FOCUS 2026: Mid-year tax checklist: What matters now, not in December

Glen Davidson: Welcome, Jacqueline. Scottsdale, welcome to the stage. We could talk for three hours because it's about tax but we're only going to do 30 minutes. It's great to have you up here and if I'm not mistaken has it been a year and a half you've been at Fidelity?

Jacqueline Power: It's been that long.

Glen Davidson: How's that been?

Jacqueline Power: Absolutely amazing. I have to say I could not be happier. I'd be lying if I said it's not busy. It's definitely very, very busy. Going from coast to coast is different than what my territory was previously but I absolutely love it.

Glen Davidson: You're coast to coast, you're going to see advisors, you're gonna to see advisors with their clients, big shows, small shows, big things like this. How does the audience ask for you?

Jacqueline Power: This is through the sales team. If anybody's interested in working with anybody from our team, ... we're a team of three. Peter Bowen heads up the team and then Michelle Munro and myself. If it's of interest please reach out to your sales teams. I always call them my agents because they make the determination as to where they want us to be and who they want us in front of. It's fantastic.

Glen Davidson: Very good. It's amazing how fast a year and a half has gone by. Good to have you here. If you have any questions here or online please do send in the questions for us, I'll get them on the screen. Why don't we start with this, it's a bit of a rhetorical question, has anything changed in 2026 so far with rates?

Jacqueline Power: Very little. I think everybody's aware that really the biggest thing that's happened would be the second part of the drop as far as the lowest tax bracket is concerned. It first dropped to 14.5 July 1st and then they officially dropped it down to 14 for January 1st of this year.

Glen Davidson: Let's go to HST on trailer fees. That's aiming for July?

Jacqueline Power: It is.

Glen Davidson: Let's unpack that.

Jacqueline Power: As far as this is concerned let's sort of take it back to the beginning. It really started in 2022. That's when the government originally stated that they were going to do something. Then it just kind of came out of left field when on January 1st they said, okay, all of a sudden we're charging GST on trailer fees. When GST was originally introduced in 1991 and then HST in 1997, they considered trailer fees to be a commission, not a service fee. After sort of reviewing the industry, having a look at what this really was, they see now that it is a service fee. At that point they decided, okay, it makes sense for us to start charging this. I think all of you were feeling it, there's been a massive pushback in the industry. This is too fast. FundServ is saying that it's going to take them 18 months before they can get systems up to date and ready to go. There are definitely talks and hopefully it ends up being pushed back but we'll see what happens.

Glen Davidson: It was announced in 2022 and then it was just dropped on everybody this year.

Jacqueline Power: Correct.

Glen Davidson: Do you think that's just the way it is?

Jacqueline Power: I think sometimes, yeah, unfortunately.

Glen Davidson: Okay, but the infrastructure doesn't seem to be there. How does this affect dealers, for example?

Jacqueline Power: For dealers, from a financial perspective there isn't a change but from an administrative perspective it's huge. Essentially, what's happening right now is because ... when the financial institution forwards trailers to the dealer right now, obviously, we're not including any GST on that so that will be included going forward. Depending on the situation it's either the dealer's responsibility to forward the entire amount to CRA, or it could possibly be the advisor's responsibility to forward a portion as well.

Glen Davidson: And what about to the investor?

Jacqueline Power: That is the good news piece of it. From an investor perspective there is no change. It's not going to affect them. Because this is on the trailer fee, not the MER because we're already charging GST on the MER, it's not going to affect investors. That's a good news story from that perspective.

Glen Davidson: What's your best guess on what happens this year?

Jacqueline Power: As I was saying, there are talks that are happening right now. CRA, at first they were saying, no, this is definitely not going forward. This is definitely going forward July 1st. Now they're more receptive to listening to the industry and that sort of thing so they are reviewing it. We've been told that they should have some sort of a decision by sometime this month. Now, once they settle on a date they've said that they are firm on that date. Once they decide this is what the date is, whether it's July 1st or whether it is another date, there will be no changes from that perspective At the moment I feel like there's a chance that it's going to be pushed out just by the way that they're talking about it.

What's really interesting is from the advisor perspective too. We've talked about investor and we've talked about the dealer but from the advisor perspective it's different depending on how you're set up as far as being an advisor. If you're an employee of a company there's no change to whatsoever but if you are considered to be an independent advisor then in that circumstance you're going to have to start charging GST and remitting that as well. That's going to be a big change, and from an administrative perspective a huge change.

Now, on a good news side there is a possibility that you might actually be better off, and the dealer might be better off as well, because there are situations where you're paying GST but you can't recoup it right now because you're not remitting and you're not doing any remittances as far as GST. When you're forwarding this for the trailer fees it's the net amount that's gonna forward. It is possible that individuals, not individuals, dealers and advisors will be better off. But a huge administrative nightmare.

Glen Davidson: We're only eight minutes into this chat and you've had two good news stories so far. That's really encouraging. In the past you've talked about bare trust reporting. Can you remind me what bare trusts are and then talk about where we're at with that.

Jacqueline Power: With the bare trust, let's take it all the way back. The government decided that they wanted to get a better understanding of what was happening within trusts just generally. They cast this massive net and decided that they were including bare trusts as well. Where we have the bare trust is in situations, a perfect example would be an in trust for account because the beneficial owner of that is the child but the legal owner is, say, the parent, for instance. That's a bare trust situation.

Glen Davidson: Useful for a house purchase, as an example, where the parents kind of ... like co-signing.

Jacqueline Power: That is another perfect ... exactly. Parent has to go on title on the property for them to be able to co-sign the mortgage. They're just the legal owner not the beneficial owner so that's where the reporting could come in...

Glen Davidson: It doesn't affect principal owner, principal residence ownership?

Jacqueline Power: It could. When they first cast that net it was including that. It was including in trust for accounts. It was also including joint with right of survivorship accounts as well in situations where both individuals were not beneficial owners. Where just the one individual is the beneficial owner and the other is a legal owner, that's when the issues can arise. Essentially, this has been an absolute nightmare for quite a few years, really. First they cast the net super wide. They said that they were going to require reporting as of the end, December 30th of 2023. That reporting would have been required in March. At the 11th hour in 2024 they decided to pull back because they realized that they had cast their net too wide. That's when they went back to the table, reviewed some of this stuff as far as the bare trust side of things are concerned and then decided to go from there.

Glen Davidson: Are there exceptions that we should be considering as well?

Jacqueline Power: Definitely. This is what they did when they came back. If it's considered a small trust, a trust that's less than $50,000, in that situation it doesn't matter what the trust is invested in, it doesn't matter who the trustee is, they don't have to be related to the beneficiary, in that situation unless the government asks for somebody to do the bare trust reporting it's not required. That's one exception. Another one is if the account is less than $250,000, the trustee is a person and is related to the beneficiary then in that situation that's another exemption as well. Finally, you talked about the principal residence. Say it's a child purchasing their principal residence, parent is going on title simply to be able to co-sign, that's another exception as well. That was all really good news and definitely made this reporting a lot less severe, essentially, than it was previously.

Glen Davidson: More good news, I like it. Let's talk about splitting pension income for retirees.

Jacqueline Power: Many of your clients, I assume, have filed their taxes by now seeing as how they were due April 30th. If you do have some that are stragglers  pension income splitting is a huge opportunity. Essentially, where this is beneficial is in circumstances where one spouse has higher eligible pension income than another spouse would. Eligible pension income is RRIF, LIF income, RPP income as well. Essentially, the rules allow up to 50% of that eligible pension income to be split between spouses, just to try to even out the income between the two. But the rules are not created equal, unfortunately. Right now if you have eligible pension income that you're getting from a registered pension plan, or your clients do, they can split that at any age, whereas all the other types of eligible pension income can only be split from age 65 onwards.

Glen Davidson: First of all, do you suspect that a lot of people aren't aware of the ability to split pension income?

Jacqueline Power: I think a ton have no idea. I think a lot also...

Glen Davidson: Nobody in this room, of course, but...

Jacqueline Power: No, no, not here, no. Canadians as a whole, I think a lot of them don't realize that that's an opportunity. I think a lot also don't understand the rules. I remember having a conversation with my ex's uncle when he turned 65 and he's like, oh, I'm gonna start splitting RRSP income with my spouse. I'm like, no you're not, you have to turn it into a RRIF and then ... he just thought because he was 65 that it didn't matter where it came from. It's really important for investors to understand it has to go into the RRIF first and then they can start splitting it from there.

Glen Davidson: Is it different with CPP benefits?

Jacqueline Power: Very much so. With the eligible pension income, that's done right on their tax return. With the CPP benefits they have to go to CRA, sorry, not CRA, to Service Canada and ask Service Canada to split the credits that were accumulated while they were together. That way when they receive their benefits from the government those will already have been split.

Glen Davidson: You have to deal with Service Canada. You can go online or do you have to go line up at one of those...

Jacqueline Power: Oh no, it should be able to do it online.

Glen Davidson: You can deal with it. What's a risk to that? Why wouldn't somebody want to do that?

Jacqueline Power: Some people are very, you know, this is their income, they're the ones who earned it, they don't want to split it with their spouse, but it makes absolutely no sense not to from a tax perspective because you don't wanna have that really income and the really low.

Glen Davidson: Probably a good time to revisit, on that note, spousal loans and the administration behind that as well.

Jacqueline Power: Spousal loans, we really didn't talk about them very much while interest rates were higher. Now they're at the place where it's starting to make sense to talk about it again. Just to take a step back, if we gift money to our spouse and our spouse invests that money any investment income that's generated from that would attribute back to the spouse who gifted the money. It completely defeats the purpose as to what they were trying to accomplish. By setting it up as a spousal loan you actually lend the money to your spouse. Now, it does need to be done as a bona fide loan. There needs to be interest that exchanges hands every year. The interest needs to be at least CRA's prescribed rate, which is currently at 3%. There has to be a loan agreement in place. Also, what's really important is that that interest is not paid from a joint account between the borrower and the lender. It has to be from the lender's account only because otherwise CRA doesn't know who's actually paying the interest. If it's set up as a bona fide loan then in that circumstance it allows the individual who has borrowed that money, any investment income generated from that is going to be taxed in their hands.

Glen Davidson: Am I right, it's got to be by January 30th of the following year max, and if you don't make the payment it unravels the whole thing.

Jacqueline Power: It does. It's really important to follow the rules.

Glen Davidson: Corporate class, let's change gears and go there because it's a very strong point at Fidelity and in the industry. I think we should go through just the benefits to investors and then a few more questions about it.

Jacqueline Power: Sounds perfect. As far as the benefits are concerned, I mean, corporate class is incredible because there's this potential to have this lower taxable distribution than we would see in a mutual fund trust, for instance. The reason for that is because ... well, there are a couple reasons. The first is because all of the funds are within one corporation. If there are expenses in one fund those can be used to offset the interest in the foreign income from another fund. Same thing with losses can be used to offset gains, whereas when you're looking at a trust you can't do that. Also, with corporate class because it's a corporation we're limited in what we can flow out. We can't flow out interest income and we cannot flow out foreign income. Those are the two most expensive types of investment income. Being limited in our ability to flow those out is really beneficial for investors.

Now, you may be asking yourself what do we do with that interest in foreign income? We use the expenses to offset that. If we don't have enough expenses within the structure to offset that interest in foreign that then becomes trapped within the structure. Many of you have likely heard other fund companies talking about trapped income. What happens there is that's then taxable within the corporate structure. A lot of people feel this is going to affect the MER of the fund, it doesn't. It affects the NAV. There's a drag on performance anytime that there is that trapped income.

Glen Davidson: Defeats the purpose.

Jacqueline Power: It does.

Glen Davidson: Can you talk about the benefit of, and the necessity of, the appropriate asset allocation within a corporate structure to make sure that it's not thrown off.

Jacqueline Power: Oh, very much so. Some of our competitors will have a full, you know, 100% fixed income. You won't see that with us. The highest that we'll see as far as fixed income is concerned is 60% in our balance funds because we're so concerned about the health of the structure and maintaining that health. We don't want to produce too much interest and foreign income within the structure.

Glen Davidson: You mentioned the word competitors so I'm going to pick up on that. Without naming names there were some companies that perhaps had too many fixed income solutions within their corporate structure. They've shut down. When they did that they said that's CRA saying you can't do this any longer. That's not the case.

Jacqueline Power: No. Essentially, what had happened was corporate class had been attacked for so many years. First they attacked it with the character conversion, they didn't allow that, then the switching between funds. I think where a lot of our competitors thought that corporate class was gonna be shut down was in budget 2017. The government stated that if you close your entire corporate class structure you can transfer those assets on a tax-deferred basis into the trust version of that fund. I think when that happened that's when a lot of the competitors felt that the government was going to force us to close the structure. For many of them it wasn't tax efficient for them at that time so they chose to close it. Then they mentioned to a lot of people that corporate class was dead which is not the case.

Glen Davidson: It's alive and well.

Jacqueline Power: It is alive and well.

Glen Davidson: Good. I'm glad we talked about it. There's a paragraph that just came in from our audience. Going into leveraged investing, when clients borrow money to invest how can that help people when they are filing taxes and what opportunities are in there?

Jacqueline Power: Great question. With leveraged investing as long as there's the anticipation that there'll be some sort of income that's generated from that investment you're able to deduct the interest. That's one of the reasons why I think a lot of individuals like that opportunity to be able to have that as a deduction.

Glen Davidson: Just made me think of something to go back to corporate class about, it's also useful for corporations. Why?

Jacqueline Power: Yes, very much so. Corporations, a couple of reasons. First and foremost is when you're looking ... the government changed the rules as far as investing within corporations in 2019 and they're limiting the amount of passive investment income that can be generated within a corporation on an annual basis. If you have clients who are invested in something that's producing interest income the full amount of interest income that's generated in that year is going to be added to that $50,000 amount. If clients are invested in corporate class it's only when the gain is realized that it gets added to the calculation and it's 50% of the gain that gets added to that calculation. That's the first benefit of it.

The second is that capital gain. With corporations when there's a capital gain that's realized, as we all know, 50% of the gain is taxable, the 50% that's not taxable, that gets added to the capital dividend account. That then allows the corporation to pay out capital dividends which are tax-free dividends. That's why it's so powerful to use corporate class within a corporation and definitely encourage people to focus on that rather than something that produces interest income.

Glen Davidson: Let's talk about the tax-efficient withdrawal program, T-SWP. Why have we got that?

Jacqueline Power: This is incredible and it's really beneficial for, in particular, those clients that want additional cash flow but they're worried about their net income. We see it a lot with retirees who are worried about OAS clawback. Essentially, investors can choose to receive annual distributions between 5 and 8%. That's calculated at the beginning of the year depending on what the NAV of the fund is. What we do is flow that out to the investor on a monthly basis. They know they have this cash flow, this consistent cash flow that they're getting throughout the year. Now, the reason it's so tax-efficient is because when those distributions go to them they are predominantly return of capital. Because it's the client's capital that's being returned to them there's no tax that applies. That's why it's helpful for those individuals who are worried about net income and wanting that additional cash flow.

Now, one thing to keep in mind is every time there is one of these ROC distributions the ACB of the investment is going to decrease by the amount of the ROC distribution. Eventually when they go to sell the investment there will be a larger capital gain but they have to keep in mind that over a 15 to 20 year period they've essentially had tax-free cash flow available to them, plus they've been able to defer that capital gain over that period of time as well.

Glen Davidson: No concerns about having to shut that program, everything is running well.

Jacqueline Power: Everything's running great.

Glen Davidson: Perfect. Let's talk about the federal budget. Now, I've spoken with you, Peter and Michelle before and there's been discussion around a pre-budget submission that Fidelity does. I thought that was really interesting. Could you tell the audience about that?

Jacqueline Power: Every year before budget ... previously budget was in the spring, the government has changed it to the fall now. Even for the economic statement, that sort of thing, we'll do a submission there too. We just want them to understand how we're feeling as far as the financial institution is concerned, what we think is important, what we think Canadians find important. We do our commission as to what we would like to see in the budget.

Glen Davidson: Did they ever listen to you?

Jacqueline Power: Not yet.

Glen Davidson: It's important that it's the voice of our audience, really.

Jacqueline Power: Very much so, very much so.

Glen Davidson: What's with the lockup? The three of you are locked up. How does that work?

Jacqueline: It's really interesting. I remember the first time I went I was a little taken aback by the whole thing. Essentially, you go through a metal detector, you have to give them your phone, your tablet, your computer is not allowed to use Wi-Fi so Wi-fi is shut off in the room as well. If you go to the washroom you're escorted to the washroom. It's really quite strict, I have to say. What's fantastic is we get an advance copy of the budget. We get it normally around 11:00 and then it's released to the public. We're able to speak to everybody around 4:00. That's generally what time it's released at. That gives us five hours that we can go through it and get a good understanding of what's in there. Then we'll do a little webcast right after the budget

Glen Davidson: I hope the coffee is good in there. Let's talk about the FHSA. How's the pickup been on that and what do we need to know?

Jacqueline Power: Pickup's been great, definitely a huge opportunity for a lot of individuals, for sure. Our team's getting a lot of questions about it with really interesting scenarios. Just at a high level, essentially, it's available to individuals who are considered to be first-time homebuyers. They have $8,000 of contribution room that's available to them on an annual basis. Carry forward, the maximum is $8,000 carry forward so the max that a client could contribute in one year is 16,000. Lifetime contribution limit of 40,000. Where I really love it is that it really is a combination of the TFSA and the RRSP. It's the best of both worlds between the two. Any contributions that are made it's a deduction for the individual. Now, a lot of the time it's young Canadians that are making these contributions. They may not need the deduction right away. If they don't that deduction can be carried forward indefinitely. Once their income is higher and they think it would make sense for them they can use the deduction at that time.

But what's really great is when they actually go ... if they make a qualifying withdrawal when they redeem that money that's where the TFSA component of it comes out. There's no tax that applies. It can be quite beneficial. I also find it works really well in conjunction with the first-time Homebuyers' Plan because you can take 60,000 out of the Homebuyers' Plan and then 40,000 out of the FHSA, or with growth it could be even more than that. Down payment right there is $100,000 and if it's a couple then we're looking at 200,000. It's actually allowing people to finally have down payments available to them.

Glen Davidson: I recall in the past hearing that your team received a lot of requests about foreign pension transfers, 401k transfers, as an example, from the US to Canada. What's in the way of that? Can it happen smoothly? What do our viewers need to know?

Jacqueline Power: It's complicated for sure. This is not something that's going to be advantageous to everybody by any means. They definitely want to talk to their tax preparer before they do any of these sorts of things. If the individual is a dual citizen they don't want to be doing it as a dual citizen. There's a high possibility of having double taxation arise if you are a dual citizen. That's not advantageous there. For some individuals it does make sense. People call it a pension transfer, it's not really. They're collapsing the plan in the US, then they're bringing it to Canada. They get a cheque in US dollars so they would convert that into Canadian dollars. They need to make that contribution to their RRSP either in the year that that's collapsed or within the first 60 days of the following year. Why this is advantageous is because on their Schedule 7 they put it as a transfer rather than as a new contribution. This way it's deferring that tax on that until they withdraw it when they're in Canada.

Glen Davidson: In the case of US to Canada it is money, it's a net loss, if you will, as far as the US sees it as it's leaving. There's just some complexity to that.

Jacqueline Power: There's definitely complexity to that and there's a lot of withholding tax. The withholding will be between 15 and 30%, depending on how the financial institution is sort of determining whether it's a periodic payment or how they want to do it. Why I'm bringing that up is because that withholding task translates into a foreign tax credit. With the foreign tax credit you have to have enough tax payable in Canada to recoup that. If you have withholding tax of 100,000 but your tax payable is only 30,000 you're not able to fully recoup it. That's why we encourage people to do pro forma tax returns, that sort of thing beforehand, work with their tax preparer as well. In some circumstances maybe they don't want to transfer the entire amount into their RRSP because that would create additional taxable income as well. Lots of different opportunities there. It can work for a lot of individuals but you really need to make sure that the client is working with a professional who understands both sides of the border.

Glen Davidson: Just a couple of minutes left. I wanted to ask you about TFSAs. It sounds to me like CRA gets a little cranky if they see balances of a certain amount and trading frequency of a certain amount. Can you discuss that? I think for us to keep an eye on.

Jacqueline: 100%. What all of us were finding was that a lot of TFSA accounts were increasing substantially. A lot of individuals I've heard were using penny stocks, that sort of thing. As a result they were able to just have these balances, like when the contribution limit was 40,000 people had 200,000 as balances. The government's not enjoying that very much. Essentially, they are looking at it more closely. They'll look at frequency as far as trades are concerned, what people are purchasing, that sort of thing. There are chances that if ... especially with the frequency as for as the trades and the short term trading and that, it could be considered to be a business. That is gonna cause issues as well. Definitely a good thing to have on the radar for sure.

Glen Davidson: Is there fair warning or is it kind of like the HST on trailer fees we were talking about, it's just going to happen.

Jacqueline Power: I think if you're affected it's just going to happen. CRA is going to come to you and say you are a frequent trader, this is not what this account was meant for, and they could get into some trouble.

Glen Davidson: Very quickly, things that you, your team and all of us should be keeping our eyes on as we head into 2026.

Jacqueline Power: I think that tax efficiency is something that we're all always looking for. I would say that most of the conversations that I'm having right now are around tax efficiency, whether it's through corporate class, whether it's through charitable giving, whatever it may be. That's definitely something I think that we need to focus on a lot. Just as a final plug, I know that a lot of people say ... we've talked about corporate class being dead but ours is so healthy. We have over $95 billion in assets in that structure right now and I'm so excited about it.

Glen Davidson: You're talking about it with a big smile, that's awesome. We can talk about tax for 30 more minutes or three more hours but we're not going to because we have an extended break now. Jacqueline Power, thank you so much.

Jacqueline Power: Thank you.