Recently Darren Coleman, a wealth management adviser, and Elena Hanson, an accountant, spoke about the impact of COVID-19 on taxes and the market on their podcast series Two Way Traffic, which focuses on cross-border financial issues. In part one, they answered questions concerning legal and business issues. Here they address financial and tax questions.

Question: Should COVID-19 and its impact change our investment/financial strategies?

Darren Coleman: The first priority of every financial plan is to have cash, or immediate access to cash, to fund up to three months of expenses. That primary rule is being tested right now for individuals, professionals and businesses. If you don’t have sufficient cash, you may need to adjust your holdings to free some up.

The global equity markets had a historic decline in February and March. This impacted the investment and retirement portfolios of millions of investors. It’s time to review what this means for your financial plan. For some, it may mean you need to keep working longer. For others, it may be a rare opportunity to improve your portfolios by buying great long-term securities that are on sale.

As the stock market sell-off was broadly based, the decline was indiscriminate as both good and bad quality investments dropped about the same amount. When this happens, investors should upgrade the quality of their portfolios by moving into better quality securities.

In some cases, this may mean triggering a capital loss you can carry backwards to reduce capital gains paid in the past (up to three tax years) or “bank” those losses to offset future capital gains. A review of your investment portfolio and financial plan with your qualified certified financial planner and investment professional is a good idea right now.

Q: Should COVID-19 and its impact change our tax strategies?

Elena Hanson: It depends. Are you a business entity owner, and if so, are you based in Canada or the United States? Are you an employee and a Canadian resident who got laid off or terminated or a Canadian resident who is also a U.S. citizen? Right now, it’s all about injecting cash into the hands of the business and individuals. The U.S. CARES Act is much more robust and offers real economic stimulus in the form of large loans, a portion of which is forgivable with eligibility.

The new legislative corporate provisions allow you to carry losses back as far as 2013 and you can accelerate depreciation on certain capital assets, which in the past did not have a preferential treatment. It also provides non-taxable rebates to individuals and access to their pensions on a tax-deferred or loan basis.

On the other hand, Canadian benefits are all taxable, whether these are the Canada Emergency Response Benefit (CERB), the 10 per cent employment subsidy of the Temporary Wage Subsidy (TWS) or the 75 per cent subsidy of the Canada Emergency Wage Subsidy (CEWS). This means that individuals and employers who receive the Canadian benefits will be taxed on them next year. They will also be taxed on the U.S. benefits on the Canadian return (if they are subject to Canadian taxation) but not on the U.S.

As for other strategies, consider filing early if you expect a refund. With the significant loss in marketable securities, it may also be a good time to consider making a gift, replacing assets in trusts, estate freezing or refreezing or give up U.S. citizenship or green card because your net worth got reduced to below $2 million.

In addition it’s wise to carry back losses to prior years, and on the U.S. side you can now carry back corporate losses for both 2019 and 2018 taxation years for up to five years back. But watch out for scammers and fraudsters during the rebate season.

This is part two of a two-part series. Part one: Impact of COVID-19: Legal and business questions.

This article was originally published on April 21 2020 by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc