother would report the gain. The proceeds would be at the fair value not the cost of purchase
    2. If you purchase for $60k, your cost base will be $60k not $120k
    3. Certain costs may increase the cost base of your grandmothers home depending upon type.

    You need to speak to your accountant or engage one for an hour consultation to review the consequences of this potential purchase to you and your grandmother.

    ReplyDelete
  3. Best wishes for a Happy New Year and thanks for a year of interesting blog reading

    ReplyDelete