Seven strategies to cope with financial fallout

Dealing with taxes, debt, and unemployment

As Canadians face the prospect of higher spikes in COVID-19 cases this fall, the financial fallout will be grim for millions who also face the loss of CERB and other safety nets that were available in the first wave of the pandemic. There are seven basic strategies advisors and clients can discuss now in anticipation of a 2020 tax year dominated by pandemic stress and a 2021 that may be characterized by more debt, and more tax audit potential:

1. Revisit personal and business budgets for September to year end.

2. Review prior filed tax returns for any missed tax deduction or credits (tax years 2010 to 2020).

3. Discuss debt management plans. What borrowing options are available and how can debt consolidation help? What is the difference between good debt and bad debt? Interest rates are low; it may be a good make sense to cover expensive, non-deductible consumer debt with low rate lines of credit. It is also most important to discuss the payment of tax debt, as CRA can take quick action if collections are at risk.

4. Discuss asset withdrawal plans to pay immediate bills. What is the most effective tax solution to withdrawing money for bill payment? What should be tapped first: RRSPs, TFSAs, or non-registered accounts?

5. Consider what investments will or should be dropped in 2020 – RRSP, TFSA, RESP? Dropping the RRSP, for example, may be a very bad idea if by doing so, refundable tax credits will drop too. These are important tax-free monthly income sources that can in fact be increased with an RRSP investment.

6. Put off pre-payments of insurance or mortgage balances. That may make sense in today’s low interest environment.

7. Consider the gig economy. Many who don’t qualify for CERB or EI may need to start their own proprietorship to make money if job prospects are otherwise poor as the pandemic continues. Discuss what this means from a tax point of view with your advisor.

Special note for tax, bookkeeping, and financial professionals. The financial fallout of the pandemic will manifest itself in several ways this fall: tax auditing for individuals receiving the CERB and EI payments, estimated Canada Child Benefits, OAS and other government benefits, tax audits for businesses receiving wage subsidies and GST/HST tax filing relief, as well as personal and business bankruptcy. As important, financial distress relating to family health care is at the forefront of planning. Tax, bookkeeping, and financial professionals who want to help clients weather these financial storms can come up to speed on these issues at the Virtual CE Summit on September 30.

Evelyn Jacks is an award-winning financial educator, best-selling author, tax expert, and founder of Knowledge Bureau™, a widely respected financial education institute and publisher which has welcomed thousands of students from the various financial services to its online and in-class programs. Follow Evelyn Jacks on Twitter @EvelynJacks. Visit her blog at www.evelynjacks.com.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.