Managing Healthcare Expenses in Retirement: The Myth
We Canadians tend to wrap ourselves with our secure universal healthcare program without paying any mind to the fact that some things are not covered (and coverage varies from province to province). Most people working don’t worry about managing healthcare expenses in retirement.
Some of the items not covered or only partly covered may include:
Prescription drugs
Eye glasses and contact lenses
Para-medical services like physiotherapy
Dental Care
Dentures
Unfortunately the older we get, the more likely it is we’ll be availing ourselves of these types of services. However, we don’t seem to be saving for these expenses.
Managing Health Care Expenses in Retirement: What should the average Canadian be saving?
According to the Canadian Institute for Health Information costs paid out-of-pocket for healthcare expenses not covered by our provincial plans are on average:
$2,700 for people between the ages of 55 and 80
More than $5,600 a year for those 80+
The time to start managing healthcare expenses in retirement is now. By 2063 it’s estimated that 20% of Canadians will be 65 and older. And the cost of healthcare is only going to rise making managing healthcare expenses in retirement more challenging.
If you’re living paycheque to paycheque or are a senior on a fixed income, how will you come up with the money to pay for prescription drugs or para-medical expenses? Sadly there are those who are denying themselves their medical necessities because the money is just not there. Or, they’re accumulating debt month over month to try to keep up with expenses. Neither one of these options is a good solution.
Managing healthcare expenses in retirement: What Can You Do If You Have Too Much Debt?
If you’re teetering on the brink of insolvency, Ira Smith Trustee & Receiver Inc. is here to throw you a life jacket. There is no reason to drown in debt when help is at hand. Give us a call today and meet with us for a free, no obligation consultation. We’ll evaluate your situation and come up with a solid plan so that Starting Over, Starting Now you can be on your way to debt free living.
Are bankruptcy fees tax deductible: If you would like a free copy of our eBook: “Cost of Claiming Bankruptcy in Canada” – please CLICK HERE
Are bankruptcy fees tax deductible: Introduction
We are often asked the question “are bankruptcy fees tax deductible?”. This vlog attempts to answer that question for the various types of Canadian insolvency proceedings.
I caution that we are not income tax advisors; I am a licensed insolvency trustee. This vlog does not attempt to and does not replace expert income tax advice. If you have a specific situation, you should get advice from your professional income tax advisor.
Are bankruptcy fees tax deductible: What does Canada Revenue Agency say?
Costs incurred in a bankruptcy filing can be categorized as either: (i) incurred for the purpose of gaining or producing income from a business or property or; (ii) incurred for capital or non-income earning reasons. Another way of saying it is a taxpayer cannot deduct personal expenses but can deduct those categorized as business expenses. So are bankruptcy fees tax deductible? It depends on who you are.
Are bankruptcy fees tax deductible: Personal bankruptcy and (consumer) proposal restructuring
If you are the individual person who has too much debt and either restructures under one of the proposal provisions to avoid bankruptcy, or goes bankrupt, then your real obligation is not to pay professional fees. Rather, you are making payments to the licensed insolvency trustee in a restructuring to settle all of your debts or you have given up your non-exempt assets and may also be paying part of your monthly income as surplus income to your licensed insolvency trustee.
Under either scenario, the licensed insolvency trustee obtains their fee under the Bankruptcy and Insolvency Act (BIA). You as the individual debtor are not paying bankruptcy expenses to earn income. Therefore you are not entitled to any tax deduction for the amounts and property given to the licensed insolvency trustee.
Corporations attempt to restructure under either the proposal provisions of the BIA or the restructuring provisions of the Companies’ Creditors Arrangement Act (CCAA) for the purpose of avoiding bankruptcy and the end of its business. The purpose of the restructuring attempt is to stay an active corporation, preserving jobs, continuing to earn income and pay income tax. In this case, professional fees paid to legal and financial advisors would be tax deductible for the company restructuring.
As this vlog is only to answer the questions are professional fees tax deductible, I am not addressing the issue of the income tax treatment of the corporate debt forgiven in a successful restructuring. That is where I turn to professional tax advisors for the answer.
Are bankruptcy fees tax deductible: Corporate bankruptcy
In a corporate bankruptcy, the bankruptcy corporation’s assets would be taken over by the licensed insolvency trustee handling the bankruptcy, subject to the interests of the secured creditor(s) and trust claimants, if any. Therefore, there are no fees paid by the bankrupt corporation for the purpose of earning income. Hence, there is no tax deduction for professional fees to be taken on the bankrupt corporation’s final income tax return.
Are bankruptcy fees tax deductible: Receivership and secured creditors
Receivership is a remedy for secured creditors to enforce security. The secured creditor whose loan is in default, when in a place to enforce its security, appoints a receiver to take possession of the assets, formulate a plan to maximize the sale value, sell the assets and remit the proceeds to the appointing secured creditor, up to the amount outstanding under the security. The company in receivership does not incur professional fees, but the secured creditor does; to both legal counsel and to the receiver. Those professional fees incurred in the normal business of the lender are therefore tax deductible.
I will leave the topic of the income tax consequences for a secured creditor who suffers a shortfall when realizing upon assets covered by its security to the professional tax advisors.
are bankruptcy fees tax deductible
Are bankruptcy fees tax deductible: Purchaser of assets
Many times in corporate restructuring, the restructuring plan calls for the sale of assets. In both bankruptcy and receivership, the assets will be sold. The purchaser of assets will in such cases be a corporation. That purchaser corporation will need insolvency and income tax professional advisors in structuring and paying for the asset purchase. Those professional fees are tax deductible to the purchaser.
Are bankruptcy fees tax deductible: Unsecured creditors
In any of the insolvency processes discussed in this vlog, there will certainly be many unsecured creditors. The major unsecured creditors, especially in corporate insolvency proceedings will want to consult with professional advisors as to their rights and remedies when faced with an insolvent debtor.
Sometimes unsecured creditors make an application to Court to have a Bankruptcy Order made against a debtor. Both legal and trustee advice is necessary.
In either case, the professional fees are paid in the normal course of business and will be tax-deductible.
Are bankruptcy fees tax deductible: Do you need insolvency advice?
If you need insolvency advice, either because you or your company have too much debt, or one of your major customers are experiencing financial problems, the professional fees may very well be tax deductible. The Ira Smith Team acts on behalf of both debtors and creditors. We have successfully restructured many people and corporations, thereby allowing them to avoid bankruptcy. We have also acted on behalf of both secured and unsecured creditors both in an advisory role and an enforcement role.
By the nature of our work, we deal daily with people and companies that have not built up a sufficient or any cash flow bank roll.
Do you ever feel like you have a hole in your wallet? Does your company keep needing to borrow more and more? Where did the money go? Understanding and managing your cash flow, both in your personal life and for your company, can answer these questions for you. Cash flow is another one of those financial terms like Balloon Payments, APY – Annual Percentage Yield and Expense Ratios that are often misunderstood.
Cash flow bank roll: What is cash flow?
Cash flow is the money that moves (or flows) in and out of your account. Cash inflow can include anything that brings in money – salary, sale of assets like a house or car, interest from savings accounts, dividends from investments and the like. For your company, it is the sale of the goods or services that it supplies.
Cash outflow represents all expenses – mortgage payments, rent, utilities, car expenses, Smartphone, Internet, groceries, entertainment, transportation, (and for your company wages paid and other corporate expenses).
Cash flow bank roll: How can you calculate cash flow?
This equation will tell you if your cash flow is positive, negative or neutral.
Cash flow bank roll: Types of cash flow
Positive cash flow tells you that you have more money flowing in than flowing out. This is generally an indicator that you are living within your means. This is what produces the cash flow bank roll!
Negative cash flow tells you that you have more money flowing out than flowing in. This is a good indicator that you are living beyond your means and are accumulating debt – never a good sign and definitely no cash flow bank roll for you.
Neutral cash flow is more of a theory than a reality. It’s pretty impossible to have exactly the same amount of money flowing in as flowing out. This will produce the cash you or your business needs, but won’t make a cash flow bank roll for you.
Cash flow bank roll: Where did the money go?
Cash flow can tell you how much is coming in and going out but to decide where the money’s going you need to keep a detailed budget. This is something we strenuously recommend for everyone. A budget is a key element for maintaining financial health.
If you feel like you have a hole in your wallet or your company keeps needing to borrow more and more and are in a negative cash flow situation, give the Ira Smith Team a call immediately. With immediate action and a solid financial plan for managing your debt problems you’ll be on your way to financial health Starting Over, Starting Now.
NOTE: [1] Income and expenses have to be adjusted for non-cash items such as depreciation, amortization and items either sold or bought on credit. When you receive or pay out the cash, it then hits your cash flow formula.
We hope you enjoyed our video – DEBT INTO RETIREMENT: DO YOU NEED RETIREMENT SOLUTIONS? If you would like a free copy of our eBook “Cost of Claiming Bankruptcy In Canada”, please subscribe, or confirm your existing subscription, to our blog by CLICKING HERE
The trend of debt into retirement
The biggest trend in debt into retirement among baby boomers is having a home mortgage in retirement. Financial advisers warn that this new trend could have serious lifestyle consequences for seniors. We have written on the topic of seniors in debt before:
Have seniors previously taken debt into retirement?
The baby boomers are the first generation carrying a mortgage into retirement; that’s never happened before. Think about it. Our parents typically bought one house they lived in their whole lives. They paid it off and it was a priority to pay off the house.
Today, because of low rates and the wish to use the home as much for financial gain as for shelter, people typically move up two or more times. The previous generation viewed their home as mainly shelter, and looked at paying off the mortgage as forced savings. With the mortgage gone, our parents then continued saving for a “rainy day”. Memories of the great depression were vivid and alive in their parents’ minds, who passed on the behaviour and mentality that saving was important.
Has the world changed causing seniors taking debt into retirement?
Today, the stock market crash of the late 1980’s is but a distant memory, let alone the feeling of depression. The post-World War II growth years, followed by boom and recession times of the 1970’s through the 1990’s, doesn’t really exist anymore. Rather, in our global economy, growth is slower, so a slowdown in the economy is also muted. The need to save as a philosophy has also taken a back seat, and given the price of homes and the size of the related mortgages, savings today in a growing family is also a near impossibility.
Risks from taking debt into retirement
Two of the risks of having debt into retirement are:
Delayed retirement plans as the baby boomers must keep working to have enough income to service and repay that debt.
If you become injured or sick and cannot work, there won’t be the income to service and repay the debt.
Solutions for taking debt into retirement
So, baby boomers much find ways to mitigate the cost of debt into retirement and being able to repay that debt in a reasonable time period. Some of the more common ways are:
Prior to retirement and after spending the large costs of children and family, while you are still experiencing higher earning years, is to shorten the amortization period of mortgages so that more money goes towards principal.
You can increase the frequency of your mortgage and other debt payments from once a month to once every two weeks, thereby reducing principal faster.
Refinance debt with higher interest rates, such as credit card debt, with mortgage or line of credit financing and then use strategies such as the two listed above to repay that debt.
Adjust your budget so that you are not spending more than you earn, and allow the necessary part of your after-tax income pay off your debt.
What to do if you fear taking too much debt into retirement
To have a free checkup on your debt in retirement, and to look at ways of solving it while avoiding bankruptcy, contact Ira Smith Trustee & Receiver Inc. today. Our team of professional trustees can help you manage your financial crisis and get you back on your feet Starting Over, Starting Now.
Thousands of Canadians are facing personal financial ruin. We recently published a vlog #VIDEO-MORE CANADIAN WORKERS LIVING PAYCHEQUE TO PAYCHEQUE AGONY: SCARY NEW SURVEY RESULTS# based on the recent survey by the Canadian Payroll Association. You may not think that $200 sounds like a lot of money but the information shows that 56% of those polled would be close to negative cash flow if they took on another $200 in monthly debt payments.
This is alarming enough on its own, but just six months ago it was 48% who couldn’t take on more debt burden. What this also means is that if those same people had an emergency where they had to come up with another $200, they couldn’t.
The potential for personal financial ruin is increasing
That’s an 8% increase in six months. According to the Canadian Payroll Association, 48% of Canadians couldn’t make ends meets if they missed just one paycheque. And Statistics Canada reports that household debt as a ratio of disposable income rose to 167.6% in the second quarter from 165.2% in the first quarter. These are statistics that we just can’t ignore.
Interest rates will increase one day and will cause personal financial ruin
The number of Canadians teetering on the edge of insolvency is staggering. Credit rating agency TransUnion released the results of their latest survey.
718,000 Canadians can’t even absorb a 25-basis point increase in interest rates without being in a negative cash flow situation
One percentage point would drive 917,000 over the edge
Canadians who believe that low-interest rates are here to stay are playing with fire. Historically interest rates have gone up and down, and they will at some point begin to rise. Using credit, even cheap credit, to cover monthly expenses is not a good financial plan; it’s a recipe for disaster. What’s going to happen if there’s a 1% increase? According to TransUnion that’s all it would take for 917,000 Canadians to be facing bankruptcy.
Contact us and prevent your personal financial ruin
The time to change your attitude about low-interest rates and using credit to pay your monthly expenses is NOW! Don’t risk losing it all and putting your family into personal financial ruin.
If you would like a free copy of our eBook “Cost of Claiming Bankruptcy In Canada”, please subscribe, or confirm your existing subscription, to our blog by CLICKING HERE
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Introduction
The cost of filing for bankruptcy is something you will need to consider when you are considering filing. How much you will have to pay to go bankrupt depends on a number of factors, including:
your monthly income;
what assets you own;
the size of your family; and
whether you have been bankrupt before.
We strongly recommend that you contact a Licensed Insolvency Trustee to arrange for a free first consultation; they will check your situation and calculate the cost for you in your situation.
Your base cost
In most cases, you will have to make payments to the Trustee to contribute to your estate each month to cover various filing fees and other administrative costs. The minimum period for bankruptcy is nine months, so you will be making these payments for at least a nine-month period. This is the base cost of filing.
Surplus income
You are required to pay part of your surplus income into your estate each month. Surplus income is defined by the government, and if you and your family earn over a certain amount each month, you pay part of your earnings over that limit. The limit is essentially the poverty line.
The surplus income calculation is reasonably complicated, so we suggest you bring your recent pay stubs to your meeting with your trustee so that they can estimate the number of surplus income payments you will make while bankrupt. If you have surplus income, your bankruptcy will be extended for an extra year.
Another cost of filing for bankruptcy is that you will lose all of your non-exempt assets.
Tax refunds
You will lose any tax refunds and HST credits you would otherwise receive during the bankruptcy period. This is a further cost of filing for bankruptcy.
Windfalls
Finally, you will lose any windfalls you receive or become entitled to during the bankruptcy period. For example, if you inherit money while bankrupt, or win the lottery, that money must be surrendered to the trustee.
The minimum bankruptcy period in Canada is nine months, but if you have surplus income, or if you were before bankrupt, your bankruptcy will last longer before you are able to apply for your discharge from bankruptcy.
What should you do with too much debt?
The amount you will pay while bankrupt will depend on your monthly take-home pay, your family size, and your assets. Given this information, you may first wish to attempt to avoid bankruptcy by looking at one of the bankruptcy alternatives.
To show how much it will cost to go bankrupt in Ontario, and to look at ways of avoiding bankruptcy, contact Ira Smith Trustee & Receiver Inc. today. Our team of professional trustees can help you manage your financial crisis and get you back on your feet Starting Over, Starting Now.
New mortgage rules November 2016 come into effect. We recently discussed Canada’s alarming consumer debt and the housing boom. The government stepped in to prevent Canadians from assuming bigger mortgages than they could afford. One of the measures recently put into effect was a mortgage rate stress test for approving high-ratio mortgages.
New mortgage rules November 2016: Mortgage rate stress test
This stress test is now applied to all insured mortgages to prevent defaults in the future should the mortgage rates rise. Buyers applying for an insured mortgage now have to show they can afford to pay it back at the Bank of Canada’s five-year fixed rate of 4.64%. This means that some Canadians who could have qualified for a mortgage before the stress test will no longer qualify.
New mortgage rules November 2016: Can Canadians avoid the mortgage rate stress test by borrowing in the shadow lending market?
Some mortgage brokers who are clearly disgruntled at the thought of the Canadian mortgage rules forcing them to lose business have worked out a way to bypass the stress test and beat the system by sending their clients to private lenders – also called the shadow lending market or subprime lenders. Buyers borrow money from private lenders so that they can make a 20% down payment which qualifies them to take out an uninsured mortgage, therefore there is no stress test required.
New mortgage rules November 2016: Is it a good idea to borrow from private lenders?
Typically, private second mortgages in Toronto charge a minimum interest rate of 7% – 10%. For people who really want to be home owners it may seem like a good idea, but they’re going to be left with a very high mortgage payment; perhaps higher than they can afford to pay in the long run.
The new mortgage rules November 2016 and programs like the mortgage rate stress test are enacted to protect Canadians, not punish them. Thinking that you can beat the system doesn’t make sound financial sense.
New mortgage rules November 2016: Do you have too much debt?
Have you assumed a mortgage that you can’t afford to pay? Are your mortgage payments stopping you from paying your other debts? Don’t let these ghosts and goblins scare you.
Divorce during bankruptcy Canada is the same as the old conundrum, “which arrived first; the chicken or maybe the egg”, how would one answer, marital breakdown and insolvency: which comes first? Nobody has a definitive answer because excellent arguments can be produced for both. The same is true for “divorce and personal bankruptcy which comes first”?
Every case is decided based on its unique facts. Marital breakdown and insolvency, and bankruptcy and divorce, often go hand in hand. However, a marital breakdown will not always lead to divorce if the marriage can be salvaged. However, personal bankruptcy and divorce are two separate legal processes that can be at odds with each other.
A few indisputable facts
In this divorce during bankruptcy Canada Brandon’s Blog you will find 5 indisputable facts:
The number one reason for marital breakdown and divorce is financial issues. Divorce.com
In a recently available study one out of every seven people who made an insolvency filing in Canada listed separation, divorce or marital breakdown as a contributing factor to their financial problems.
One-third of all people facing insolvency problems are also going through relationship breakdown and divorce in Ontario or {a splitting up. Gail Vaz-Oxlade
Bankruptcy won’t end all divorce financial obligations. e. g. It does indeed not end alimony or child support.
Declaring personal bankruptcy on joint debts, even debts in a divorce will impact the other debtor.
Are you looking to reduce grief?
If creating minimal interruption on the children of the family during a marital breakdown and personal bankruptcy features prime importance to the spouse with the debts (and presumably that will be just like the spouse making the support payments), it makes sense to have at least the support terms of the divorce decided, including the making of the support order and then do an insolvency filing. The marital breakdown and bankruptcy process will not disturb any in good faith arrangements for support, but keep in mind it will affect property not already dealt with by the family law court.
What about joint debts?
One particular area that comes up in divorce during bankruptcy Canada is this common question: “If my ex files how will it affect joint liabilities? “. Family law rules are the one area of a provincial law that is left relatively unblemished by the Bankruptcy and Insolvency Act, which is a federal statute. Nevertheless, the Supreme Court of Canada has confirmed that in Provinces that are an equalization jurisdiction (as opposed to a split of property jurisdiction, in a unanimous decision, the court upheld defining equalization payments as debts that are a claim provable in an insolvency process, meaning they are wiped off a person’s slate by the bankruptcy process.
Divorce during bankruptcy Canada: What should you do if you have both marital breakdown and too much debt?
Marital breakdown and bankruptcy is an extremely complicated process, made even more complicated when put together with divorce and requires a qualified licensed Trustee to work with your family law legal professional to work with your individual situation and give practical alternatives and an action plan. If you have serious debt problems, are considering bankruptcy and divorce, or perhaps wish to know more about marital breakdown and bankruptcy, then contactIra Smith Trustee & Receiver Inc. as soon as possible. Starting Over, Starting Now, we can help you get your life back again on track, even with marital breakdown and personal bankruptcy looming.
“I need financial help immediately” is something we hear daily. With so many people struggling to make ends meet and living paycheque to paycheque, it’s not a surprise that they’re looking for ways to get ahead. Unfortunately it’s easy to get seduced by financial newsletters or websites that offer nothing more than get rich quick schemes disguised as financial advice. Please keep the old adage in mind when considering investment opportunities – if it’s too good to be true, it probably is.
I need financial help immediately: 3 things to watch out for
The Ira Smith Team has fully licensed, federally regulated financial professionals and we don’t have any get rich quick advice for you. However, we do have advice about how to protect yourself from get rich quick financial newsletters. Here are three things to watch for:
Run, don’t walk from headlines like “beat the market”. There is no such thing as a get rich quick scheme that works. Remember Bernie Madoff? He paid unbelievably high returns to his investors and that ended up with Bernie in jail for life and many others in financial ruin. Even savvy investors got seduced.
Watch out for newsletters with confusing terminology. They’re designed to confuse you so you won’t really understand that what they’re selling is all hype and no substance. Financial terminology is so confusing that we’re doing a series of blogs about it. So far we’ve covered Balloon Payments, APY – Annual Percentage Yield and Expense Ratios. Knowledge is power.
Creating a sense of urgency is a classic ploy to suck you in before you’ve had the time to really scope things out. Beware of offers that are only open to the “first 100 that sign up” or “register within the next 48 hours or you’ll miss out”.
I need financial help immediately: What to do if this is you
We know there are many people who feel “I need financial help immediately”. Our most viewed blog ever is from May 2014 that people looking for cash find through a Google search because it is titled: Bad Credit Loans Guaranteed Approval.
I want to talk to you today about the required division one proposal Ontario documents and division 1 proposal restructuring proceedings under the Bankruptcy and Insolvency Act (Canada) (BIA). You may have heard about this section of the BIA also called Chapter 11 bankruptcy proceedings. The reason is that the corporate restructuring provisions under the BIA are in Canada under Division I of Part III of the BIA, while the corporate restructuring provisions in the United States is under Chapter 11 of the US Bankruptcy Code. We are going to focus today on the restructuring provisions under Division 1 Proposal proceedings of the BIA.
First steps
The first thing the insolvent debtor must do is hire the services of a licensed insolvency trustee (formerly known as a trustee in bankruptcy). The division 1 proposal proceedings apply to corporate restructuring or the restructuring of debt of an individual with a complex debt situation and a debt level of $250,000 or more. We are going to talk today about corporate restructuring and the Division One Proposal Ontario documents required for this process.
The first step in any corporate restructuring is for the board of directors to understand and resolve that the corporation is insolvent, that it needs to restructure under the Division 1 Proposal section of the BIA and that it needs to retain a licensed insolvency trustee to do that. The corporation working with the trustee then has a choice. It can first file what is called a Notice of Intention To Make A Proposal, which is a notice to its creditors that it will be shortly making a restructuring proposal. Or it can just file the real division one proposal itself with the licensed insolvency trustee.
Documents and process
The licensed insolvency trustee has to be satisfied that: (i) all the relevant information has been obtained; (ii) the company has a good chance of actually implementing this proposal; and (iii) the company’s cash flow is enough that it can run the business successfully and pay its ongoing debts in full through the ongoing restructuring proceedings, then the licensed insolvency trustee continues the restructuring process.
The licensed insolvency trustee will mail to all the known creditors a copy of:
the proposal
a statement of the company’s assets and liabilities
The meeting of creditors is then held and if the proposal is accepted by the required majority then the proposal trustee takes the proposal documentation to Court for approval. Once the proposal is accepted by the creditors and approved by the court there is now a contract between the company and its creditors about how the company is going to restructure and what amount of money is ultimately going to be paid to the creditors through the licensed insolvency trustee.
Implementation
The company then carries its proposal as it continues its operations. It carries out its restructuring business plan and hopefully is successful in turning the corner and generating profits. The company would then be saving a certain amount of its profits in cash and pays the amounts required under the corporate restructuring plan over to the licensed insolvency trustee to create the restructuring fund. The licensed insolvency trustee then makes the distribution to the creditors as called for in the proposal itself. Once all the payments have been made, the company has successfully restructured and carried on its business free from the proposal proceedings.
What if your company has too much debt – division one proposal?
