Q: Are there any changes I should be making to my investment portfolio in light of the recently passed Bill 43 and 2005 Federal Budget. What impact will this have on my portfolio? Are there any changes I need to make? – Maria L.
A: Last week, the 2005 Federal Budget received Royal Assent making it law. This legislation contained a number of announcements related to personal income tax that may affect your finances. The budget specifically addressed registered retirement savings plans (RRSPs), but there are four main points of note:
The annual contribution limit (currently $16,500 for 2005) is scheduled to increase as follows:
2006-$18,000
2007-$19,000
2008-$20,000
2009-$21,000
2010-$22,000
2011-Indexed to average wage growth
The RRSP Foreign Property Rule that currently limits the amount of foreign property to 30% of the account will be eliminated retroactive to January 1, 2005.
Qualified RRSP investments will now include investment grade bullion coins, bars and certificates.
Federally regulated Life Income Funds (LIFs) will no longer be required to be converted to an annuity by age 80.
Something to consider when reviewing your portfolio:
The Canadian stock market, as represented by the TSX/S&P 60 index, accounts for less than 3% of world capital assets. The federal government’s move in removing the foreign content limit gives us unfettered access to global markets and allows us to enhance the diversification of our retirement savings. This is important because it offers us the opportunity to increase potential returns over time and to reduce the effects of market volatility in our portfolios.
There are a number of ways to access foreign investments. A popular choice is to buy mutual funds or other pooled investments that invest directly in securities listed on any of the global stock markets. Alternatively, investors can buy listed securities on one of the foreign exchanges – such as the S&P500; American Depository Receipts (ADR’s) – which are U.S. dollar-denominated shares of international securities; or index, or exchange traded funds (ETFs) as they are known on many foreign exchanges. Today, almost 100% of the world’s equity is located outside of Canada. Re-balancing your portfolio to take advantage of new rules to invest in foreign markets may be prudent.
Bev is a Financial Planner with The Moir Team at ScotiaMcLeod in Toronto.
This article is for information purposes only. All performance data represents past performance and is not indicative of future performance. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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