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Why investors should pay for all investment fees out of non-registered accounts – The Globe and Mail

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Paying investment fees from a non-registered account can provide ease of cash management over a portfolio and may be easier from an administrative perspective.

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The Department of Finance Canada’s recent letter to the Canada Revenue Agency (CRA) stating that paying investment fees for registered accounts out of non-registered accounts does not constitute a tax advantage is a big win for investors, who are now free to pay their investment costs from any source they choose.

There are various advantages for investors to pay all investment fees out of a non-registered account. At the core, though, investors will end up with more money, after taxes, if they pay all the investment fees for a tax-free savings account (TFSA) or registered retirement savings plan (RRSP) from assets held outside of those accounts.

So, how did this all come about? In 2016, the CRA announced at a tax conference that its position on paying investment fees for registered accounts from non-registered accounts constituted an unfair advantage. Furthermore, the CRA stated that as of 2018, any taxpayer who engaged in this activity would be subject to a special advantage tax equal to the amount of fees paid outside of the registered account. The implementation was then postponed a couple of times pending a review from the Department of Finance.

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Then, the Department of Finance sent a letter this past August recommending that the Income Tax Act be amended to reflect its finding that there is no advantage to paying registered fees outside of a registered account and that such a decision by a taxpayer may not necessarily be tax motivated. In effect, it means the CRA will not penalize a taxpayer for paying investment fees for a registered account from a non-registered account.

For financial advisors and investors, there are various benefits to taking this approach, which is a way to increase assets with no added risk.

For one, investors may have investments that are less liquid in the registered account. So, paying for investment fees from a non-registered account can provide ease of cash management over the portfolio. In addition, paying all investment fees out of one account rather than from multiple accounts may be easier from an administrative perspective.

The main advantage for investors, though, is that registered accounts have an ability for greater compounding of returns than non-registered accounts because of the registered accounts’ tax-deferred or tax-free nature. That was the CRA’s main issue with this practice.

As an example, let’s consider an investor who has $100,000 in a TFSA and $100,000 in a non-registered account. Each account incurs investment expenses of 1.5 per cent, or $1,500, annually.

Matthew Ardrey, vice-president and wealth advisor at TriDelta Financial Partners Inc. in Toronto

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If all expenses are taken from the non-registered account, it results in more assets growing tax-free within the TFSA, as they’re not impeded by investment costs. Furthermore, it helps the investor save taxes as the capital base in the non-registered account will be lower, which will result in lower taxes against the income within that account as well as lower taxes on the capital gains when the funds are withdrawn.

The strategy is similar for an RRSP, except that the income from the RRSP will be fully taxable when it’s withdrawn from an RRSP or from a registered retirement income fund (RRIF) once the investor reaches retirement. Thus, the investor reduces the capital in the non-registered account today in favour of a much larger payment from a RRIF in the future. Although that payment will be taxable, it will presumably be when the investor is retired and in a lower tax bracket. In addition, as inflation will erode the value of money, it’s preferable to pay $1 of taxes in the future than $1 of taxes today.

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Although the advantage in the TFSA is clear, the advantage for the RRSP will be dependent on many factors, such as an investor’s tax bracket now and in retirement, inflation and even potential changes in tax policy.

For investors, this may not be the top tax-saving strategy available, but they should take advantage of every opportunity to improve their returns and reduce their taxes – especially when it can be executed with a simple administrative change.

Matthew Ardrey is vice-president and wealth advisor at TriDelta Financial Partners Inc. in Toronto.

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Brown Bolsters Student Financial Aid After 52% Investment Return – BNN

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(Bloomberg) — Brown University will expand financial aid for students with fundraising gains and returns from its endowment, which led the Ivy League in investment performance, with a 52% increase. The school will increase scholarships for moderate-income students and develop a college-preparatory program for students in its hometown of Providence, Rhode Island, among other initiatives, according to a statement Monday. Brown didn’t detail how much will be spent on the programs. The endowment contributed $194 million to the university’s operating budget in fiscal 2021, Brown said in a statement Monday. “The university has an enduring commitment to ensuring that talented young people can afford to come to Brown, regardless of their socioeconomic background,” Brown University President Christina Paxson said in the statement. “We are fortunate that strong financials provide us with a rare opportunity to make new investments in cultivating the next generation of leaders.”

Because Brown’s endowment contribution to the university’s operating budget is based on average market value over the previous three years, the investment returns contributed in fiscal 2021 are expected to steadily increase in each of the coming years, the school said Monday.

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Mastercard expands cryptocurrency services with wallets, loyalty rewards

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Mastercard Inc said on Monday it would allow partners on its network to enable their consumers to buy, sell and hold cryptocurrency using a digital wallet, as well as reward them with digital currencies under loyalty programs.

The credit card giant said it would offer these services in partnership with Bakkt Holdings Inc, the digital assets platform founded by NYSE-owner Intercontinental Exchange.

Founded in 2018, Bakkt went public earlier this year through a $2.1 billion merger with a blank-check company. Shares of the company were up 77% at $16.19 on Monday.

Mastercard said its partners can also allow customers earn and spend rewards in cryptocurrency instead of loyalty points.

The company had said in February https://www.reuters.com/article/us-crypto-currency-mastercard-idUSKBN2AA2WF it would begin offering support for some cryptocurrencies on its network this year.

Last year, rival Visa Inc had partnered https://www.reuters.com/article/us-blockfi-crypto-currency-visa-idUSKBN28B603 with cryptocurrency startup BlockFi to offer a credit card that lets users earn bitcoin on purchases.

Bitcoin, the world’s largest cryptocurrency, touched a record high of $67,016 last week after the debut of the first U.S. bitcoin futures-based exchange traded fund. It has more than doubled in value this year.

 

(Reporting by Niket Nishant in Bengaluru; Editing by Ramakrishnan M.)

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EU makes first investment in hyperloop – GCR

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The hyperloop will theoretically be able to travel at the speed of a jet airliner (Dreamstime)
Dutch engineering spin-off Hardt Hyperloop has been awarded €15m by the European Commission, the first time that the EU has directly funded the development of the ultra-fast transport concept.

The grant was disbursed by the European Innovation Council Accelerator to help the Dutch engineer and its partners continue research and development.

Tim Houter, co-founder of Hardt, said in a press statement that the decision was a vote of confidence in his company and the technology.

“It’s great to have now gained the trust of the European Commission. Their support will help to accelerate the development of a European hyperloop network, bringing us much closer to significant carbon dioxide savings. European cities will be connected smarter, faster and cheaper.”

The funding will also progress the European Hyperloop Centre in Groningen, set to demonstrate lane-switching for a high-speed hyperloop system in 2023.

A pilot project to move freight between Amsterdam and Rotterdam is being investigated by companies, governments and network organisations. Houter said he hoped the route could be developed in the Netherlands within this decade.

The EU is particularly interested in hyperloop because of its fit with the European Green Deal, and the commission’s strategy for sustainable and smart mobility. According to Houter, a European-wide network could save 160 million tonnes of carbon on an annual basis, which would be “more than the entire emissions of the Netherlands”.

Hyperloop pods move autonomously through low-pressure tubes, propelled by fluctuating magnetic fields supplied by the “track” they float over.

Hardt Hyperloop was founded in 2016 by engineers at Delft Technical University. It was involved in building Europe’s first high-speed test facility, and has developed a lane-switching technology that is reckoned to be essential to the development of networks.

Its partners include Schiphol Airport, Nederlandse Spoorwegen, Deutsche Bahn, Koolen Industries, InnoEnergy, Freigeist, Bam, Tata Steel and IHC.

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