Canadian MoneySaver - Look Abroad To Reduce Local Risks

EDITOR-IN-CHIEF: Lana Sanichar

EDITOR: Peter Hodson

CONTRIBUTING EDITORS: Ed Arbuckle, Isabelle Beaudoin, John De Goey, Donald Dony, David Ensor, Derek Foster, Benj Gallander, Janet Gray, Robert Keats, Ken Kivenko, Marie-Josée Loiselle, Moez Mahrez, Ryan Modesto, Richard Morrison, Caroline Nalbantoglu, Brian Quinlan, Wynn Quon, Rino Racanelli, Barkha Rani, Colin Ritchie, Norm Rothery, Rita Silvan, Allan Small, Barbara Stewart, Kornel Szrejber, Brian Tang, Becky Wong.

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Canada Post Publication No. 40035485

MAY 2023 Volume 42, Number 7

Well, finally the weather is getting warmer, at least here in Kitchener, Ontario.

Investors can start looking forward to a summer of BBQ's and vacations.

In the 'old days' summers used to be very quiet in the investment business. It was hard for investment bankers to put deals together when everyone was on vacation. But no more. With technology keeping workers tethered 24/7, money now truly never takes a single day off.

But you don't have to be tied to your computer or phone. Are you comfortable with your investments? Have you set up your asset allocation to meet your goals? Do you have an investment plan? Are you diversified enough?

Take a cue from your portfolio: If you can't ignore your portfolio for at least two weeks, and enjoy a stress-free vacation, you are probably doing something wrong.

Peter Hodson, CFA

MoneySaver DIVIDEND & COMPANY NEWS

In this column we list recent news, events, dividend income news and any other relevant information for MoneySavers. News items are those received after our last publication date. Please go to https://www.5iresearch.ca/dividend-updates for a more comprehensive list of dividend updates.

■ Enghouse (ENGH) raises dividend by 19%.

■ Linamar (LNR) raises dividend by 10%.

■ Stella Jones (SJ) increases dividend 15%.

■ Richard’s Packaging (RPI.UN) declares special $0.38 dividend.

■ Corus Entertainment (CJR.B) cuts dividend by 50%.

■ Wajax (WJX) boosts dividend by 32%.

■ Labrador Iron Ore (LIF) cuts dividend by 29%.

■ Parkland Corp. (PKI) raises dividend by 4.6%.

■ Crescent Point Energy (CPG) declares a special $0.032 dividend.

■ Canadian Natural Resources (CNQ) raises dividend by 5.9%.

Canadian MoneySaver MODEL ETF PORTFOLIO

October 18, 2013

Prices are at market close on April 4, 2023. . Individual prices are in USD$. Portfolio values, $Gain/(Loss), % Gain/(Loss), % Annualized all reflect USD$ values are converted to CAD$.

Returns include foreign exchange gains/losses

Current notes: None.

Other notes: Keep in mind all investors are different. This portfolio is designed as a guide in setting up your own personal portfolio. Unique considerations and adjustments need to be made to reflect your personal situation. Please perform your own due diligence before making investment decisions. For use by Canadian MoneySaver subscribers only.

Analysts do not own a financial or other interest in any of the above securities. Past performance is not an indicator of future performance.

Not for redistribution. Please direct portfolio questions to moneyinfo@canadianmoneysaver.ca.

Look Abroad To Reduce Local Risks Country Funds Add Geographic Diversification

In vestors typically hold stocks, bonds and funds that are tied to their home country. This preference for domestic securities, called home bias, has served Canadians and Americans well over the long term. Many of us make no effort to invest beyond these two countries, arguing that global diversification, if it is desirable at all, can be achieved by owning shares in giant U.S. corporations and Canadian resource companies that have operations around the world. After all, the managers of these multinationals travel constantly and ought to be able to recognize regional risks and opportunities when they see them.

Canadians often regard developing markets as particularly risky, as along with political risks, fraudsters who want to pass off barren lands or empty factories as booming businesses often put them in jungles and mountain ranges in far off lands that are difficult for analysts to reach.

Despite these fears there is no question that U.S. stock markets have a dominant global influence, especially here. Canadians may find that holding assets from other countries is a good way to diversify against a local downturn.

Canadian investors willing to look beyond our borders can take a basket approach and invest in exchange-traded funds that hold companies from around the world, either with or without U.S. names. Generally, ETFs that have International in their titles exclude U.S. companies while those with Global in their names include them.

Those seeking an edge over the market may consider ETFs that focus on specific countries, whose diversified portfolios, while concentrated, are less risky than individual foreign stocks. Foreign investing always presents political and currency risk, however, making such funds suitable as only a small part of a risk-tolerant investor’s portfolio.

BlackRock’s iShares unit dominates this market. The iShares catalogue includes five funds linked to specific sectors in China, four to Japan, three to India and the U.K., two to Brazil and Germany, along with single funds for another 36 countries.

Global X, which specializes in thematic ETFs, offers several funds connected to the Chinese economy and single ETFs that track the fortunes of Germany, Norway, Portugal, Greece, Argentina, Columbia, Vietnam, Pakistan and Nigeria. Country offerings are also available from SPDR (China), VanEck (Indonesia, Vietnam) and Invesco (India).

Over the long term, countries with democratic, relatively honest governments are generally less risky than emerging nations. Over shorter periods, however, any country fund can make money for investors. For example, the Global X MSCI Nigeria ETF (NGE) is up about 19% so far this year, despite the fact that Nigeria ranks a poor 150th out of 180 countries on Transparency International’s Corruption Index for 2022 (transparency. org).

Investors seeking the least corrupt nations will find Denmark tops Transparency’s list, followed by Finland, New Zealand, Norway, Singapore and Sweden. Canada ranks 14th on the list while the U.S. comes in at 24th. Over the past decade, the perceived level of corruption has either stayed the same or worsened in 155 of 180 countries, while in 26 countries corruption has reached its worst recorded level, Transparency says.

Investors can see a country’s economic prospects at the Organization for Economic Co-operation and Development (oecd.org), the International Monetary Fund (imf.org) or the European Commission (europa.eu). Along with a country’s level of corruption and economic

Richard Morrison

prospects, life expectancy, education and gross national income per capita are also worthy of consideration. The aim of the United Nations Human Development Index (undp.org) is to highlight those countries most in need of assistance but the index can be used to assess investability. Switzerland tops the HDI list for 2022, followed by Norway, Iceland, Hong Kong, Australia, Denmark, Sweden, Ireland, Germany and Netherlands.

Investors can check the performance of country ETFs at Seeking Alpha (seekingalpha.com) which tracks each fund’s performance in real time or as of the previous day’s close. Seeking Alpha also offers links to investment news and analysis about each country.

Here is a brief look at some of the best performers on Seeking Alpha’s list.

Global X MSCI Argentina ETF (ARGT)

This fund’s unit price has climbed steadily since last summer despite Argentina’s struggling economy. The cost of living in Argentina has almost doubled over the past year, its worst inflation in more than 30 years. The inflation will constrict consumption and investment, the OECD’s snapshot for Argentina says. Nevertheless, Global X Argentina’s unit price has climbed 19% so far this year, making it suited to momentum investors who don’t worry much about economic fundamentals.

Launched in 2011, ARGT has US$48.1 million invested in 29 Argentine companies, with 36% in the consumer cyclical sector, 16.1% in consumer staples and smaller weightings in materials, financials, energy and utilities. The fund holds more than 25% of its assets in ecommerce giant Mercadolibre Inc., essentially a South American blend of Amazon and EBay. Mercadolibre’s shares (MELI/NASDAQ) were up 59.1% in 2023 as of the end of March. The fund carries a total expense ratio of 0.59% against a yield of about 2.1%.

iShares MSCI Denmark Capped ETF (EDEN)

Denmark, a perennial leader in Transparency International’s list of least corrupt countries, managed to expand its gross domestic product by 3.1% in 2022, largely due to a positive carry-over from 2021, the European Commission’s economic forecast for Denmark says. The growth should flatten this year then climb to 1.6% in 2024, the EC predicts.

The iShares Denmark fund, launched in 2012, has

US$234 million invested in 56 Danish companies, with a full 25% in pharmaceutical giant Novo Nordisk and smaller allocations to wind turbine maker Vestas Wind Systems, brewer Carlsberg AS and Maersk, whose names appear on ships and shipping containers around the world.

The unit price of the fund, whose ticker is often confused with the EDEN cryptocurrency, plunged to about US$75 last September but has since rallied to above US$100.

The fund carries a management expense ratio (MER) of 0.53% while its semiannual distribution yields 1.34%.

Global X MSCI Greece ETF (GREK)

Greece’s economy recorded solid growth in the first half of 2022 but inflation slowed growth in the second half, the European Commission’s 2023 forecast says. Despite the slowdown, Greece’s real GDP likely grew by 5.5% in 2022. Tourism is expected to rebound in 2023 and 2024, when exports should start picking up. Real GDP is forecast to grow by 1.2% in 2023 and 2.2% in 2024, the EC’s report says.

The Global X Greece ETF, launched in 2011, has US$154.2 million invested in 29 Greek companies, including banks, telecom companies, a gambling company and an oil refiner.

Like the iShares Denmark fund, the unit price of GREK fell in late September but has climbed steadily since then.

The fund carries an MER of 0.57% but pays out a semiannual distribution that yields 2.5%.

iShares MSCI Mexico Capped ETF (EWW)

Mexico’s real GDP growth is likely to slow from 2.5% in 2022 to 1.6% in 2023, then climb to 2.1% in 2024, the OECD’s economic forecast for the country says. Inflation of more than eight per cent should fall to 5.7% in 2023 and 3.3% in 2024, it adds.

The iShares Mexico fund was an early country fund at its launch in 1996. The fund has US$1.2 billion invested in 51 Mexican companies, broadly diversified among the financial, communication, consumer staples, industrials and real estate sectors. Telecom giant América Móvil is its largest holding.

Like many other country funds, EWW’s unit price

has climbed steadily since last summer but while other country funds’ unit prices have levelled off, EWW’s has jumped in 2023.

The fund carries an MER of 0.5% and pays out a semiannual distribution that yields 3.1%.

Conclusion

As Warren Buffett said recently “I have yet to see a time when it made sense to make a long-term bet against

America,” and for many Canadians a portfolio made up exclusively of Canadian and American securities has served them well. Occasionally, however, it may be worthwhile to explore investment opportunities beyond our borders – and country funds fit the bill.

Source: BNNBloomberg.ca

As some vulnerable Canadians who don't file their taxes miss out on benefits, the Canada Revenue Agency is expected to pilot a new automatic system next year.

This week's federal budget said the agency will also present a plan by 2024 to expand the service, following consultations with stakeholders and community organizations.

The move toward automatic tax filing, first promised in the 2020 speech from the throne, is one of several budget measures the Liberals say are meant to help Canadians with the cost of living.

Jennifer Robson, an associate professor in political management at Carleton University, said she's "cautiously optimistic" about the move.

"This has the potential to be transformative," said Robson, who has published research on people who don't file their taxes.

Automatic tax filing is already a reality in many other countries, including the United Kingdom and New Zealand.

Robson said that in Canada, it would likely involve the CRA pre-filling a tax return with the

Richard Morrison, CIM, is

a

former editor and investment columnist at the Financial Post. richarddmorrison@yahoo.ca

MoneyTip

information it has on file. Then the agency would give the individual an opportunity to update the return or submit additional information, such as eligible medical expenses.

Experts and advocates have called for automatic filing, noting many vulnerable Canadians miss out on benefits to which they are entitled.

Canadians are generally not required to file tax returns every year unless they owe money, but the federal government is increasingly relying on the Canada Revenue Agency to deliver income-tested benefits to individuals.

That includes Canada Child Benefit, as well as the recent top-up to the Canada Housing Benefit and the temporary doubling of the GST tax credit.

Although a move toward automatic filing isn’t a "shiny new program," it’s a small change that could have a significant impact on affordability, said a former head of economic strategy and planning for Prime Minister Justin Trudeau’s government.

"Sometimes, actually, having a big transformational impact on people's lives can come through doing some boring stuff," said Tyler Meredith.

Continued on page 11

As Canadians miss out on benefits, Ottawa promises automatic tax filing is on the way.

Top Financial Planning Questions To Ask Your Accountant

Jason Heath

To o many people make the mistake of using their accountant simply to do their tax returns. There are financial planning strategies to consider involving tax planning that you can discuss with your accountant. And if you do your own tax return, these ideas may help you optimize your finances by saving taxes.

Registered Retirement Savings Plans (RRSP)/Registered Retirement Income Funds (RRIF)

Should I be making RRSP contributions?

This depends on a number of factors. Generally, the tax deduction from an RRSP contribution is advantageous if your income is higher now than your income is likely to be in retirement. This may be difficult to assess, but a general guideline may be that if your taxable income is below about $50,000, RRSP contributions may not be advantageous.

If you are young and saving towards a home down payment, you may not want to contribute more than $35,000, as this is the maximum withdrawal you can take from your RRSP using the Home Buyer’s Plan (HBP).

If you have a company matching contribution in a group retirement plan, whether an RRSP or a Defined Contribution (DC) registered pension plan, you should generally maximize the employer contributions, regardless of your income.

Should I be taking RRSP withdrawals?

You do not need to take RRSP withdrawals until the year you turn 72, but there are often benefits to taking

withdrawals well ahead of time. Even in your 50s, if your income is relatively low, it can make sense to take RRSP withdrawals.

One reason to do so is to try to use up your low tax brackets every year. If you defer your RRSP withdrawals and live off non-registered or Tax-Free Savings Account (TFSA) withdrawals early in retirement, you could be into a much higher tax bracket when you take your RRSP/ RRIF withdrawals in the future.

This spike in income could even result in a reduction of your government benefits, most notably, Old Age Security (OAS). OAS clawback starts at about $87,000 of income.

Taking these withdrawals earlier might also help you to fund TFSA contributions or preserve your TFSA and benefit from more tax-free growth. By comparison, RRSP growth is tax-deferred with tax payable on future withdrawals.

Should I convert my RRSP to an RRIF?

You do not need to convert your RRSP to an RRIF to take money out. You can take RRSP withdrawals at any time. The tax treatment of RRSP withdrawals and RRIF withdrawals is generally the same but with some nuances.

If you are age 65 or older, it can be beneficial to convert your RRSP to an RRIF. RRIF withdrawals qualify for the pension income amount whereby up to $2,000 of eligible income can be tax-free or taxed at a low tax rate.

Pension income splitting with your spouse can also save you tax. Up to 50% of your RRIF withdrawals when you are 65 or older are eligible to move to your spouse’s tax return, which can save tax if their income is lower. RRSP withdrawals do not qualify for pension income splitting; RRIF withdrawals, however, do qualify.

Can I make any claims for family members on my tax return?

The most common tax deduction to claim for family members is a childcare expense deduction for children under age 16. It is common to overlook the tax deductibility of summer camps.

But there are many other tax credits that can be claimed for family members. One common one is the amount for an eligible dependent if you were single and providing financial support to a child (including adult children with a mental or physical impairment) or an aging parent or grandparent. Another is the Canada caregiver amount, which may result in a tax refund if you provide care for a spouse or common-law partner, an adult child, an aging parent, or other eligible family members.

You may also be able to claim medical expenses you paid for someone who depended on you for financial support, ranging from minor children to adult family members.

Can I split income with family members to save tax?

One of the easiest ways to split income with a family member is to pay them a salary if you are self-employed and they work for you. The salary must be reasonable based on the work completed.

Contributions to a spousal RRSP are deductible to the contributor, and the withdrawals are taxable to the account owner – the other spouse – subject to conditions. As long as no contributions were made in the three years prior to taking a withdrawal, they are taxable to the account holder, not the contributor spouse. One exception to this 3-year rule is if the RRSP is converted to an RRIF.

If someone has a lot of non-registered investments, they can loan money to a lower-income spouse at the Canada Revenue Agency prescribed rate. That rate is currently five per cent. A high rate like that may be a reason to hold off until rates decline again. The interest paid to the loaning spouse is taxable to them, and the interest paid by the borrower spouse is tax deductible to them. The result is income more than the interest rate is effectively moved from one spouse to the other and taxed on the lower-income spouse’s tax return.

A prescribed rate loan using a discretionary family trust can be used to split income with other family members, including minor children or grandchildren, for whom you wish to provide financial support.

Renovations

There are several tax credits available related to home renovations. One of the big ones recently introduced is the Multigenerational Home Renovation Tax Credit. It provides a tax refund of up to $7,500 on renovations of $50,000 or more for a secondary suite to house a family member.

There are federal and provincial tax credits for seniors to make their homes more accessible, including the cost of widening doorways, installing ramps or lifts, or making showers or washrooms safer.

Several tax credits are also available for substantial renovations or qualifying green energy equipment purchases.

Incorporated Business Owners

Should I take my compensation as salary or dividends?

Although it depends on your province or territory of residence and level of income, there is generally less tax payable on salary compared to dividends. On dividends, there is some tax payable first in your corporation and then some payable personally, so the tax, in this case, refers to the combined tax between the two.

Salary also results in RRSP room, Canada Pension Plan (CPP) contributions, and the ability to deduct certain expenses, like childcare expenses.

It can also be advantageous to have tax withholding done at source on salary, compared to dividends, that do not require tax withholding and otherwise result in a tax liability that may result in quarterly tax instalments.

Should I contribute to my RRSP?

Generally speaking, if you can contribute to an RRSP when you are in a higher tax bracket than you will be in retirement, there will be a long-term benefit.

Since salary is often better than dividends, and salary creates RRSP room, a combination of salary and RRSP contribution is often advisable from a tax, retirement planning, and investment perspective.