# Help Me Help My Mom - The Story



## Harken (Nov 15, 2019)

So I've joined this forum with the primary purpose of obtaining advice on what has become my enjoyable but complex responsibility of managing my mom's wealth. I hope that this will be an enjoyable exercise that may be of great benefit to my mom who deserves the best as she has and continues to work very hard despite losing my dad 6 years ago when she was only 54 years old. She is now almost 61 years old.

So, to start, here is an overview of her circumstances:

1. She started her own small business in 2011 after being laid off from HP after they bought out her previous employer (EDS). She is now a baker who specializes in making 'petits macarons' and has been very successful with these little cookies. Her primary client is a well-recognized and rapidly expanding grocery store chain which provides her with about $8,000 in revenue per month (this has roughly doubled in the last 2 years). She also sells directly through her Shopify-based website, and also serves clients looking to buy in bulk for corporate or personal events (e.g. weddings). She pretty much manages this all on her own with a little bit of help from me and my sister. I would estimate total revenue at about $120-$140K with somewhere around 60-70% of that being profit. She recently incorporated. She is in good health but works very hard and the viability depends wholly on her ability to bake. Barring any health issues, I would expect her to continue baking until she is 70, hopefully with some of baking responsibility and/or business functions being handed off to someone else.

2. She receives 60% of my dad's defined-benefit pension which is indexed to inflation and pays about $40K per year.

3. She has not yet started receiving CPP, which is a complex matter due to my dad's pension being integrated with CPP. I am not too familiar with the details of the situation.

4. She has a LIF from her previous employers which I have invested for her in a very successful Dividend Growth Portfolio. The portfolio is currently worth about $660K, and generates about $18,500 CAD (portolio is about 75% USD and 25% CAD) in dividends which are growing at about 6% per year. For 2020, her LIF minimum withdrawal will be 3.45% and maximum 6.94%.

5. She lives alone in a condo she purchased a few years ago for $365K which she fully renovated. I estimate she owes about $250K on a mortgage and the condo is conservatively worth $450K. She also owns our family cottage which is paid off and was purchased in 2005 for $180K, had about $100K in major improvements, and is today worth an estimated $400K. My parents sold their primary residence in 2010, and they rented from 2010-2018.

So, all of that being said, I am at a loss on how to balance her growing business, her successful tax-sheltered LIF, her guaranteed income from my dad's pension and CPP, and her major assets, most notably the cottage when it comes to planning for her future. The big issue is taxation.

Here's an overview of my questions/thoughts on these issues, based on what I've learned thus far.

1. For her business, I am not quite sure how she should best manage her profits/retained earnings now that she is incorporated. I believe she is best served paying herself in dividends due to her age. There may be a benefit to her keeping her profits sheltered in the business to a certain extent, depending on the other issues. I have learned that the value of her business (which is currently unknown) can be exempt from taxes up to about $860K with the lifetime capital gains exemption, and that this number could be multiplied in the future by creating a family trust which would include myself and my sister at a minimum as shareholders. When/how/to whom she would sell her business is unknown.

2. How does CPP/OAS factor in? I believe my dad's pension was reduced in 2014 when he would have been 60 to integrate with his CPP. I'm not sure how the survivor benefit factors into this. I'm also not sure what my mom's options are for collecting her own CPP - though she seems to think that she won't get much even though she paid into it for 30+ years. 

3. How to plan for the drawdown/liquidation of her LIF - maximizing the tax sheltered growth while minimizing the risk of her dying and the entire portfolio being liquidated and taxed as income in the year of her death. This is complicated by the fact that the LIF has a maximum withdrawal amount and that her porfolio has been growing despite her withdrawing the max the last few years. There is also the issue that due to significant capital gains, her portfolio only has a current yield of about 2.75%, despite a yield on cost of about 6.4%.
- In the short-term, do I sell some of the more lowish-yield highish-growth stocks (AAPL, V, MDT) for more income-generating stocks like REITs, Banks, TelCos, preferred shares? Perhaps try to line up the income with the annual max on the LIF? The issue with her only needing to withdraw dividends is that she doesn't touch the capital which could last forever! 
- When should she start being more aggressive with liquidating the portfolio? Does she need to wait until she is older and the LIF maximum is much higher (it reaches 10% around 75 years old, though what would her porfolio be worth in 14 years?!?).
- What liquidation strategies should she use? I've considered that she could withdraw some of it, let's say $100K over say 5 years, which she could gift to me and my sister. We could then put these gifts back into our own RRSPs (I believe we'd have enough RRSP contribution room, though we both have DB pensions). We would both get significant tax refunds which we could technically re-gift back to my mom to offset the taxes she pays on the withdrawals from her LIF. Is this allowed? 
It would basically extend the tax-shelter on those funds an extra 25+ years. Another option I've read about which could have some risk, and be of limited benefit is the 'RRSP meltdown strategy' which is like the Smith Manoeuvre and involves borrowing (perhaps against her condo) to have a tax-deductible loan invested in dividend paying stocks, and using the tax deduction to offset tax payable on her LIF withdrawals. Is this overkill or could it help significantly reduce taxes payable considering her significant other sources of income (business, dad's pension, CPP). Any other thoughts on what to do with her portfolio?
4. What about the cottage? Now that she owns a condo, it could be subjected to major capital gains down the road when she sells it or dies (deemed disposition even if it's passed on to me and my sister). Would it be worthwhile to look into the idea of her selling me and my sister the cottage, say at fair market value? My thinking is that since my parents paid $180K, put in $100K in improvements, and that my mom was renting from 2010-2018 (she could claim it as her primary residence for those years), that selling it now would result in very little taxable gains. Both my sister and I are currently renting, so we'd be able to keep the cottage exempt as a primary residence for the foreseeable future. Would it be possible for us to get an open loan to buy the cottage at FMV, then have my mom give us back the money to pay it off (in full if possible). Again, is this allowed? Am I missing anything here?

So that's all of it in a (really big) nutshell. I'd appreciate any thoughts/help you can provide on any/all of the questions I've put forward. I would be glad to answer any questions if I forgot to mention any key details.

Thank you in advance and best regards to all!


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## Just a Guy (Mar 27, 2012)

Wow, quite the problem to have...

I’m not really an accountant, but here are a few thoughts...

Gift the cottage early, you guys deal with the taxes. 

Buy a term life insurance policy to offset the taxes, if done properly this could become a business expense. 

I’d look carefully at which stocks I liquified...apple’s gains this year were huge compared to the others, even though it’s yield is lower.

Finally, your mother should look at removing herself from the business. Hire people to do the actual work, write up procedures, and move into a more overseeing position. This will make the business more valuable since it can be transferred to anyone. You could look at share distribution as well, or the business could be passed on and continue.


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## james4beach (Nov 15, 2012)

Harken said:


> advice on what has become my enjoyable but complex *responsibility of managing my mom's wealth*.


Can you please explain in a bit more detail what you mean by responsibility of managing your mom's wealth. Did she ask you for help? Have you been assigned responsibility?

For example, I've also been helping out my parents with their investments and retirement planning. But I am not responsible for managing anything. It's their responsibility, and I help look into things (research) when they ask me.

I'm very close to my parents, but I'm not involved in the details to the degree you seem to be. Is there a reason you're looking into everything ranging from her business operations to her real estate? Maybe she's overwhelmed with all of it and has recruited you to help out... but some context would help.


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## Retiredguy (Jul 24, 2013)

If Dad's pension was integrated with CPP it will have had a CPP offset component. You have not identified the particular pension plan but I believe that the CPP component would have continued to age 65 ,if he had lived, but if his death occurred before age 65, as it seems here, it almost certainly stopped immediately. Then your mother as the surviving spouse would have been eligible to receive his CPP survivour pension benefit directly from CPP. Your post implies she is not receiving anything from CPP. If she did not apply for it she should immediately. I believe there is limited retroactivity so she may have lost several years of benefits. She should be in no rush to start her own CPP as very often this results in a reduction in the survivor benefits. Your mother should also get a copy of her statement of contributions from CPP (Service Canada) which shows her contributions for each year since age 18 and is used to determine her future benefit entitlement.

I would strongly suggest you communicate with and engage Doug Runchy who is a CPP expert and contributor to this site. Look under the Retirement section of this blog and you should find him.


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## Longtimeago (Aug 8, 2018)

Well contrary to what some here would advise, I suggest that having successfully started a small niche business, that she sell it and retire. She has enough income and capital to retire so what is she waiting for? Time to start the next chapter in life.

Use the money from the sale of the business to pay off the condo and then decide whether she wants to keep the cottage because she loves going there and will spend more time there when retired, or sell the cottage to you and your sister or anyone else and invest the proceeds to generate income. Keep it simple.

What seems complicated can become very simply very quickly.


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## Harken (Nov 15, 2019)

james4beach said:


> Can you please explain in a bit more detail what you mean by responsibility of managing your mom's wealth. Did she ask you for help? Have you been assigned responsibility?


Hi James, the word responsibility was probably misused as it's probably more of a self-imposed responsibility. I want to help my mom however I can and see her spend the rest of her years reaping the benefits of her hard work. The world of money is complex and is a something where I have an interest as well as a background and can provide some value to her. She has never asked me for help with any of this - but she is so consumed with the day to day of her business that it's likely that if I left it up to her, she'd never realize some of the risks/questions to address until it was too late. Basically I'm looking out for her and when I see issues I flag them for her, discuss, and try to find solutions.


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## Harken (Nov 15, 2019)

Just a Guy said:


> Gift the cottage early, you guys deal with the taxes.
> 
> Buy a term life insurance policy to offset the taxes, if done properly this could become a business expense.
> 
> ...


Thanks for the response Just a Guy. For the cottage, do you think it's best to gift at Fair Market Value? Would my assessment make sense that due the years she was renting and the major improvements made on the cottage that she'd pretty much avoid paying any capital gains (how is this even assessed?). What about the idea of me and my sister getting an open mortgage, buying the cottage from my mom, then having her gift the money right back in order to pay off the full mortgage. Is that an effective way completing the 'disposition' at FMV and having the capital gains clock reset under me and my sister's names? Would the banks allow this?

Can you clarify what you mean regarding a term life policy to offset taxes? Which taxes are you referring to? You mean the risk of her LIF portfolio being liquidated and taxed if she dies? That's an interesting option - it would be a hedge, and if it can be deducted as a business expense might not be too expensive...she's in good health for her age.

As for my mom removing herself from the business - that may happen eventually to a certain extent but the thing is that she loves doing the grunt work (the baking) and the interactions with customers and other people she deals with. She is someone who likes to keep busy and she would not be happy sitting on a pile of cash watching others take care of everything. I do agree, however that she does need to gradually shift the structure of her business to be less dependent on her, where a 'manager' can just oversee employees who handle all the day to day activities, and can also focus on growing the business as that's where future value will come from. For now, I think she needs to hire someone that can learn the intricacies of baking macarons and can help her with the day-to-day so that if she gets sick, she doesn't face the risk of falling behind. She needs a backup first, and then can look to creating a structure that will make the business more 'turn key' in the future.


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## Harken (Nov 15, 2019)

Retiredguy said:


> If Dad's pension was integrated with CPP it will have had a CPP offset component. You have not identified the particular pension plan but I believe that the CPP component would have continued to age 65 ,if he had lived, but if his death occurred before age 65, as it seems here, it almost certainly stopped immediately. Then your mother as the surviving spouse would have been eligible to receive his CPP survivour pension benefit directly from CPP. Your post implies she is not receiving anything from CPP. If she did not apply for it she should immediately. I believe there is limited retroactivity so she may have lost several years of benefits. She should be in no rush to start her own CPP as very often this results in a reduction in the survivor benefits. Your mother should also get a copy of her statement of contributions from CPP (Service Canada) which shows her contributions for each year since age 18 and is used to determine her future benefit entitlement.
> 
> I would strongly suggest you communicate with and engage Doug Runchy who is a CPP expert and contributor to this site. Look under the Retirement section of this blog and you should find him.


Thank you Retiredguy for this helpful information. My dad was a probation officer with the Ontario gov't and would have turned 65 in July 2019. My mom has been receiving a survivor benefit, and I believe my dad's pension is reduced starting this year as that's when the CPP offset component you refer to would have expired and he would have begun collecting CPP, is that correct? I think what my mom has said is that there's a max she can receive so if she starts collecting, when combined with what she's getting from my dad's CPP, she'll hit the max quite easily and will lose most of it. Does that make sense? I find this very confusing.

Thank you for the reference, I will certainly look into Doug Runchy to see if I can find any further helpful information.


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## Harken (Nov 15, 2019)

Longtimeago said:


> Well contrary to what some here would advise, I suggest that having successfully started a small niche business, that she sell it and retire. She has enough income and capital to retire so what is she waiting for? Time to start the next chapter in life.
> 
> Use the money from the sale of the business to pay off the condo and then decide whether she wants to keep the cottage because she loves going there and will spend more time there when retired, or sell the cottage to you and your sister or anyone else and invest the proceeds to generate income. Keep it simple.
> 
> What seems complicated can become very simply very quickly.


Hi Longtimeago. The truth of the matter is that my mom is not happy being someone traditionally retired and she is not naturally a very social person and would be very lonely and bored alone at the cottage full-time. She loves baking and interacting with customers and the shipping/receiving people when she does her deliveries, and preparing beautiful towers of cookies for weddings, etc... She most likely will continue wanting to do this until she physically can no longer, which could be another 15 years or more. The business is not about building capital or wealth, it's about giving her a reason to get up every morning and talk to people, and use her brain and keep moving. For her this is still a new chapter as it only started in 2011 and she wants to see it through for a while still.


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## Just a Guy (Mar 27, 2012)

Most banks won’t finance a cottage property, you may want to look into that first. As for fair market value, you should probably get an appraisal done professionally, last thing you need is CRA coming after you and you not having valid documentation. When you buy the property, the gains will be reset to start at the official purchase price. 

As for insurance, you buy it to offset all the taxes you will pay. It allows you to keep the business, the cottage, investments, etc. Insurance proceeds are tax free so, if you’re facing a tax bill of $200k let’s say, you get a policy for $200k and you get to keep the stuff, but not the insurance money. Any insurance guy should be able to explain it better, or find a financial planner, better yet a wealth management person. 

Just because your mother writes down the procedures and hires a main baker, doesn’t mean she’ll be out of the business. With a second baker, she could double her sales. It covers her in case of injury, sickness, etc. And, as I said makes the business into a real business and more valuable. Right now it’s a hobby with very little actual value because it’s all about her. Without her, there is no business. She should probably look at protecting the recipes and non-compete agreements, etc. As well.


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## Harken (Nov 15, 2019)

Just a Guy said:


> Most banks won’t finance a cottage property, you may want to look into that first. As for fair market value, you should probably get an appraisal done professionally, last thing you need is CRA coming after you and you not having valid documentation. When you buy the property, the gains will be reset to start at the official purchase price.
> 
> As for insurance, you buy it to offset all the taxes you will pay. It allows you to keep the business, the cottage, investments, etc. Insurance proceeds are tax free so, if you’re facing a tax bill of $200k let’s say, you get a policy for $200k and you get to keep the stuff, but not the insurance money. Any insurance guy should be able to explain it better, or find a financial planner, better yet a wealth management person.
> 
> Just because your mother writes down the procedures and hires a main baker, doesn’t mean she’ll be out of the business. With a second baker, she could double her sales. It covers her in case of injury, sickness, etc. And, as I said makes the business into a real business and more valuable. Right now it’s a hobby with very little actual value because it’s all about her. Without her, there is no business. She should probably look at protecting the recipes and non-compete agreements, etc. As well.


That is all very helpful information, thank you. For the cottage, the financing would definitely be an issue if we can't get a loan. There's no way we could transfer the cottage to me and my sister anywhere near FMV without it. I agree that an appraiser could tell us what the FMV is today - but what I wonder is how they (or CRA) would determine the level of capital gains my mom is subject to if she sells at FMV. She bought it in 2005 for $180K, put in $100K in major improvements, and was renting from 2010-2018, and FMV today is about $400K. Based on those numbers there is about $120K in capital appreciation, but how to determine how much of that occurred from 2010-2018 when she was renting vs 2005-2010 (and 2019) when she was not. Would it be straight line? 

If we can't finance it, I think there's the option of gifting it, say at $1. I believe in that case my mom would still be subject to a 'deemed disposition' at FMV, and in the future when my sister and I sell, capital gains would be based on the $1 purchase price. Perhaps this is a better option (as long as my sister and I can claim it as a primary residence/don't sell it) since it would not require any financing. If we maximize the use of the primary residence exemption for capital gains, it seems we can punt the tax liability down the road indefinitely....

Again, you have provided lots of food for thought. I very much appreciate it.


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## Longtimeago (Aug 8, 2018)

Harken said:


> Hi Longtimeago. The truth of the matter is that my mom is not happy being someone traditionally retired and she is not naturally a very social person and would be very lonely and bored alone at the cottage full-time. She loves baking and interacting with customers and the shipping/receiving people when she does her deliveries, and preparing beautiful towers of cookies for weddings, etc... She most likely will continue wanting to do this until she physically can no longer, which could be another 15 years or more. The business is not about building capital or wealth, it's about giving her a reason to get up every morning and talk to people, and use her brain and keep moving. For her this is still a new chapter as it only started in 2011 and she wants to see it through for a while still.


To each their own of course Harken but I take exception to your 'someone traditionally retired' choice of words. I do not consider myself to be 'traditionally' retired in any sense other than that it means no longer working. Being retired to me means being free to do as I wish with all of my time. Nor does it mean having to be lonely and bored alone at the cottage full-time. You are making some very large assumptions about retirement and what it means.

For example, you have no way at all of knowing what would happen if your mom met some man tomorrow who swept her off her feet and don't try to tell me that could never happen, it could happen to anyone. She could go from keeping busy with work to hating having to take time away from being with him, in a heartbeat. 

Whenever I hear someone say (there was a recent thread on here on this subject) that they are happy with work and don't want to retire, what I hear is they have NOTHING else in their life that is more important to them and that they want to spend their time and energy on instead. When you say your mom needs a 'reason to get up every morning', I understand that, we all need a reason to get up in the morning obviously but WORK isn't the reason I would ever choose if I had an alternative.

When I read your story of your mom, I actually feel sorry for her. No offense intended but that's how I feel. She is in good financial shape but at age 61, she has no one to share her life with and needs work to give her a reason to get up in the morning. That's just sad. Life is for living and time is one thing you cannot bank.


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## Just a Guy (Mar 27, 2012)

I did say most banks won’t, that’s not the same as saying you can’t get financing. It will take some work. Just because a bank says no doesn’t mean they mean it. I get told no all the time, I just keep asking different people. There are credit unions and different divisions in every bank with different criteria. Also, lending policies change all the time. It won’t be easy, but it’s no impossible. 

As for the fmv, I’m not an accountant I don’t know the rules especially since they change all the time. I’d imagine the cost of the upgrades would also get factored in somehow, there may not be much capital gains. A good accountant can usually make a lot of things disappear legally, I’d approach one and tell them what you want to do and see what solutions he R mother should have an accountant anyway.


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## Harken (Nov 15, 2019)

Longtimeago said:


> To each their own of course Harken but I take exception to your 'someone traditionally retired' choice of words. I do not consider myself to be 'traditionally' retired in any sense other than that it means no longer working. Being retired to me means being free to do as I wish with all of my time. Nor does it mean having to be lonely and bored alone at the cottage full-time. You are making some very large assumptions about retirement and what it means.
> 
> For example, you have no way at all of knowing what would happen if your mom met some man tomorrow who swept her off her feet and don't try to tell me that could never happen, it could happen to anyone. She could go from keeping busy with work to hating having to take time away from being with him, in a heartbeat.
> 
> ...


Thanks you for sharing your thoughts, and I apologize if you felt targeted by my choice of words. Obviously there is a huge spectrum of retirement lifestyles and choices. In a sense my mom is already retired in that she gets to spend her days doing what she loves and is passionate about. This is what she chooses to do despite having the option to possibly stop working. I think she does feel free and her business does bring her true happiness. If you meet her and ask her about her business, she will passionately go on and on about it until you cut her off. So, maybe I just didn't explain it properly, is that her 'work' is actually what she would choose to do if she had the freedom to choose anything. This is what makes her happy, more than travelling, dating, playing bingo, going to the theater, or even (somewhat sadly) spending time with her grandchildren would. I guess the same way retirement doesn't mean the same to everyone, work doesn't mean the same to everyone either.

As for getting swept off her feet...I agree you can never say never, but no way in hell would you convince her to bank on that happening as she has no interest and often says how she loves having nobody to answer to but herself.

And calling her life 'sad'? She already shared almost 40 years of her life with someone and now lives how she wants. In a way she is as happy as she's ever been, despite missing my dad dearly. My boss loss her husband 6 months ago and has not been back to work 1 day yet. That's sad. My mom is motivated and energized and is proud of what she does, and spends her days hearing people tell her how wonderful her macarons are, how they have tried them in Paris and Montreal and think hers are the best they have had. What's sad about that?


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## Retiredguy (Jul 24, 2013)

Harken said:


> Thank you Retiredguy for this helpful information. My dad was a probation officer with the Ontario gov't and would have turned 65 in July 2019. My mom has been receiving a survivor benefit, and I believe my dad's pension is reduced starting this year as that's when the CPP offset component you refer to would have expired and he would have begun collecting CPP, is that correct? I think what my mom has said is that there's a max she can receive so if she starts collecting, when combined with what she's getting from my dad's CPP, she'll hit the max quite easily and will lose most of it. Does that make sense? I find this very confusing.
> 
> Thank you for the reference, I will certainly look into Doug Runchy to see if I can find any further helpful information.


The adjustment to Dad's pension took place when he died. The CPP component will not have continued until he would have been 65. That's the point. With his death Mum became eligible for the survivor pension - from CPP and she's been collecting it since Dad's death.

Mum is correct the max a person can receive is the total (survivor pension + a persons own pension) equal to the present CPP max . This year that is 1154 per month. 

There is also a weird calculation that takes place which is guaranteed to reduce the survivor pension when she starts her own CPP. That's why I say she should be in no rush to start her own CPP. Her best approach likely is to delay starting her own CPP until age 70. It would then be enhanced by 42% and she would have received the max available survivor pension until that time (age 70). This also seems to coincide with her plan to stop working about that time. I would also suggest delaying OAS to age 70 as well and having it enhanced by 36%. If she started it at 65 and continues to work, likely most/all of it will be clawed back.

Here's a copy and paste of a Q&A from the Ontario Pension Board which confirms that Dad's pension was adjusted at the time of his death.

*"If I pass away before age 65, will my PSPP survivor benefits include the early retirement bridge?

No. Any survivor pension paid to your eligible spouse or eligible children will be equal to a percentage of the pension that would have been payable to you after age 65."*

(Bridge is what I earlier referred to as the CPP offset component.)


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## Retiredguy (Jul 24, 2013)

Harken said:


> That is all very helpful information, thank you. For the cottage, the financing would definitely be an issue if we can't get a loan. There's no way we could transfer the cottage to me and my sister anywhere near FMV without it. I agree that an appraiser could tell us what the FMV is today - but what I wonder is how they (or CRA) would determine the level of capital gains my mom is subject to if she sells at FMV. She bought it in 2005 for $180K, put in $100K in major improvements, and was renting from 2010-2018, and FMV today is about $400K. Based on those numbers there is about $120K in capital appreciation, but how to determine how much of that occurred from 2010-2018 when she was renting vs 2005-2010 (and 2019) when she was not. Would it be straight line?
> 
> If we can't finance it, I think there's the option of gifting it, say at $1. I believe in that case my mom would still be subject to a 'deemed disposition' at FMV, and in the future when my sister and I sell, capital gains would be based on the $1 purchase price. Perhaps this is a better option (as long as my sister and I can claim it as a primary residence/don't sell it) since it would not require any financing. If we maximize the use of the primary residence exemption for capital gains, it seems we can punt the tax liability down the road indefinitely....
> 
> Again, you have provided lots of food for thought. I very much appreciate it.


If Mum transfers the property to you and sister at FMV of 400K, that becomes your future ACB not $1. Mum of course will be reporting the sale on her Itax at 400K less her ACB of 280K and having any resultant CG, (which is 50% of the 120K) then taxed at her marginal rate. If of the 14 yrs that she has owned the property she can claim the primary residence exemption for 8 of the yrs then in my view it would be perfectly reasonable to pay taxes on 6/14th of half of the 120K. Probably the absolute correct way was to have an appraisal done in 2010 and then again in 2019. You may be able to get some further insight by using the provincial property assessment values from each year to apportion the CG. These would be available on the tax records. They are independent but not always accurate.


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## james4beach (Nov 15, 2012)

Harken said:


> Thanks you for sharing your thoughts, and I apologize if you felt targeted by my choice of words . . . And calling her life 'sad'?


I should point out that Longtimeago has been known to post some unusual and socially awkward things, so don't take it too seriously.

Thanks for posting the photo. Is that one of your mom's products? It's beautiful.


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## Harken (Nov 15, 2019)

Retiredguy said:


> Mum is correct the max a person can receive is the total (survivor pension + a persons own pension) equal to the present CPP max . This year that is 1154 per month.
> 
> Her best approach likely is to delay starting her own CPP until age 70. It would then be enhanced by 42% and she would have received the max available survivor pension until that time (age 70). This also seems to coincide with her plan to stop working about that time. I would also suggest delaying OAS to age 70 as well and having it enhanced by 36%. If she started it at 65 and continues to work, likely most/all of it will be clawed back.




Thank you for the additional information. Based on what you've said, and without knowing the exact numbers, would she not be better off taking her CPP right away and hitting the max as soon as she can since even if she delays and receives more, the max will just cut down the survivor benefit she is getting? For example, say she is getting $500 now in survivor benefit and taking CPP now would give her $700, she'd get the max of $1154. If she waits until 70, she'd maybe get $1000, and the survivor benefit would still be $500, but she'd still be capped at $1154. So would she not be best served getting the max as soon as she can and just going with that?


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## Harken (Nov 15, 2019)

Retiredguy said:


> If Mum transfers the property to you and sister at FMV of 400K, that becomes your future ACB not $1. Mum of course will be reporting the sale on her Itax at 400K less her ACB of 280K and having any resultant CG, (which is 50% of the 120K) then taxed at her marginal rate. If of the 14 yrs that she has owned the property she can claim the primary residence exemption for 8 of the yrs then in my view it would be perfectly reasonable to pay taxes on 6/14th of half of the 120K. Probably the absolute correct way was to have an appraisal done in 2010 and then again in 2019. You may be able to get some further insight by using the provincial property assessment values from each year to apportion the CG. These would be available on the tax records. They are independent but not always accurate.


Do you have any insight as to how CRA monitors this? Do they ask for appraisals, look at property assessments, estimate market gains for various periods (e.g. what if most gains occurred from 2012-2016, and market has been flat since?), or look at anything else to make sure? Or is it if you get audited that they ask for the whole story?

Anyway, this is not a critical issue at the moment since it does not seem like my mom's estate would be subject to too much tax on capital gains if something happened in the next few years. It's good information to know however and I'll discuss with her to see what she thinks.


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## Harken (Nov 15, 2019)

james4beach said:


> I should point out that Longtimeago has been known to post some unusual and socially awkward things, so don't take it too seriously.
> 
> Thanks for posting the photo. Is that one of your mom's products? It's beautiful.


Thanks James. It's ok, it's helpful to hear different perspectives. I actually agree with Longtimeago that it's 'work to live' and not 'live to work'. I hope I explained properly why for my mom 'work=live' and her business is something that our whole family cares about and takes a part in and that she started when my dad was still around and she knows he would be so damn proud of where she's taken a little project she started in her kitchen with him as the official taste tester.

Yes, that is one of the products my mom sells on her website. Thank you for the compliment, I agree that she puts them together very nicely.


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## Harken (Nov 15, 2019)

Does anyone have any thoughts on how to deal with the LIF dividend growth portfolio in all this? 

I really liked the idea of a term life insurance policy to hedge against the risk of death leading to massive taxation of the portfolio.

With that in place, would you simply try to let the portfolio continue to grow tax-sheltered until she sells her business and ceases to earn business income, at which point her maximum withdrawals will be significantly higher? If the recipe I have (which is basically dividend all-stars with a mix of low dividend growth/high yield and high growth/low yield) is working, should I just let that machine keep going? Top holdings by market value are (AAPL, V, MDT, SYY, MCD, DLR, PG, INTC, ADP, CINF, O, T.to, HAS, WBA, FTS.to) to give you an idea. Would it make sense to 'rebalance' this to increase current yield, or is total return what matters right now? 

I should also add that I consider the 100% equity investment in her portfolio to be reasonable considering it's made up of blue-chip stocks and I consider my dad's pension to be the 'fixed income' portion of her retirement plan. 

Has anyone ever tried the 'RRSP meltdown' strategy which is basically a smith manoeuvre which uses a tax-deductible investment loan to offset RRIF/LIF withdrawals? I would guess that there is a limit to how much you can benefit from this these days as it would require a massive loan (consider low interest rates) to generate the interest deduction to offset any meaningful amount of withdrawals.


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## kcowan (Jul 1, 2010)

A friend's dad remarried at 88 and he and his bride (86) have been having a great life for 11 years. He claims he would have left us if not for her! Never say never!


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## Dogger1953 (Dec 14, 2012)

Harken said:


> Thank you for the additional information. Based on what you've said, and without knowing the exact numbers, would she not be better off taking her CPP right away and hitting the max as soon as she can since even if she delays and receives more, the max will just cut down the survivor benefit she is getting? For example, say she is getting $500 now in survivor benefit and taking CPP now would give her $700, she'd get the max of $1154. If she waits until 70, she'd maybe get $1000, and the survivor benefit would still be $500, but she'd still be capped at $1154. So would she not be best served getting the max as soon as she can and just going with that?


No, that isn't the way that "the maximum" is applied when combining a CPP survivor's pension with a CPP retirement pension, even though that's the way that most financial planners and many Service Canada staff will explain it. Read this article to better understand these complex calculations: https://retirehappy.ca/cpp-survivor-benefits/


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## Longtimeago (Aug 8, 2018)

Harken said:


> Thanks you for sharing your thoughts, and I apologize if you felt targeted by my choice of words. Obviously there is a huge spectrum of retirement lifestyles and choices. In a sense my mom is already retired in that she gets to spend her days doing what she loves and is passionate about. This is what she chooses to do despite having the option to possibly stop working. I think she does feel free and her business does bring her true happiness. If you meet her and ask her about her business, she will passionately go on and on about it until you cut her off. So, maybe I just didn't explain it properly, is that her 'work' is actually what she would choose to do if she had the freedom to choose anything. This is what makes her happy, more than travelling, dating, playing bingo, going to the theater, or even (somewhat sadly) spending time with her grandchildren would. I guess the same way retirement doesn't mean the same to everyone, work doesn't mean the same to everyone either.
> 
> As for getting swept off her feet...I agree you can never say never, but no way in hell would you convince her to bank on that happening as she has no interest and often says how she loves having nobody to answer to but herself.
> 
> ...


As I said, to each their own. 

My wife happens to be somewhat of a macaron enthusiast Harken and I would be happy to order her a box of your mother's macarons to try. I don't think you will be breaking any forum rules if you PM me her website name. My wife's own favourites do not come from France. Her avourites come from Switzerland and specifically from a company called Sprungli. She even prefers them to those from Laduree. 
https://www.zuerich.com/en/visit/co...7CbAimKbDNDuv-E_m3QEJG9r5Kskmg5gaAuKTEALw_wcB

Macarons (not macaroons of course) are made with meringue and we have also been to and tried merinques in what is considered to be the birthplace of merinque. That is in Meiringen, Switzerland. I'm not sure how that fits in with the idea that macarons came from Italy to France. Maybe merinques went from Switzerland to Italy and then were turned into macarons by the Italians before they went to France??? Who knows.
https://cuisinehelvetica.com/2017/06/03/the-birthplace-of-meringue/

As an avid traveller and unrepentent Switzerland lover, I would suggest that your Mother might enjoy a visit to do some 'research' on both merinque in Switzerland and macarons in France. She could also easily drop in to Sprungli in Zurich, to try a Swiss macaron on the trip. Might even get past the tax man as a legitimate business expense. LOL


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## Longtimeago (Aug 8, 2018)

james4beach said:


> I should point out that Longtimeago has been known to post some unusual and socially awkward things, so don't take it too seriously.
> 
> Thanks for posting the photo. Is that one of your mom's products? It's beautiful.


Ah james4beach, 'unusual' is simply another term for not following the herd and 'socially awkward' is simply another term for saying what you think rather than just thinking something to yourself and hiding your thoughts. When you grow up, perhaps you will understand the value of both and take them seriously.


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## Just a Guy (Mar 27, 2012)

Never saw the value in rebalancing. To me, you sell some winners, buy losers, and have less buying power because you have to pay tax on the stuff you sold. Let the winners run unless you see something on the horizon which will affect those gains. 

I also wouldn’t worry to much about capital gains, it’s one of the lowest taxes out there. 50% of the gains are tax free. Next in line is dividend income, also lower taxes. 

You will eventually have to pay something in taxes, tax deferral is legal, tax avoidance or evasion isn’t. You have to choose between lowering taxes and making money. Your mother doesn’t really have to worry about money the way she is going. If, however, you screw up her nest egg in an effort to reduce taxes, she could be in trouble. Stop worrying about paying some taxes. Buy more insurance if you want to be greedy.

I think you’re forgetting one thing, this is her money, not your sister and your future money. Let her do what she wants with it, she earned it. I that means she blows it all or pays a ton of taxes, that’s her choice. My kids aren’t expecting to inherit, they’re out there earning their own money to do what they want with it.


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## Harken (Nov 15, 2019)

Just a Guy said:


> You will eventually have to pay something in taxes, tax deferral is legal, tax avoidance or evasion isn’t. You have to choose between lowering taxes and making money. Your mother doesn’t really have to worry about money the way she is going. If, however, you screw up her nest egg in an effort to reduce taxes, she could be in trouble. Stop worrying about paying some taxes. Buy more insurance if you want to be greedy.
> 
> I think you’re forgetting one thing, this is her money, not your sister and your future money. Let her do what she wants with it, she earned it. I that means she blows it all or pays a ton of taxes, that’s her choice. My kids aren’t expecting to inherit, they’re out there earning their own money to do what they want with it.


I get what you're saying and just looking to help her be smart in the way she plans and structures things - to maximize within the legal framework, not wiggle through loopholes to dodge every cent possible. You are probably right that I have been overthinking this stuff and a lot of the information received in this discussion has helped me to see that. 

I am not forgetting that this is her money at all, however I don't think she would ever make the choice to pay more taxes than necessary. I already have inherited plenty by having access to a wonderful cottage when I want with the boat my dad left behind. Both my sister and I have successful careers and are well-educated. I don't think my mom ever feels like I'm trying to control her money and is very appreciative of the help I've provided thus far. We have a great relationship and help each other whenever and however we can.


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## Just a Guy (Mar 27, 2012)

If you don’t do anything, like sell the property, rebalance, move things around, etc. You’ll never trigger any taxes. Your mother won’t have to pay the taxes, the estate will. That was more my point.


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## Harken (Nov 15, 2019)

Dogger1953 said:


> No, that isn't the way that "the maximum" is applied when combining a CPP survivor's pension with a CPP retirement pension, even though that's the way that most financial planners and many Service Canada staff will explain it. Read this article to better understand these complex calculations: https://retirehappy.ca/cpp-survivor-benefits/


Thanks so much for the very helpful article. I can see that the maximum would actually be higher if she waits until 70 to start collecting her own CPP (up to $1639.50 vs $1154.58). Am I understanding correctly that the survivor benefit will go up when my mom turns 65 (up to 692.75 vs 626.63)? And so considering my mom is still earning an income with her business, she should defer collecting her own CPP until age 70, correct?


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## Retiredguy (Jul 24, 2013)

Harken said:


> Thank you for the additional information. Based on what you've said, and without knowing the exact numbers, would she not be better off taking her CPP right away and hitting the max as soon as she can since even if she delays and receives more, the max will just cut down the survivor benefit she is getting? For example, say she is getting $500 now in survivor benefit and taking CPP now would give her $700, she'd get the max of $1154. If she waits until 70, she'd maybe get $1000, and the survivor benefit would still be $500, but she'd still be capped at $1154. So would she not be best served getting the max as soon as she can and just going with that?


The present cap of 1154 is based on age 65. The additional 42% she would receive by delaying  her own pension  to age 70 is additional and not included in the cap.


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## Retiredguy (Jul 24, 2013)

Sorry no insight as to how CRA monitors this. Others may disagree (and probably will) but imo if you take a reasoned and reasonable approach you would very likely never hear from them.


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## james4beach (Nov 15, 2012)

In my experience, CRA questions for clarification are also not very scary. I've had the CRA question me a couple times about things including wanting supporting evidence relating to 50 K of tax credits.

In all cases, I gathered supporting documents as PDF files, uploaded them through the web site. Within a couple months I got a follow up letter. Seemed like a very nice process.


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## Longtimeago (Aug 8, 2018)

Thanks for the PM Harken. I see your mom's not just a little operation out of her house kitchen. I also see her macarons are sold in 3 Farm Boy locations within an hour of where we live. I find that interesting given the emphasis on freshness that macarons require. I have this feeling that Farm Boy may be selling them when they are more than just a couple of days old though. Does your mom have a way to control that possibility or is she dependent on Farm Boy to do the right thing? Hmm, do the boxes have a 'best by date' that is no more than 1 week from when they are produced?

I think I will order online to insure freshness. Anyone else want to try them? Shipped and retailed in Ontario and Quebec only though.


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## ian (Jun 18, 2016)

Never had a problem with CRA. Have had a number of requests through the years for proof of claim-usually auto expenses. Just sent them in, no issue. Also a desk audit of a legit tax dodge (not one one those charity scams). Again..no issue.  We have found CRA very good to deal with...thankfully.


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## Dogger1953 (Dec 14, 2012)

Harken said:


> Thanks so much for the very helpful article. I can see that the maximum would actually be higher if she waits until 70 to start collecting her own CPP (up to $1639.50 vs $1154.58). Am I understanding correctly that the survivor benefit will go up when my mom turns 65 (up to 692.75 vs 626.63)? And so considering my mom is still earning an income with her business, she should defer collecting her own CPP until age 70, correct?


Her CPP survivor's pension will definitely be recalculated when she turns 65, but whether that results in an increase or a decrease depends on how much it is currently. Do you know the current monthly amount?


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## Harken (Nov 15, 2019)

Thanks all for the feedback regarding CRA. I guess the important part is to keep good documentation and to take a reasonable approach. I'm just curious how they ever find out about people avoiding capital gains on property sales as it seems like this would be very easy. I can understand if you're in the business of buying/selling properties like Just a Guy, but for individuals that may make one or two sales of 'non-primary' residences in their lifetime, how is this tracked?

And you're correct Longtimeago that my mom has her own commercial kitchen which has been a huge blessing for her and has raised the ceiling/potential of her business. In regards to freshness, one of the greatest qualities of macarons which almost fully eliminates waste is that they freeze very well. My mom has a walk-in freezer in her kitchen and receives direct orders from all Farm Boy locations on a weekly basis (those that need a top up anyway). She has 12 flavours that go in trays of 18 and the stores only order what they need. She only sells to Farm Boys that have a bakery section (which is most), which means they have a freezer and I believe the display case is refrigerated as well. They only display a tray of 18 at any given time with a few of each flavour they have on hand, which gets topped up from the freezer as the day goes on. They can stay fresh and flavourful for months frozen, and inventory both in Farm Boys and in her freezer turns over much more quickly than that, so she has no issues with freshness. I believe through Farm Boy alone she sells about 8,000 macarons per month. She has been with them since 2013 and they are very familiar with how to handle her products and how to minimize waste. 

Online or in store, they should be very good. I believe she has shipped as far as Halifax before, so doesn't hurt to ask. Her little trays of 12 or 18 are very nice to bring to a Christmas party.


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## Dilbert (Nov 20, 2016)

8000 per month? Holy Macaron!:tongue:


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## Just a Guy (Mar 27, 2012)

Tax evasion is very easy to do period, not just with capital gains. Having gone through an audit, the CRA is very good at looking at things and determining if you are ripping them off (in their opinion). The key there is in their opinion. Your job is to prove what you reported was right and their opinion is wrong. This is why I hire an accountant and told them not to do anything even grey. I want my returns to be black and white. I got through my audit just fine, no issues at all which is really rare, most of the time they find something is what I discovered talking to others. I wouldn’t want to be the one who gets discovered to have done something major.


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## Longtimeago (Aug 8, 2018)

Harken said:


> Thanks all for the feedback regarding CRA. I guess the important part is to keep good documentation and to take a reasonable approach. I'm just curious how they ever find out about people avoiding capital gains on property sales as it seems like this would be very easy. I can understand if you're in the business of buying/selling properties like Just a Guy, but for individuals that may make one or two sales of 'non-primary' residences in their lifetime, how is this tracked?
> 
> And you're correct Longtimeago that my mom has her own commercial kitchen which has been a huge blessing for her and has raised the ceiling/potential of her business. In regards to freshness, one of the greatest qualities of macarons which almost fully eliminates waste is that they freeze very well. My mom has a walk-in freezer in her kitchen and receives direct orders from all Farm Boy locations on a weekly basis (those that need a top up anyway). She has 12 flavours that go in trays of 18 and the stores only order what they need. She only sells to Farm Boys that have a bakery section (which is most), which means they have a freezer and I believe the display case is refrigerated as well. They only display a tray of 18 at any given time with a few of each flavour they have on hand, which gets topped up from the freezer as the day goes on. They can stay fresh and flavourful for months frozen, and inventory both in Farm Boys and in her freezer turns over much more quickly than that, so she has no issues with freshness. I believe through Farm Boy alone she sells about 8,000 macarons per month. She has been with them since 2013 and they are very familiar with how to handle her products and how to minimize waste.
> 
> Online or in store, they should be very good. I believe she has shipped as far as Halifax before, so doesn't hurt to ask. Her little trays of 12 or 18 are very nice to bring to a Christmas party.


LOL, I never thought about freezing. When I buy my wife macarons they never last beyond a couple of days. Her mantra is from oven to mouth after 1 day(not before) and within 3 days refrigerated maximum. Freezing simply never enters the picture.

She is the same with chocolate truffles. They have to be freshly made and eaten within a couple of days regardless of quantity bought. 

I used to live somewhere with an orchard that had lemons, pomegranates, oranges, apricots, figs and grapefruit. I rented a villa on the property and often had breakfast with the property owner IN the orchards. His mantra was that no grapefruit (or any of the others) tasted the same as the one you plucked, sat down with your back to the tree and ate immediately. Tree to mouth in under 1 minute. He was admittedly a bit eccentric in many ways. 

My wife's birthday is at the end of this month so I will take a drive to the nearest Farm Boy and get her some. I just won't tell her they were frozen. We all have our own little beliefs we follow whether they are true or not. Why burst the bubble.


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