Financial Planning Process Flashcards
(93 cards)
1
Q
What are the 6 steps in the Financial Planning Process
A
- Establish engagement
- Gather client data, goals and expectations
- Clients present financial status, problems and opportunities
- Develop and present
- Implementing
- Monitoring
2
Q
What does a personal net worth statement summarize?
A
Assets and debts
3
Q
What does a statement of cash flow summarize?
A
Income and expenses over a given period of time
4
Q
Solvency Ratio
A
Net worth /Total assets
5
Q
Savings Ratio
A
Cash surplus / After tax income
6
Q
How many months emergency cash should you have?
A
3 to 6 months
7
Q
What are 3 strategy recommendations to improve a client’s cash flow?
A
- Reduce discretionary expenses (refinance high interest debt)
- Reorganize investments
- Seek to increase income
8
Q
What is the percentage of down payment that would be considered a high ratio mortgage and need default insurance? (CMHC)
A
5%-20% down
9
Q
Who is the mortgagee?
A
The lender
10
Q
Who is the mortgagor?
A
The borrower
11
Q
What are the gross debt setivce ratio and the total debt service ratio calculations?
A
GDSR = (mtg payments + property taxes + heating costs + 50% of condominium fees) ÷ gross family income.
Should not exceed 32%
TDSR = (mtg payments + property taxes + heating costs + 50% of condominium fees+ other debt payments) ÷ gross family income.
Should not exceed 40%
12
Q
Who pays tax on EAP payment from an RESP?
A
The beneficiary (student)
13
Q
How do you report your EAP?
A
Box 42 on a T4A slip.
14
Q
How long are beneficiaries entitled to receive EAPs after ceasing enrollment?
A
Up to 6 months
15
Q
What is the limits for EAPs for full time and part time students within the first 13 weeks of consecutive studies?
A
$5000 for full time, $2500 part time
16
Q
When does the limit on EAPs reset?
A
After 12 months of not being enrolled in studies
17
Q
What is the annual limit for contributions to an RESP?
A
There is no limit up until the lifetime limit
18
Q
What is the lifetime limit for an RESP contribution?
A
$50,000
19
Q
In a single beneficiary RESP, does the subscriber have to be blood related?
A
No
20
Q
Who can be a subscriber on a family RESP?
A
Family related by blood or adoption
21
Q
Can a beneficiary be named over the age of 21?
A
No
22
Q
What is an RESP specified plan?
A
A single RESP in which the beneficiary is entitled to the disability tax credit
23
Q
How much is the CESG per year in % and what is the maximum yearly CESG?
A
20% of annual contributions with a maximum yearly contribution of $500. If there is unused CESG from a previous year the maximum yearly contribution will be $1000
24
Q
What is the maximum lifetime CESG?
A
$7200
25
For family's with income below $41,544, what is the % of CESG paid for the first $500 contributed to an RESP?
40%
26
For family's with income below $81,088, what is the % of CESG paid for the first $500 contributed to an RESP?
30%
27
What income is used to determine eligibility for extra CESG?
The same income that is used to determine eligibility for the Canada child tax benefit (CCTB)
28
In order to receive CESG when the beneficiary is 16 and 17 what two conditions must be met?
1. A minimum of $2000 contributed to the RESP before beneficiary is 16
2. A minimum or $100 of annual contributions made in at least any 4 years before beneficiary is 16
29
What happens to the CESG if a beneficiary does not go to school?
The CESG is paid back to the government
30
What is the maximum term for an RESP?
35 years
31
What portion of the RESP is taxable to the beneficiary?
Only the growth portion
32
Are contributions and grants taxed to a beneficiary?
No, only the growth portion
33
Can money be withdrawn from an RESP for non-school purposes? Even with CEDG received?
Yes. 20% is withheld as CESG repayment. For 3 years after this withdrawal, CESG is haulted and does not accumulate.
34
If the beneficiary of an RESP does not go to school, what happens to the money?
Grants are paid back to the government, contributions are paid to the subscriber tax free and any income is taxes at subscribers tax rate + 20%. The subscriber can transfer the accumulated income (AIP) to an RRSP if they have room to cut down on taxes paid.
35
If there is an over contribution in an RESP, what is the fine?
1% per month
36
Who is CLB for lower income families?
Yes
37
Are children eligible for the CBL from birth?
Yes
38
When can you apply for a CLB?
From birth to age 18 of the child
39
How can you be eligible for the CLB?
1. Born after Dec 31 2003
2. Your CCTV includes the national child benefit supplement
(Generally income below $36,378)
40
What is the amount of the CLB?
$500 for the first payment and $100 a year for 15 years if the child qualifies. An additional 25$ is paid to cover the opening of an RESP
41
How is the CLB paid out?
It is paid to the beneficiary as EAP
42
What is the maximum withdrawal amount for a HBP for a single person and a couple?
$35,000 and $70,000
43
How many times can you participate in the HBP?
Typically only once
44
How can you be eligible for the HBP
You have not owned a principal residence in the past 4 calendar years
45
For the HBP, you must acquire the home before October of the year following the withdrawal.. true or false?
True
46
What CRA tax form must you submit to use the HBP after entering a purchase agreement?
T1036. Submitted to your RRSP issuer
47
With the HBP, can you withdraw money contributed in the last 90 days?
No
48
What constitutes as a qualifying home with the HBP?
1. Home is located in Canada
2. Home was acquired within 30 days of the withdrawal of the RRSP under the HBP
3. It is intended to be your PR
There also must be a signed agreement to buy or build a qualifying home
49
Are new and existing homes eligible for the HBP?
Yes
50
How many years do you have to pay back the HBP loan?
15 years
51
What happens with the yearly payment amount you don't make?
It gets added to your annual income
52
When must the yearly RSP payments be made with the HBP?
On or before 60 days after December 31
53
When does the repayment period begin for the HBP?
On the second year following the withdrawal
54
Can you repay the HBP to another RSP?
Yes
55
HBP funds left over after death are added as income to the deceased or assumed by the surviving spouse, true or false?
True
56
What is the yearly maximum withdrawal from an RRSP under the LLP?
$10,000 up to the lifetime maximum $20,000
57
Can you use the LLP to fund a child's education?
No
58
What is the maximum withdrawal limit for a LLP over 4 consecutive years?
$20,000
59
How long do you have to pay back your RSP when using the LLP? What are the payments?
10 years, equal payments of 10% per year
60
When is the latest you can start repaying your RSP when using a LLP?
No later than 60 days following year 5 of enrollment. Or year 2 if individual fails to qualify for program. IE: 1 year program
61
Can you use your RSP and the LLP to pay for a spouses education?
Yes
62
What is Microeconomics?
The study of the economic behaviour of individual consumers, firms, and industries and the distribution of total production and income among them.
63
What does the law of demand state?
That price and quantity demanded have an inverse relationship. As price falls (rises), quantity demanded increases (decreases). P ^ D v Pv D^
64
What does Elastic demand mean?
A small change in prices causes a large change in quantity demanded
65
What does Inelastic demand mean?
A change in price causes a small change in quantity demanded
66
What does unit elastic demand mean?
A change in price causes an exact equal change in quantity demanded
67
What does the law of supply state?
That prices and quantity supplied have a direct relationship. As price rises (falls), quantity supplied increases (decreases). Pv Qv, P^ Q^
68
What is equilibrium
Equilibrium is when supply = demand
69
What is Macroeconomics?
The study of the entire economy in terms of the total amount of goods and services produced (GDP), total income earned and the level of employment of productive resources, and the general behaviour of prices.
70
What is the output equation?
Output = GDP = Consumer spending (C) + Business Investment (I) + Government Spending (G) + (Exports (X) - Imports (M))
71
What is the definition of Fiscal Policy?
Fiscal Policy is the economic term which describes the behaviour of governments in raising money through taxation (T) to fund current spending (G) and investment for collective social purposes and for transfer payments to citizens and residents of the territory for which they government is responsible
72
What is Expansionary Fiscal Policy designed to do?
To stimulate the economy with either a reduction in taxes (t) or an increase in government spending (G)
^G or vT results in => ^C and ^I leading to => ^ GDP
73
What is Restrictive Fiscal Policy designed to do?
To slow down the economy by either an increase in taxes (T) or a decrease in government spending (G)
vG ^T results in => vC and vI leading to => v GDP
74
What is Monetary Policy?
The financial policy of managing the money supply to achieve specific goals. IE: reducing inflation or achieving full employment. The Bank of Canada is responsible for MP.
75
What are the three ways monetary policy can be carried out?
Raising or Lowering:
1. discount interest rate
2. required reserve rate
3. buying or selling government bonds and T-bills (open market operations)
76
What is Expansionary Monetary Policy designed to do?
Increase the money supple and stimulate the economy. IT is accomplished by lowering the discount rate (i) or lowering the required reserve (RR) or buying government bonds/Tbills
^Ms => v Interest rate (i) and ^ business investment (I) => ^ CDP
77
What is Restrictive Monetary Policy designed to do?
Decrease the money supple and slow down the economy. Is is accomplished by raising the discount rate (i), raising the required reserve (RR) or selling government bonds/Tbills.
vMs => ^ Interest rate (i) and v business investment (I) => v GDP
78
What is a recession?
A significant decline in activity spread across the economy, lasting more than a few months.
79
When does a recession begin in the business cycle?
After the economy reaches a peak
80
What are leading indicators? (help judge what is going to happen in the near future)
1. Housing starts
2. Manufactures new orders
3. Changes in profits
4. Spot commodity prices
5. Average hours worked per week
6. Stock prices
81
What are coincident indicators? (help determine which phase of the business cycle the economy is in)
1. GDP
2. Industrial production
3. Personal Income
4. Retail Sales
82
What are lagging indicators? (used as an after the fact way to confirm assessment of current economic conditions)
1. Business Investment
2. Unemployment Rate
3. Labour costs
4. Inventory levels
5. Inflation
83
What is Deflation?
Prices and incomes declining over an extended period of time creating pessimism and economy could fall into a recession.
84
What is Inflation?
Prices and incomes ("cost of living") persistently rising over time
85
What is price stability?
When inflation is low enough that it does not affect people's economic decisions
86
What is the CPI? (Consumer Price Index?)
The most widely used measure of inflation by measuring changes of prices in a "basket" of goods and services sold in Canada. CPI is expressed as a %.
87
What protection does CIPF offer?
1 million for loses of securities, commodity and futures contracts, segregated insurance funds and cash. 1 million total for all General accounts (non reg) and 1 mil per registered, trust, holding company, partnership, association account.
88
What are the 5 key elements of a valid contract?
1. Valid offer and acceptance
2. Legally competent parties
3. Consideration which represents the exchange of value (money)
4. Genuine intent
5. Lawful object
89
What are reasons for voiding a contract?
1. A mistake in the contract
2. Misrepresentation such as false statement
3. Undue influenced where one party holds a dominant position over the other
4. Duress where one part is threatened or forced
90
What are methods to discharge a contract?
1. By performance where both parties fulfill their obligation
2. By frustrations where circumstances beyond the control of either party make fulfillment or the contract impossible
3. By breach where one party fails to perform agreed action
91
What is Tort Law?
Tort law allows an injured person to obtain compensation from the person who caused the injury
92
What are the 4 aspects of fiduciary duty?
1. Act in the best interest of the principal
2. Not make any secret profits from the relationship
3. Keep confidential and trade secrets relating to the princiapls affairs
4. Inform the principal of any conflicts of interest
93
Does joint tenancy include right of survivorship?
Yes
