By Chantel Gibbs, CPA, CGA, B.Sc, B.A,
Senior Planner, ZLC Financial

As you are keenly aware, the markets have fallen significantly in the last month and a half and while there has been some recovery, they are still in a precarious position with the ongoing COVD-19 crisis. We have been through these financial shocks before with 2008 being the last significant one. It may be some time before markets recover to the levels they were previously at. In the meantime, we would like to share some planning tips that can be taken advantage of during this economic downturn.

• Tip #1: If you are looking at business succession, this could be an excellent time for a share freeze. A freeze exchanges common shares of a business for fixed value preferred shares. The planned successor(s) to the business would then subscribe for new common shares which effectively transfers the future growth on the business to them. By freezing the value of the business at a time that the business is devalued because of an economic crisis, you can keep your estate value lower and reduce your potential tax at death.
• Tip #2: If you have an IPP (Individual Pension Plan), the amounts your company can contribute are calculated on a three-year basis. If your company has a lot of cash, your salary has grown, and you wish to increase the amount of money your company can contribute to your IPP, you can request an interim valuation for a fee and have a new three year calculation done, allowing for more deductions for your company and tax savings.
• Tip #3: Our first gut reaction when the market falls suddenly is to sell everything and move into cash, but you will always lose more if you buy when the markets are good and sell when the markets are down. Instead, recognize the opportunity. When the markets are down is a good time to BUY those companies that still have strong fundamentals and a good balance sheet. Some banks and financial institutions are even offering low-interest loans with no margin call for investing. This is a good way for someone to get into the markets while the markets are low and ride it back up as the economy recovers. Timing is everything and no one can guarantee when the best time is or whether the markets might fall more. Consider how much risk you are willing to take on before leveraging to invest.
• Tip #4: If you do need to sell some of your portfolio or shift assets and trigger losses, you may have an opportunity to get some of your taxes back from prior years. When you sell stocks or funds for a capital loss in a non-registered account (not a TFSA or RRSP), that capital loss can be carried back up to three years to offset any capital gains you previously recognized in your taxable income. Capital losses can also be carried forward to help offset future capital gains.

As always, we are here to support you through this difficult time. We are working on continually providing resources that might be helpful in dealing with the current situation. Please reach out to any member of our ZLC team.