Should you keep a credit card you don’t use?

Thank you for your questions, Lisa. When the introductory perks of your credit card come to an end, it’s common to wonder if the card is still worth keeping. In this article, we’ll look at the pros and cons of letting the card sit unused, as well as how to understand potential fees and how it may impact your credit score.

What happens when the promo expires?

When promo offers for a credit card in Canada expire, cardholders often see a shift in the terms and conditions of their account.

Typically, when you get a new credit card, the benefits might include promotional interest rates, bonus rewards points or cash-back offers for spending a certain amount in the first few months. 

When the introductory period ends, the credit card reverts to its standard terms. This means the interest rate will likely increase to the regular annual percentage rate (APR), which could be significantly higher than the introductory rate you had before. In addition, the rewards program might change, offering fewer points or different redemption options. 

Before the introductory benefits end, it’s important to check your credit card’s updated terms and conditions. The terms can often be found on your card provider’s website or by conducting an online search. They are mailed with the card, too, so check to see if you have this document filed away in a folder or junk drawer. It will help you understand the new costs and changes in rewards so you can adjust your spending habits and manage interest charges effectively.

The pros and cons of keeping a card you don’t use

If you’re thinking about not using your credit card after the introductory period of welcome-offer perks ends, there are some pros and cons to consider. Before making a decision, it’s important to understand how letting a credit card go dormant could impact your credit score and overall financial health in the long term. 

Pros 

• Keeping credit cards open can benefit your credit score by building a longer credit history. When you keep the card active but not in use, you maintain its positive credit history, which can help boost your credit score. 
• It also helps with your credit utilization ratio, which is the percentage of your total available credit that you’re using. 
• Keeping the card active but not spending on it increases your total available credit, which can lower this ratio and improve your credit score. 

Cons 

• Some credit card companies might hit you with an inactivity fee, if you don’t use the card for a long time, which can offset any potential benefits or rewards. 
• If you haven’t used a credit card for about a year or longer, there’s also a chance the issuer may decide to close the account. This could hurt your credit score by shortening your credit history and possibly raising your credit utilization ratio. 

It’s important to weigh these risks and check with your issuer about its policies before deciding to let a card go dormant.

The biggest con of keeping a credit card you aren’t using

You might be surprised to know that dormant accounts have fees. In Canada, credit card companies often charge an annual fee, whether or not the card is active. This fee can range anywhere from about $7 for a basic card to $700 for a premium one. Some issuers may also charge an inactivity fee if the card has been dormant for several months. These fees usually range between $25 and $50. 

Carefully read the terms and conditions of your credit card so you know what charges to expect. Since fees can vary between different credit card issuers, it’s important to be aware of the specifics for your card. Regularly checking your account can help you spot any unexpected fees early. 

If you find that you no longer need the credit, review any potential closure fees before deciding to cancel the card, too. Instead, you could look into downgrading the card, transferring balances, or using the card at least once a year for a small purchase to keep the account active.

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MoneySense is an award-winning magazine, helping Canadians navigate money matters since 1999. Our editorial team of trained journalists works closely with leading personal finance experts in Canada. To help you find the best financial products, we compare the offerings from over 12 major institutions, including banks, credit unions and card issuers. Learn more about our advertising and trusted partners.

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The impact of dormant cards on your credit rating

Letting a credit card go dormant can impact your credit score in a few ways. As noted above as a con, if you don’t use a card for a long time, your credit issuer might close the account, which reduces your total available credit limit. For example, if your total credit limit drops from $10,000 to $8,000 with the account closure but your spending remains at $2,000, your utilization ratio rises from 20% to 25%. A higher ratio can negatively affect your credit score because it suggests you’re using more of your available credit.

Having a mix of different credit types—such as credit cards, student loans, mortgages and car loans—helps maintain a healthy credit score. If a card is closed, you lose some of this diversity, which can also impact your score.

Consistent on-time payments are crucial for maintaining good credit. Even if a card is dormant, missing payments can damage your score. To avoid this, pay more than the minimum payments on your credit cards and make all payments on time, every time. 

It is important to review your credit report and score at least once a year to make sure there are no errors. You can obtain your credit report and score through Canada’s two credit bureaus, Equifax and TransUnion, a third-party service, or your bank’s website or mobile app. Even without any errors, regularly checking your report can help you better understand how your financial habits can affect your score and helps you see ways to improve it and manage debt better.

Should you ever stop using your credit card?

If you’re worried about letting your credit card go dormant, there are a few alternatives. Consider transferring balances from other credit cards or look at downgrading and switching to a no-fee version of the same card. Both of these options keep your account open and your credit utilization ratio low.

You can also keep the card active by using it occasionally for small purchases, setting up a small recurring charge on it, or making it your go-to card for a regular expense, like buying gas. This helps keep your account in good standing without much hassle.

How many credit cards is too many?

There isn’t a set rule for how many credit cards Canadians should have in their wallets. The number of credit cards that is right for you depends on what you can afford to spend and pay back on time. Remember, it’s not just about the number of cards you have, but how responsibly you use them. 

If you’ve been successfully managing a single credit card without issues and your income and expenses are stable, you’re likely in a good position to take on another card. Having a diverse mix of credit and loans will also boost your credit score. However, if managing the credit card(s) you have is putting a strain on your finances, it might be best to hold off on applying for another until you’re confident that you won’t be at risk of overspending or missing payments.

Get support with credit management

Lisa, keeping the card open can benefit your credit score by adding to your credit history and improving your credit utilization ratio, though it may come with fees or the risk of account closure. However, letting the card sit unused could lead to indirect effects on your credit score over time. To make the best decision, stay informed about your card’s terms and fees, and consider how each option fits with your overall financial goals.

As professionally certified Credit Counsellors with Credit Canada, we can help you understand your credit and offer personalized advice on how to address debt. If you need support, contact us today to book a free credit-building counselling session.

Read more about credit cards in Canada:

• 6 things you didn’t know could be hurting your credit rating
• Benefits, fees, hidden perks: Choosing the right credit card for your lifestyle
• What happens if you get rejected for a credit card?
• How much credit card debt does the average Canadian have?

The post What happens if you don’t use your credit card? appeared first on MoneySense.

Fractional trading is a great way for young people to get started in investing, said Kalee Boisvert, investment adviser at Raymond James Ltd.

If a stock is trading at $300 per share, for example, the investor can buy a portion of one share and start building their position in that stock over time, Boisvert explained. 

Young people in particular sometimes shy away from starting to invest because they don’t have large quantities of money set aside. Boisvert recalled being fearful of investing in the stock market in her 20s because of that very reason. 

“I thought that you had to have a lot more money to start and I didn’t start until much later,” she said. Looking back, she realizes how much she missed out on in terms of compounding because she delayed her investing journey. 

Fractional trading removes that mental roadblock of needing a huge sum of money to invest and makes stocks more accessible to people, Boisvert added.

“The idea is you can start investing with less money, you can buy stocks that maybe were seen as expensive,” Boisvert said. 

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TD Direct Investing is Canada’s first bank-owned brokerage to offer fractional trading

Fractional trading has been around for a long time and is fairly common on do-it-yourself trading platforms such as Wealthsimple or Robinhood. 

On Robinhood, for instance, a fraction of a share can be one-millionth of the whole share. 

Last week, TD Direct Investing launched fractional trading to allow customers to buy and sell fractions of stocks and exchange-traded funds for as little as $5. 

Cindy Marques, CEO of financial planning company MakeCents, said the popularity and ease of trading on DIY investing platforms have challenged big banks to open their doors to easier ways of trading. 

“They have to compete,” she said of the big banks expanding to fractional trading. 

Marques said trading apps have made investing straightforward in many ways for Canadians and at low cost, without having to work with an adviser or visit a bank.

Your rights as a fractional share owner

With fractional ownership comes fractional rights to dividends and voting in a company. 

“You still have all the same rights,” Marques said. “It will just be in proportion to the shares.”

If an investor bought 50% of a share, the fraction of the dividend will be equivalent to that proportion, pro-rated to the ownership of that stock. Likewise, the weight of the vote is pro-rated to the fractional share, Marques explained. 

When it comes to selling fractional shares, it’s similar to selling a whole share, except investors can put the exact dollar amount they’d like to get from the sale instead of the number of shares, said Boisvert.

The basic investing rules still apply—so do your own research

Marques warned trading, whether whole or fractional, isn’t for everyone—especially those who can’t make time to research a company before buying. 

“Although it makes (trading) easier to do so fractionally with a smaller budget, that takes a lot of research,” Marques said. 

“In many cases for your average Canadians who may not have the time or the interest or the expertise in researching companies or taking this kind of a gamble on just one company, it’s still more appropriate to work with managed portfolios,” she suggested.

The basics of investing still apply to fractional investing, Boisvert said, such as keeping in mind your time horizon and risk tolerance. 

For instance, if you have a goal to put a down payment on a home in the next year, the investor shouldn’t be putting that money into equities that can be volatile in the short-term, she explained.

Instead, rely on tried-and-true investment concepts like diversification, which is also easier to achieve with fractional units, she said. Fractional shares also make it more accessible to purchase stocks at various price points, especially when the purchases are spread across months. 

It’s important to not put all of your eggs in one basket, and have no more than 5% of a portfolio in any one holding, Boisvert added.

“When we’re talking about buying units of shares, keep in mind to avoid FOMO (fear of missing out),” Boisvert warned. 

She said young investors often gravitate toward stocks that are gaining popularity. But if a stock is soaring, chances are you’re a bit too late to the game already, Boisvert added. 

She suggested a Warren Buffett–style approach to the stock market where investors put their money to work in companies they’re comfortable owning for years. 

Fractional ownership could also help those hoping to get in on Buffett’s investing results, as even Berkshire Hathaway Inc.’s B shares sell for about USD$430 each. Still, that’s a bargain compared with its A shares, which run around USD$646,000 a pop. 

More about investing:

• How to invest as a teenager in Canada
• Buying your first stocks in Canada
• TFSA contribution room calculator
• Using a HELOC as an investment strategy: not as taboo as you might think
• Best robo-advisors in Canada

The post Fractional trading puts pricey stocks within reach of new and younger investors appeared first on MoneySense.

It doesn’t matter whether you own a restaurant, hustle as a freelance designer or work as a day labourer on a landscaping crew—you cannot depend on a pension to support you in your golden years. Unless you have significant real estate or investment income, your business will need to fund nearly every cent of your retirement. So, how do you do it? 

Thuy Lam, a senior financial planner and money coach with Objective Financial Partners, works with both sole proprietors and employers with staff or contractors on their payroll. Saving for retirement as a self-employed person is possible, she says, but it requires both discipline and creativity. 

“I would say that the world of investment opportunities is open to you,” Lam says. In fact, self-employed people can use some tricks their employed friends can’t to put aside more for retirement every year. 

Start saving for retirement with government programs

Every Canadian is eligible for the Canada Pension Plan (CPP) if they’ve worked in the country, and anyone over the age of 65 who meets the eligibility requirements can also qualify for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). The latter two programs aren’t directly funded by taxpayers. But CPP has a catch: As a self-employed person, you pay both the employer and the employee contributions, which is an added expense compared to being employed by someone else.

So, at a minimum, how much should you save to retire?

Lam says there isn’t a clear answer on how much to save fore retirement, though there are helpful retirement planning tools available online, such as the Retirement Budget and Retirement Cash Flow calculators on the Ontario Securities Commission’s Get Smarter About Money website. 

“My advice always starts with cash flow, being in tune with what’s going in and what’s going out,” Lam says. That means getting answers for the following questions:

• When do you earn a lot of money?
• When are the lean months?
• What are the biggest long-term financial priorities in your life, and how much do you have to allocate to them?

Once you’re able to understand these dynamics, Lam says, you can start working backwards to figure out how much money you should be setting aside now for retirement. 

A rule of thumb is to set aside between 15% to 20% of your take-home income for retirement. This is higher for self-employed workers than other Canadians, who are typically told to save around 10%. Self-employed Canadians tend to pay higher contributions towards CPP and other taxes.

Another rule, Lam offered, is to save roughly 25 times the amount of money you’d need for a year. 

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MoneySense is an award-winning magazine, helping Canadians navigate money matters since 1999. Our editorial team of trained journalists works closely with leading personal finance experts in Canada. To help you find the best financial products, we compare the offerings from over 12 major institutions, including banks, credit unions and card issuers. Learn more about our advertising and trusted partners.

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Max out your RRSP, especially in good years

Once you figure out how much money you need to retire, there’s the question of where to put it. Many workers, including those with employer-supported pension plans, save money in a registered retirement savings plan (RRSP). Maxing out any remaining contribution room is always an important strategy, but it is doubly so for self-employed people. Workplace pension plans cut into the maximum yearly allocation you can make to an RRSP, but as a self-employed person, you can put away far more than someone drawing a salary. 

“If you are a sole proprietor, or if you’re incorporated and you’re paying yourself a salary, be sure to take advantage of maxing out your RRSPs,” Lam says, “because you have the ability to progressively grow registered assets.”

In 2024, the maximum contribution any Canadian can make to an RRSP is $31,560, or 18% of their earned income from the previous year, whichever is lower. Of course, any unused room in a previous year can be carried over to the next year. Don’t hesitate to do so if you’ve been lagging in your RRSP contributions.

Self-employed people often struggle with unpredictable income. Their restaurant, design studio or landscaping business might be doing great in one year, then fall flat the next. Or the small business can have periods of ups and downs throughout year. It matters that you save money in an RRSP because of Canada’s graduated tax system, as higher income earners pay a higher percentage of their gross income on taxes.

“You want to be able to [contribute to] your RRSPs in years when you have higher income, so you get the higher tax deductions,” Lam says. 

Selling your business or assets

On top of maxing out RRSP contributions, Lam suggests self-employed people should also make use of tax-free savings accounts (TFSAs). These accounts, as the name suggests, offer a temporary reprieve from taxes on anything in them, which can be great for self-employed people who may owe far more in taxes than their friends on a payroll. Of course, TFSAs aren’t just for cash; you can also add longer-term investments, like exchange-traded funds (ETFs) and other securities. 

For self-employed Canadians who own real estate or other physical assets, including intellectual property, equipment and other business-related assets, selling it off could give your retirement nest egg a significant boost. It’s a popular strategy: according to a 2023 report by the Canadian Federation of Independent Business, roughly $2 trillion in business assets is set to be sold in the next decade, and three-quarters of owners who plan to sell are doing so to fund retirement. 

However, as BDC (Business Development Bank of Canada) points out, depending on a business sale to fund your retirement can be tricky. “Selling to an outside buyer could allow you to walk away with a very comfortable nest egg: an outside buyer is more likely to offer a higher sale price,” it says on its website. “However, outside sales can often be more turbulent than other choices.”

The process of assessing your business for sale is something you should absolutely leave to the experts, namely a succession planner and a financial advisor. 

Have an exit strategy

Regardless of how you decide to put aside money for retirement, Lam says you should be as consistent as possible with contributions to your nest egg. That isn’t always possible in the feast-or-famine world many self-employed individuals live in, but paying attention to your retirement now is what will help you enjoy it down the road. “Sometimes, self-employed individuals, we forget about ourselves,” Lam says, “and we focus on business.” 

Read more about retirement:

• What’s my RRSP contribution limit?
• Annuity vs. GIC: What makes sense for retiring?
• How to double your CPP income
• How much money should I have saved by age 40?

The post Self-employed with no pension appeared first on MoneySense.

Note: The MoneySense Find A Qualified Advisor tool is a paid service for advisors in partnership with the Financial Planning Association of Canada. Members of the association must be an accredited CFP, R.F.P, F.Pl or QAFP.

What’s the difference between the types of advisors listed in the tool?

The Find a Qualified Advisor tool allows you to search for advisors by Qualifications, Location, Services, Specializations and Payment Model. 

A note about location: Maybe you’ve already tried searching for “financial advisor near me” or something similar. Many advisors now provide services virtually, so you don’t necessarily need to find an advisor in your own town or city. 

The advisors listed in our tool provide different services and have different specializations, and they have a variety of financial planning designations. In addition, they charge for or get paid for their services in several ways. Here’s how to understand these criteria: 

Services 

The advisors in our directory may provide some or all of the following services:

• Financial planning: These advisors can evaluate your current and future financial states and provide a comprehensive financial plan with recommendations to optimize your situation while taking into account your goals and values. A financial plan can also focus on a specific goal or circumstance, such as planning for post-secondary education funding, debt repayment, financial planning as part of a separation or divorce, risk management or retirement, to name only a few examples. See below for a list of different financial planning designations.

• Investment planning and implementation: These advisors can provide specific investment recommendations and implement them by investing your money for you. To provide investment planning and implementation services, an advisor must be licensed by the investment regulatory body in every province and territory where they provide services, and they must manage money through an investment dealership.
• Insurance planning and implementation: These advisors can provide specific insurance recommendations and implement them by selling you insurance products. To provide insurance implementation services, an advisor must be licensed by the insurance regulatory body in every province and territory where they provide services.
• Mortgage/lending implementation: These advisors can provide specific mortgage and lending recommendations and implement them for you by arranging mortgages, term loans, consolidation loans and other forms of credit. To provide mortgages, these advisors must be licensed as mortgage brokers or mortgage agents in every province and territory where they provide services. 

Specializations 

The advisors in our directory may specialize in specific types of advice or services—such as cross-border or international financial planning, socially responsible investing, business succession planning or retirement income planning.

Qualifications 

The advisors in our directory are all members of the Financial Planning Association of Canada. In accordance with FPAC membership requirements, they all have at least one of the following financial planning designations: 

• Certified Financial Planner (CFP)
• Qualified Associate Financial Planner (QAFP)
• Registered Financial Planner (R.F.P.)
• Financial Planner (Quebec only) (F.P.l.)

FPAC members listed in this directory may have additional qualifications, including: 

• Chartered Financial Analyst (CFA)
• Certified Financial Planner (CFP) (U.S.)
• Trust and Estate Practitioner (TEP)
• Family Enterprise Advisor (FEA)
• Chartered Life Underwriter (CLU)

Several of these designations are registered or trademarked (including CFP, QAFP and others), and financial professionals must meet rigorous requirements to earn them. To learn more, click the provided links, which will take you to the official issuing body for each designation.

When looking for a financial advisor, it’s important to do your own research, including a background check and verifying that the advisor has the right credentials to call themselves a financial planner or a financial advisor. If you live in Ontario, you can use the Check Credentials Tool, launched by the Financial Services Regulatory Authority of Ontario (FSRA), the province’s financial services regulator, in March 2024.

Payment model 

Advisors may charge for their services in different ways, and they may get paid for their services in multiple ways. Here are all the ways they may be paid: 

• Fees paid by clients based on assets managed by an advisor: Advisors using this “assets under management” or “AUM” payment model charge fees based on the assets they manage on the client’s behalf. For example, if the advisor charges a 2% fee on assets of $100,000, a client would pay $2,000 in annual fees for the advisor’s services.
• Fees paid by clients for advice (not based on assets): Some advisors are “advice-only” planners who charge fees for financial planning advice. Their fees depend on the type and complexity of advice provided. Advice-only planners do not recommend specific investments or insurance products, and they do not manage investments for clients or sell insurance products. Instead, an advice-only planner might review a client’s investment portfolio and make recommendations about their asset allocation, or they might review a client’s overall insurance coverage and recommend where to increase or decrease coverage. Some advisors who manage assets for clients also provide advice for an additional fee (not based on the client’s assets).
• Commissions: Advisors may be paid in the form of sales commissions on products they sell to clients. Products that pay commissions to advisors include mortgages, insurance policies, life annuities, mutual funds and other types of investments. When an advisor is paid by commission, the client does not pay the advisor for that product directly. Instead, the advisor receives the commission directly from the investment or insurance product issuer.

Advice on choosing an advisor

Before choosing an advisor, first consider your needs and goals, then use the Find a Qualified Advisor tool to identify the advisor or advisors who may be right for you. For example: 

• Are you looking for a comprehensive view into your overall financial situation and ability to meet your goals over the longer term? 
• Are you looking for advice about a specific situation such as buying a house, planning for retirement or commuting a pension?
• Do you want investment recommendations and someone to manage your investments for you? 
• Are you looking for a review of your insurance needs, and do you want to purchase insurance coverage to meet those needs? 

Your answers to these questions will help you identify the type of advisor you are looking for, and the Find a Qualified Advisor tool will help you find advisors in Canada who meet your criteria. 

You can learn more about the advisors in our directory by clicking on an advisor’s name, which will take you to their profile page. 

Does your advisor need to be local?

Zoom. Skype. FaceTime. Google Meet. Microsoft Teams. How we meet with our financial planners has changed a ton since 2020. More advisors offer virtual meetings for financial planning, and clients seem to like it, too. 

A 2022 study found that 57% of people polled preferred virtual meetings. And 29% would use video meetings exclusively, and 28% like a mix with occasional in-person meetings. 

The advisors on this qualified advisor tool offer virtual meetings for introductory calls, financial planning and check-ins with clients. So, if you don’t find someone in your city, know that you can connect with a Canadian qualified advisor somewhere else. Just be sure to check that their services align with your needs.

The post The MoneySense Find a Qualified Advisor Tool appeared first on MoneySense.

David Miller’s specialty is in helping successful Canadian individuals and families uncover and address their investment and financial planning needs on both sides of the border. He is a registered portfolio manager in Alberta, British Columbia, Saskatchewan, Prince Edward Island and Ontario, and is also a U.S. registered investment advisor. 

Miller’s goal is to safeguard the financial dreams of his clients. He strives to protect the assets they have worked hard to accumulate throughout their lifetime. Miller provides objective advice based on his deep and thorough understanding of each client’s personal situation. He delivers comprehensive cross-border financial planning advice while making it easy to understand. He is bound by a fiduciary standard. He places his clients’ interests first, above all else.

Who does he work with? For the last 20 years Miller has been committed to assisting families, business owners, and retirees on both sides of the border. He works alongside a highly experienced, independent, wealth management team at Cardinal Point Wealth Management.

Why did you become a planner?

“After reading Rich Dad Poor Dad (Warner Books, 2000), I realized that there’s a significant need for financial literacy in this country.”

What is your approach to financial planning?

“It’s always goals-based planning, client-first advice and evidence-based investing.”

What is your proudest achievement as a financial planner?

“Being nominated to the board of the Institute of Advanced Financial Planners.”

What would you do if money were no object?

“I would help individuals and families become more confident with their finances through financial education.”

What is the best money advice you ever received?

“Focus on what you can control—stop worrying about the rest.”

What is the worst money advice you ever received?

“Put your trust in the banks.”

Contact David Miller

• Calgary, A.B.
• Cardinal Point Capital Management
•  403-457-3285
• linkedin.com/david-miller

The post David Miller Certified Financial Planner appeared first on MoneySense.

The Canadian bank said Monday it will pay a total of about USD$2.8 billion for a 14.9% stake in the company in two stages.

The deal significantly increases Scotia’s spending on its priority markets, said chief executive Scott Thomson in a statement.

“We believe that this transaction provides attractive near-term returns to our shareholders and creates future optionality for Scotiabank in the North American corridor.”

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MoneySense is an award-winning magazine, helping Canadians navigate money matters since 1999. Our editorial team of trained journalists works closely with leading personal finance experts in Canada. To help you find the best financial products, we compare the offerings from over 12 major institutions, including banks, credit unions and card issuers. Learn more about our advertising and trusted partners.

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“Surprise deal” will increase Scotiabank’s North American exposure

The bank announced a “refreshed” company strategy last December that included pulling back new spending on some Latin American countries as it focused resources closer to home.

The deal with KeyCorp gives it a greater foothold in the U.S., where other Canadian banks have also been expanding their presence.

Under the agreement, Scotiabank will acquire its stake through the issuance of a total of 163 million KeyCorp common shares in two tranches at a price of USD$17.17 per share.

National Bank analyst Gabriel Dechaine said the surprise deal is expected to add value and increase its North American exposure. But he thinks investors were expecting Scotiabank to pull back from acquisitions, and that any plans for the bank to increase its stake in KeyCorp could sap capacity to spend capital elsewhere, like buybacks.

The banks say Scotiabank will make an initial investment of USD$800 million for a 4.9% stake that is expected to close in its fourth quarter, subject to clearances and regulatory approvals.

The deal will be followed by an additional investment of USD$2 billion for a 10% stake that is expected to close in fiscal 2025.

KeyCorp operates in 15 states, with about 1,000 branches offering commercial and retail banking and investment advice and services.

Read more about stocks:

• The best dividend stocks in Canada
• Disney earnings: Results show profit, stock falls 2%
• Shopify weathering softening consumer spending
• AI ETFs in Canada: How investors can ride the AI wave

The post Scotiabank increases U.S. foothold with stake in KeyCorp appeared first on MoneySense.

Here, we’re focusing on splitting pension income, which can include income sources that are not from traditional pensions.

Can you split your income?

Here’s a quick table for when you can and when you can’t split your income. Tap the pension income type to keep reading for the why and how.

Income splitting for DB pensions

When people think of pensions, they typically think of defined benefit (DB) pension income. DB pensions are calculated based on a formula that generally considers annual income and the number of years as an employee with the employer offering the pension, along with other factors, too. Most DB pensions will not make payments until age 55, but it may be possible to collect a pension earlier.

DB pension income qualifies to split with your spouse or common-law partner. You can move up to 50% of the income to your spouse on your tax returns. You claim a deduction and they claim an income inclusion. You would only split pension income if it resulted in a net advantage, whether a reduction in combined tax payable or an increase in government benefits.

Can you split income for SERPs?

Supplemental executive retirement plans (SERPs) are non-registered plans for executives or other employees. And it bears mentioning that a supplemental DB pension, or top-hat executive pension, with payments that exceed the registered pension plan (RPP) maximums will not qualify for splitting.

These pensions include a registered portion and an unregistered portion. The registered portion can be split, but the unregistered portion can only be reported on the recipient spouse’s tax return. The split between registered and unregistered will be reported on the pensioner’s government-issued tax slip so should be clear.

What about RRSPs?

Most people’s retirement savings are in their registered retirement savings plan (RRSP) account, including defined contribution (DC) pensions. RRSP withdrawals do not qualify for pension income splitting. However, if you convert your RRSP to a registered retirement income fund (RRIF), subsequent withdrawals will qualify starting when the account holder reaches age 65.

You do not have to convert your RRSP to a RRIF until December 31 of the year you turn 71, with withdrawals beginning at age 72. But the ability to split RRIF withdrawals at 65 may cause someone to consider converting their account by age 64.

Be sure the subsequent minimum withdrawals required each year from a RRIF fit into your overall decumulation plan. If you’re still working or you might have extraordinary income from the sale of a rental property, a cottage or investments in a non-registered account, you may not want to convert your RRSP just yet. Or at least you might convert only part of your account. You do not have to convert your entire RRSP to a RRIF all at once.

Do foreign pensions and retirement accounts qualify for income splitting?

Foreign pension income may qualify for pension income splitting if it is taxable in Canada. Most foreign pensions are taxable in Canada.

One important distinction is that income from a U.S. pension or 401(k) is eligible for pension income splitting, but income from a U.S. individual retirement account (IRA) is not. An IRA is like an RRSP.

A 401(k) can be transferred to an IRA. Before transferring a 401(k) account to an IRA, you should consider whether there are potential tax savings from being able to split the eligible 401(k) pension income instead.

The Canada Pension Plan and Old Age Security

Despite being pensions, the Canada Pension Plan (CPP) and Old Age Security (OAS) are not eligible for pension income splitting. However, there may be a way to proactively split your CPP with your spouse or common-law partner.

When you apply for CPP, you can complete an Application for CPP Pension Sharing of Retirement Pension(s). Service Canada will compare your pensions earned during your relationship and split the pensions accordingly for future payments. This may result in some of the retirement pension income earned by the higher-income spouse or the spouse who contributed for more years being moved to the other spouse. Before doing this, you should try to estimate future retirement income to make sure it is advantageous. 

Options for business owners

The Tax on Split Income (TOSI) rules that were introduced in 2019 made it more difficult for people with corporations to pay dividends to their spouse. A spouse who has not worked in the business may be prevented from receiving dividends and having them taxed at their lower tax rate unless the owner-manager is 65.

At age 65, the business owner can have dividends paid to a spouse which are exempt from TOSI and can be taxable to them. This effectively allows business owners with corporate savings or corporate income to split some of their notional pension—their business value—with a spouse.

How to split income for retirement

If you want to plan ahead, the higher-income spouse can contribute to a spousal RRSP in a lower-income spouse’s name. The contributor spouse gets the tax deduction, and the contribution uses their RRSP room, while the account-holder spouse can withdraw the funds in the future.

Watch out for the spousal attribution rules if you contribute and withdraw within three years. And, do not rule out this strategy simply because you think you can split your pension income in retirement. What if the rules change in the future? Spousal RRSPs may be a good way to mitigate this risk. Income splitting can reduce tax payable between spouses. It is important to plan ahead for pension income splitting before you retire and to consider annually when you file your tax return how to best maximize the income that can be transferred.

Read more about income splitting:

• 4 strategies for income splitting with a lower-income spouse
• Should you always split your pension income?
• An easy guide to income splitting for seniors
• How to invest with spousal loans for Canadians—and how to pay it back

The post Which types of pension income can be split with your spouse in retirement? appeared first on MoneySense.

“Anytime you have major weather-related events, it tends to increase costs,” said Frank Scali, vice-president of industry affairs at Food, Health & Consumer Products Of Canada. These kinds of events are becoming more frequent and intense in Canada and around the globe. 

A 2019 federal government report said temperatures are projected to keep increasing, driven by human influence, while precipitation is also projected to increase.  

Canada’s weather and food prices

Weather plays a big role in food production, and factors like too much or too little heat or moisture can affect not only the volume of food produced, but also the prevalence of pests and diseases, said Amanda Norris, senior economist at Farm Credit Canada. “Weather can also impact activities further down the supply chain,” she said. “For example, you might have damaged infrastructure from floods that changes transportation routes and the ability to move those products along the food supply chain.”

Shortages caused by extreme weather can also drive food prices higher if supply isn’t able to meet demand, she said. 

According to a July report from the Canadian Agri-Food Policy Institute, the agriculture industry has faced a “cascade of challenges” recently, including climate change, with the ripple effects of these headwinds reverberating throughout the supply chain. In a survey for the report, respondents from the industry as well as members of government identified extreme weather as one of the top risks to the agricultural sector. 

The costs of floods and fires

Major flooding in B.C. three years ago hit farmers hard, with hundreds of thousands of chickens and other farm animals dying after atmospheric rivers caused flooding and landslides. Drought in 2023 strained crop production in Saskatchewan, with output declining almost 11%, two years after a historic 47% production decline due to extreme heat and drought in 2021. 

The agriculture industry has been able to make itself somewhat more resilient to things like drought by changing some of its practices, said Tyler McCann, managing director at the Agri-Food Policy Institute, such as using a no-till technique to keep more moisture in the earth. Those practices can’t protect crops from the most extreme weather, he said, but they do help in other years. 

Extreme weather in other parts of the world can also affect farmers if input costs, like fertilizer, go up, or if there’s a shortage of a major crop that wreaks havoc on commodity prices, said McCann. “An extreme weather event in China or India at the wrong time could lead to pretty significant, devastating consequences, because there really isn’t enough wheat in the rest of the world to make up for the potential losses,” he said. 

While farmers often see direct impacts from extreme weather events, for those further along the supply chain, like manufacturers and processors, the effects are usually indirect, said Scali. 

Supply chains are generally designed to keep the lowest cost in mind, meaning the risk of disruption is higher, he said, such as having one large factory instead of multiple smaller ones, or being reliant on a single source for an important input. A disruption on one part of the supply chain can create a “domino effect,” he said. 

However, the COVID-19 pandemic and resulting supply chain snarls have shown companies that sometimes the lowest-cost option is too risky, said Scali. Lots of companies have mapped their supply chains, turning to multiple sources for inputs or identifying backups. “It really put everybody a step ahead,” he said. But these kinds of changes can’t mitigate every potential disruption, said Scali, and shortages and price volatility are likely to get worse.

Getting food across Canada

Extreme weather doesn’t just affect the commodities themselves, it can also disrupt transportation. Fires in Western Canada are the most recent example, Scali said, where rail lines were shut down. “Yes, you can put stuff on trucks, but there’s never enough truck capacity in the country to make up for rail. So things will be delayed, and it’ll get more expensive,” he said. 

If it’s a one-time disruption, the company usually tries to absorb it, he said, but longer-term disruptions or changes usually mean prices will have to go up. 

What Canadians can expect with food prices

Canadians may notice the effects of extreme weather events on their food in two ways: when prices go up, and when items are suddenly no longer available. 

In November 2022, lettuce prices spiked amid a shortage of iceberg and romaine, attributed to a virus in a major lettuce-growing area in California. The following spring, the valley was hit by severe rain and storms, causing flooding. 

Earlier this year, spiking cocoa futures highlighted the effects of high temperatures, weather conditions and disease in West Africa, where crop yields were damaged. 

Orange juice prices saw a similar spike this spring, as flooding and drought damaged harvests in Brazil, a year after Spain and Florida both suffered lower orange production amid drought and Hurricane Ian, respectively. Strawberries are also at risk. According to the University of Waterloo, the berries are set to become more rare and costly as temperatures rise. It noted Canada is a major importer of strawberries from California. 

This year, many of the food categories that saw volatility in recent years have stabilized, Michelle Wasylyshen, spokeswoman for the Retail Council of Canada, said in an email. However, current extreme heat in Western Canada and the U.S. could affect some prices in the fall and winter, she said. Geopolitical conflicts add to the mix, she said. “The ongoing conflict in Ukraine has made us more dependent on Canadian grain, so when that is impacted by extreme weather, it has more of an impact than before.”

Read more about food prices:

• Is food inflation squeezing your budget? Credit card rewards can help manage costs
• Why is chocolate getting so expensive?
• How Canadians can save money on gas, grocery, cellphone and other home bills
• Inflation and food costs are rising, but so is food waste

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