Health and Wealth Webinar: With special guest speaker Dr. Kevin Fonseca
Dr Kevin Fonseca, a clinical virologist with Alberta Health Services, presents on all things COVID.
HEALTH AND WEALTH WEBINAR With special guest speaker Dr. Kevin Fonseca
Thank you, everyone, for joining us today for our next version of our Health and Wealth seminar. In the past, we've held these events in person, renting some swanky space and serving some food and beverages at a venue. But of course, this is not like that, representing virtually, I guess, for the fifth time in the last year as we find ourselves in this not so new world. And it's because of current issues that we decided to host an event focused on two really important things your health and your wealth. My name is Colin Andrews, I'm a portfolio manager and first vice president with the CM Group at CIBC, which I'll be presenting in a moment following my presentation, we'll have Dr Kevin Fonseca present on all things COVID. Dr Fonseca is a clinical virologist with Alberta Health Services and he presented for us back in October of 2020 and we're very thrilled to have him join us again. So just a couple of housekeeping items to attend to. First, there is an option to ask questions during the presentations. The questions will be managed by our organizer, Paige Hilton, and we'll answer them as best we can and when we can. Now, technology is great when it works. I assume that today is going to go without a hitch. However, if you're having any technical issues during the presentations, you can rest assured that they are being recorded and will be available for download and viewing at a later time or date.
That works for you. And usually I'd let people know about things like where the washings are located or the food and beverage availability. But of course, I assume, given that everybody's virtual, you're on your own for those things. Which reminds me, you can see the presenters and the presentation. However, we cannot see you and all attendees cannot see each other or even know who's on the webinar today. So you can sit back, relax and enjoy the presentations. So for today's short presentation, I'm going to take you on an adventure that will hopefully link an understanding of things like diamond hands, milk production, calcium intake and the stock market. To answer the big question, we have the data. We've done the work to come to the conclusion that we've solved the investment puzzle, we've solved the investment piece. In other words, we know what works. We know what doesn't work, and we know what to avoid. Now I'm going to show you these awesome charts and graphs to prove the points. And I clearly understand the charts can be hard to understand or hard to follow. I also clearly understand that many of us don't like to admit that. I'm sure that is more for the people that didn't attend state than everybody who's watching is a charity expert. But if you aren't, don't worry about it. There will not be test at the end.
And the focus of this presentation isn't on charts. It's on what works. So in investing, there are two fundamental ways for companies to raise capital or better said, to raise money. Firstly, they can sell ownership of the company to investors through stock issuance by issuing stock. Those stocks that trade on the secondary market or what we would call the stock market, the first stock markets date back to somewhere around sixteen hundred. And the first North American stock market was the New York Stock Exchange, and that started in seventeen ninety two. So there's definitely some history behind stock markets here. We won't get into all that. I just wanted to point it out as a point of interest. Anyways, when a company sells stock, they raise money for themselves. And when that stock starts to trade on an exchange, there is a downside to doing this for the company as they give up ownership or control potentially of their company. The second way for companies to raise money or perhaps countries or provinces or cities, for that matter, is to issue or sell bonds to the marketplace, essentially issuing a loan from that company or country to investors. Investor in this case essentially becomes the bank to the company. They lend the company their money in exchange for an amount of interest to be paid back and a maturity for that loan when they will receive the original amount that the company had borrowed.
The upside to this for the company is that they don't give up ownership. However, the downside is that we all know what happens when a person or a company or country takes on too much debt, and that is they might fail. So stocks and bonds are two of the main investment options available in the capital markets and are the primary methods through which public companies access capital from investors. So, again, from the investors point of view, bonds can be considered a loan to a company and stocks can be considered a purchase of ownership in a company. Now, due to the characteristics of each type of those securities, each has a different expected rate of return and each plays a unique role in an investor's portfolio. But what is the stock market, I'm sure most everyone on the call has at some point watch CNN or has seen the closing numbers of the Dow Jones Industrial Average, the S&P five hundred or the Toronto Stock Exchange. These are all representations of markets or at least of small parts of markets. One that seems to get the most attention is the Dow Jones. However, the Dow Jones Industrial Average is only the 30 largest stocks that trade on the US stock markets. That's it is just 30 names. The S&P. Five hundred is the five hundred largest companies, the trade on the US market, which seems like a lot.
However, every day in the United States, there are roughly thirty six hundred publicly listed companies that trade on different exchanges just in the US alone. Excuse me, this doesn't include private companies or companies that trade over the counter or in other words, companies that aren't listed on an exchange. Now, the stock market is an auction market where buyers and sellers come together, meet and agree on a price in order for a trade to occur. This is the first thing that must be accomplished. So any time you hear somebody say something like there are more sellers and buyers in the market, so that's why the market went down, you know, this can't be true. There has to be a buyer for every seller or transaction just doesn't occur. Now, one side might be more motivated, so they may be willing to accept less or pay more. But mathematically, there has to be a buyer for every seller. But why do people invest in the stock market when I think about investing, I think about all the headlines that surround us on a daily basis. We get unsolicited advice in an area that is very little true understanding people or investors are looking for some certainty. That is some certain returns on their investments in a market that is forever uncertain. The stock market is a complex organism, but instead of getting a better understanding, many of us fall prey to the headlines because they fuel our inner desire for greed.
Now, here are some examples of what I mean. Forbes gives us three hundred sixty five ways on how to get rich. Time just told us that our religious beliefs might determine if we're worthy of getting rich. Here's money since. To tell us how to get rich now without even trying and I'm sure many people have heard of or read the millionaire next door, and if you don't know what to invest in. Well, money since. Gives you the list, it tells you all of the best moves now, so it seems pretty straightforward, pretty easy. But let me be clear on a very important point. Most people don't get rich from the stock market. There are only a few examples of those people out there that do. Most of us use the returns, your stock market to grow our wealth at a reasonable rate, to use it as a tool to stay ahead of things like losing purchasing power. Now let's look at some details on geography and size of the global stock markets, because it's a big world out there. So this car diagram or map illustrates the balance of equity investment opportunities around the world. In other words, the global stock market, the size that each country has been adjusted to reflect its total relative capitalization or relative size. As you can see, Canada is only three percent of the global stock market, while the US represents over 50 percent.
I should point out that this data is a couple of years old, but still very relevant. With the US side, this is why when something catastrophic happens in the US, like back in two thousand eight two thousand nine, the global credit crisis or global financial crisis, it affects all other markets. As you can see, countries that get a lot of attention in the news these days. There's things like the BRIC countries, Brazil, Russia, India and China, describing these countries as areas of emerging markets with higher growth rates. But if you look at them on this map, Brazil only represents one percent of the global stock market. Russia doesn't even make the map. So it's less than one percent. India is one percent and China is three percent. Now, I should point out, we've been tracking this data for about ten years. Ten years ago, Canada was four percent. It's fallen to three percent. The US was around forty six percent. It's grown to fifty four percent. China was at one percent. And it's grown to three percent. So it is a changing environment. Now, I'm not saying that the Brazil, Russia, India, China type of trades are good investments. They might represent good areas to invest in for growth. I'm just pointing out the relative size compared to the peer group. Because the global stock market is worth 70 trillion dollars. That's a big number, the valuation of the aggregate global stock exchanges is 70 trillion US dollars and as I said, Canada, that only represents three percent of the subset.
This must lead people to question things like why they invest, in many cases as much as 90 percent of their wealth in a market that is only worth three percent of the global market. Now, there is this thing called home country bias, that is where investors feel more comfortable investing in things that they're familiar with, companies that they feel that they understand it makes it feel better or safer. Familiarity, bias in home country, bias or cognitive biases or heuristics, these heuristics are fascinating to me and for today we will spend very much time on them. But for those that are interested, there is a lot of literature out there in behavioral finance that focuses on the common biases that we all have. But what about the bond market? They said the two main ways for companies to raise capital is through issuing stock in the stock market or issuing bonds in the bond market. And we don't have time to get into the intricate details of the bond market today. But let's just say that not all bonds are created equal. The power of the bond market is massive. If the stock market was worth over 70 trillion US dollars. How big is the bond market, you might ask? It's almost double that one hundred and twenty eight trillion dollars.
That's one hundred and twenty eight trillion US dollars. Yet nobody talks about the bond market, not you got to ask yourself, why is that? I read a book a few years ago called The Ascent of Money. And in the book they talk about how well money came to be, what cash was, what stocks were, what bonds were. The story that they told was how the end of the US civil war was actually attributed to the devaluation of US cotton bonds that were trading on the London Mercantile Exchange. And this left the Confederates broke. So again, why doesn't anybody talk about the bond market when it's almost twice the size of the stock market? Well, for one, as I mentioned earlier, the stock market operates as an auction market where buyers and sellers meet on an exchange. So it's fairly easy to see who was buying, who is selling and at what price. The bond market is not a centralized auction market. So typically bonds are issued by a country or company and they're traded between various institutional bond desks, not retail, but institutional bond desks, meaning that the price is not always easy to look up. This is very different than turning on the TV to see what the S&P five hundred did or the Dow Jones Industrial Average or the Toronto Stock Exchange. Let's face it, bonds just aren't sexy. There's nobody out there bragging about how they picked up 40 basis points over the US 10 year Treasury on a trade.
Instead, we hear about other things. It's things like Bitcoin. Or ethereum or dogecoin. A couple of years ago, the big one was wheat stocks and most recently some short squeezes on a couple of companies like AMC Theaters and the most notable one, GameStop. Anybody here bragging about how they have diamond hands on a credit Wall Street bets forum? Let's be clear, there is investing and there is speculating or gambling, participating in a short squeeze on GameStop with your diamond hands because of your Wall Street bets. Credit for community is not investing. It is speculation at its best, being part of dogecoin is not investing. Dogecoin was actually created as a hoax, but these are the things that get headlines. There's just sexier than talking about picking up 40 basis points over US 10 year Treasury note. The problem with this is linked to the consequences of investing in something that you don't really understand and not understanding what the potential outcomes could be. So I'm going to talk about GameStop for a minute because I found that one to be fascinating to watch. I'm sure that you've all been studying about things like the death of brick and mortar stores. It's evident in the market here that companies like Amazon have in GameStop, for example, example here is a store located in strip malls that sells video games and equipment, which sounds a lot like the same path to Chapter 11.
The blockbuster went down in today's day and age. Trust me, nobody needs to go to a video game store to buy a video game. You can ask my kids, either download it immediately or order it online. And the theme for the controllers and all the gear you just order from an online retailer or ETF. So what can the future look like for GameStop is such there are these evil hedge fund managers that shorted the stock, meaning they sold the stock without owning it because they were betting on GameStop feeling. But the way the rules are in the US, they actually shorted or sold more stocks than actually exists. Now, credit to a couple of opportunists that saw this and created this uproar on an online forum to bring down Wall Street. Tapping into a couple of things here. The first due to covid. We have a lonely board, disconnected cohort. And here comes a movement that you can be part of. The message of the movement is that you're going to get rich and stick it to the man taking from the rich and giving to the poor. The second is just pure, old fashioned greed. The stock went from four dollars a share to four hundred and eighty three dollars a share very quickly. And right now, it trades somewhere around two hundred dollars per share to remember, there's a buyer for every seller and the seller for every buyer.
Well, there's not a transaction. So somebody out there bought this stock at four hundred and eighty three dollars per share during the peak of the euphoria with their diamond hands. This seems like crazy behavior. Why do people do that? Why do they need trades like that? Well, for one, we're surrounded by noise about things that we don't necessarily understand, which creates stress. Secondly, we often don't ask the right questions or even know which questions to ask and focus on, which creates additional stress. An example of this is the stock market. The stock market gets a lot of attention. Everyone with an iPhone can easily look at stocks and charts of stocks whenever they want. But why doesn't that just fuel more stress that you should know what to look at and what to do? I mean, if it comes down to executing a trade that pretty simple, entering the buy or the sell in a trading system is pretty straightforward. You simply need to see the price and put your trade in the market. I think it's fair to say that if I get everyone on the call access to a trading platform on their laptop or smartphone that you'd be able to figure out the buy button from the sell button doesn't seem so hard. So what could possibly be stressful about that? A lot of people like, isn't it difficult to invest in the markets and I'm like, not if you're using E-Trade, making a big investment is as easy as a single click boom.
I just bought some stocks. See, it was totally easy. Check this out. Boom. More stocks, boom. Asset backed securities. Boom, credit default swaps. Boom, boom, boom. Oh, I don't even know what half the stuff means, but thanks to E-Trade, I can wait. What is this line going down? 400 points. This is not happening. Dear Lord, I made a horrible, horrible mistake that struck before. But I to get back to work I think fell the eight. It's all gone plus my entire life savings. Oh God. Instead of saving private school tuition would be sick. Yeah. I would jump out the window now. Now, I use that video for years and I have to apologize for some of the crudeness from it, but the message is pretty clear. Executing the trade is simple. The problem is not knowing what you're executing the trade off. So let's talk about the growth of a dollar. If you had come to our group, the CME Group, fifty five years ago and you said I didn't want any risk for my money, I just want to give you my dollar and I want it to grow, we don't want any risk. We would have put it into a US Treasury bill or something of that nature.
US Treasury bill is actually known as the risk free rate. So your one dollar over that fifty five year period would have grown to twelve dollars. But if you had the ability to accept more volatility than the risk free rate and you put it into the S&P, five hundred, that one dollar would have grown to two hundred and eight dollars, which is a lot better. So this is called the equity premium or the market premium, also known as the equity factor or the market factor. I'm going to go through a few factors of return. What if I told you that not all companies are created equal, that that one dollar growing to two hundred and eight dollars was the largest companies, as I pointed out at the beginning of the presentation. It's one of the largest five hundred companies that trade in the US. But there's all kinds of sizes of companies. Obviously, there's large companies, there's midsize companies all the way down to small companies and micro companies. How did that Wendler do if it was invested in small companies instead of large companies? Well, it grew to seven hundred and ninety dollars in the same time period. Now, with more volatility, mind you. But that is called the size premium. The next factor or premium I want to talk about is the price premium. So what if we looked at value stocks versus growth stocks? Value stocks can simply be thought of as stocks that are on sale.
It's kind of like going to the store and that shirt or a pair of pants or that car, for that matter, is 40 percent off. It's a better buy growth. Stocks are the opposite. They're expensive. Now, my son likes this name brand called SIPRI. I don't know if anybody's heard of it, is just a clothing brand and they make these things called Bunny Hugs in Saskatchewan or hooded sweatshirt. You're not from Saskatchewan. And they just say the cream across. There's nothing fancy about them at all. They retail for about one hundred dollars us and they sell on the secondary market for three to five hundred dollars us. This is kind of like a growth stock is just priced high. So in our example, if we invested in small companies. But also with a value tilt. How did that one dollar do in the same time period? Well, two thousand and seventy seven dollars. A much better number, this is called the price premium for price factor. In investing in the stock market, you have a choice. Well, actually, you have many choices, but we look at what you call the get rich versus lose everything scenario if you only invested in this example in a company. So in the box on the left. You could pick the eight companies that skyrocket and you would get rich, an example of this might be 20 years ago you invested in Apple, Amazon, Microsoft, maybe you got lucky and got into Tesla early.
Something of that nature. You absolutely could get rich. But what if you picked one, two, four or six companies that didn't make it? And the outcome is that you could lose everything, which is the least for. So to offset that risk, that concentration risk, we advise people to pick an outcome somewhere in the middle, you won't get instantly rich, but you definitely not lose everything. So instead of owning those eight companies alone on them in a broader basket, and this is basically called diversification, something I'm sure many people have heard of. So let's review the factors that return. Market size and price, there is an additional factor of return, but I won't get into too much. It's corporate profitability basically if you have two similar companies in similar industries doing similar things and one is just more profitable than the other, and it's expected rate of return is higher. There are factors of return in the bond market to their listed here term credit and currency. In the interest of time, we're not going to spend any time on those today, but I did want to call them. In investing, there are many themes out there, themes like dividend investing. Something that Kevin O'Leary has made a name for himself on the importance of dividends and in getting paid to wait to wait for the stock price to go up and collect income in the meantime.
But it's just a thing you don't actually have a higher expected rate of return by focusing on dividend paying stocks. And there's been a lot of work over the years done on that's called the dividend. Irrelevant theory. As a matter of fact, companies that pay dividends in theory have their current stock price discounted by the dividend that they're paying versus companies that are keeping those funds and retained earnings and investing in growing their companies. Now, I know that all university students out there that study finance will study things like dividends and the dividend discount model, and it's good to understand the model, but to me, there are models and there's reality. I might be stepping on some toes here, but in the dividend discount model, the expected stock price in the future is based off of either a fixed or variable dividend rate or an expected dividend rate. This is in technical terms, but this is just the model. And this picture is straight out of my corporate finance textbook for World Rhodes University. And that is my highlight, getting ready for a test on dividend discount model in the real world. There are things that happen that no one sees coming, things like a credit crisis or a global pandemic and global economic shutdown. I don't ever seem to recall in my studies reading about the expected stock price of either a dividend paying company or a non dividend paying company during a global economic shutdown.
The reality is focusing on dividends actually can add more risk to your investment portfolio risk that isn't easily understood and it can be diversified away. So instead, we advise clients to invest in the broader market, cap the aggregate of dividends without taking on the company specific risk of a high dividend paying company. Because it reminds me a lot of those drink milk commercials, those commercials where they told us we needed to drink three glasses of milk to get the right amount of calcium for our bones in our diet. But those commercials were funded by dairy producers that sell milk. So obviously, they want you to drink three glasses of milk because the more milk they sell. We all know how that works. But wait a minute, if we just have a well-balanced diet, we probably are getting enough calcium from things like vegetables without focusing on drinking three glasses of milk added. So to me, dividends are like Kalsi, instead of focusing on dividend paying stocks, you can just invest in the broader markets and capture the aggregate of all the dividends that are being paid. Now, I have to apologize for this slide. I don't think that it comes across very well, but the typical trading pattern of investors is that when things are going well, like they are right now, there's a desire to want to buy into the market.
And whether you want to admit it or not, it's actually fueled by an inner desire for greed or maybe a fear of missing out when we see other people getting rich, when things start to sell off. People actually tend to buy a little bit more because there's this thing called dollar cost averaging that comes in or they say I'm going to average down my cost. But as things really sell off like they did in two thousand eight, two thousand nine or even in March of 2020, there is a tendency to sell out of the markets at the exact wrong time. There's been a lot of work in behavioral finance on this as to why people have this trade behavior. And apparently there's a part of your brain that treats financial loss the same way it treats mortal danger. So it makes sense that people flee or sell when things are tough. So our advice is just don't do that. You need to write out various market cycles and stick to your plan. As this slide shows, there have been many cycles over the years. The most recent, of course, being covid-19 something that Dr. Fonseca is going to talk about in just a few minutes. But we've had many different crises Brexit, US subprime, 9/11, Y2K, many, many different cycles over the course of history.
If somebody stayed invested through those cycles or even better, if they rebalanced their portfolios when the markets were down, they did way better than if they sold out at the wrong part. Because let's face it, our brains are not wired for this stuff. We all have these biases I mentioned or these heuristics, and they help us make decisions like when we were cavemen and there was a saber tooth tiger tracking us. Now, there was a cognitive bias to flee. That makes sense. We all have biases. It's part of being human. Some of them include things like hindsight, bias, how things look obvious after the fact when looking in the rearview mirror. The fact is that it was not obvious or you would have made a different decision at the time. Self-attribution bias. When you pick something and it goes up and you take all the credit, the minute it goes down, you blame everyone and everything else. This sounds a lot like the past US president currently familiarity, bias where you're investing in things or companies that you're familiar with. Something I mentioned earlier, home country bias. There's many of these biases that exist. Don't let them create more stress in your life. Just understand that they're there. Stick to the plan and avoid the noise. For. We're all going to have those little moments that time when one of your friends or colleagues tells you about a no brainer, a get rich quick scheme, a no brainer stock, maybe it's GameStop.
The advice we give to clients is either don't do it or only do as much as you're willing to lose. Stick to the plan with the rest. Look beyond the current headlines, and this is my last slide, by the way, there will always be headlines that tell us how great things are or how bad things are. This is just noise, it's noise that will drive stress if you let it. It's also something we call entertainment advice and it's not actionable investment advice. It should only be used for entertainment purposes. I mean, how many times have we heard? Yeah, but it's different this time. It never is. The headline itself is slightly different, but the underlying message and principles have stayed the same through many different cycles. So thank you for your time for my portion of the presentation. I just wanted to call on a couple of things. For those that aren't aware, we do have a weekly podcast that we run called CNN Group Free Lunch. It's available for download on Apple, Google, Spotify. Wherever you download the podcast from, you can follow us on Twitter at CMG Free Lunch at LinkedIn, at the CME Group and through Facebook at the CME Group at CMG Free Lunch. And with that. I just need a minute to get my mouse working again. And I'm going to pass over the presentation to Dr. Fonseca.
Thank you, Colin.
Oh, it's in the minute to get your slide deck up perfect. OK, you should be able to click show main screen and you slide deck.
What were you not showing it or do you want me to show it?
It's going, yeah, OK. Actually, just give me one second, Fonseca and I will fix this. Perfect. OK. The floor is yours.
Ok, so thank you, Colin, and thank you for the invitation to have another chat about covid part to cater to the audience, it gives me a chance to talk to you about one of my favorite viruses, covid. Probably not everyone's, but certainly one of mine. So today I'm going to start off and recap maybe a little bit on some. Colleen, how do you move the slides? Whereas the movement thing. Colin.
You should be able to click in the main body and it should move decide for you.
Tell me where.
Just click on the PowerPoint itself. OK, and then move. There you go.
Oh, perfect. OK, so these are my conflicts of interest. And I thought what I would talk about are a couple of things where we are now. What's new with covid? Because certainly the outbreak continues to or the pandemic continues to progress. And of course, the current topic that's on everyone's mind is variants. So I think we've all heard about variants and their impact on vaccines and their impact on outbreaks. So I'm going to focus on that as well. So here's one of my original slides that I showed everyone. I think there is little doubt now that this virus has actually originated from bats. How it actually got from bats into humans is still a matter of uncertainty. And despite the number of missions that have been held, we still don't know how that happened. But it is important because I think it will help us focus on where we are going to do surveillance and it'll also help us in the future because we could face further pandemics with this virus. So this kind of chart shows you how close. And if you can see my point here, you can see how close the virus is to the bat virus because this is a kilogram, which shows you the degrees of closeness. And you can see the closest neighbor is this particular sequence from a bat. So as you know, it is an envelope RNA virus. You can see the envelope here.
It's got these spike proteins, which are of particular interest to us, not only from the aspect of transmission, but also in terms of preparing vaccines to it. And the reason it's called coronavirus is because if you look down here, you'll see these little blobs, which resemble very much the sort of little blobs on a coronate from the royal people. So that's why it got its name as a coronavirus. And you're probably also familiar with the fact there was the original SARS coronavirus sometime around 2003, which also originated from China. And as well, we also have other human coronaviruses, which annually cause sort of mild colds and coughs and fevers. So I think this is a really broad group of viruses. And this is these are viruses that will continue to circulate in the human population, but more importantly, in other mammalian hosts that are found in the world. So moving on to the next slide, some new pieces of terminology that I'm going to talk to you about. So the first thing is when this SARS coronavirus originally escaped from its mammalian host into humans, there were two probably main groups. And the reason we know there were two original groups is because we've been able to go back to the original strains and sequence them. And we know they were almost identical. So they were called A and B. So that's how we have divided them up into two lineages.
So the word lineage implies that these are distinct strains. So think of a lineage as a hockey team. So, for instance, the Calgary Flames or the sort of Edmonton Oilers or whoever it happens to be, and within lineages, we also have a terminology called clades. So a clade is like the individual positions within a hockey team. So, for instance, the goalkeeper or the center back or the center forward are more of a football person myself. So I think of these as goalkeeper's center backs forwards. But, you know, whatever your sport is, it's fine. You can use the same analogy. And then, of course, the most recent addition to our vocabulary are variants. So what is a variant? Well, a variant is one of these original lineages, and that lineage has mutated to acquire a number of changes which make it a little bit more superhuman. So it's probably better at transmission. It probably causes more infection or probably reacts less well to the vaccines. So those are the three groups that we think of now. So the lineage, which is a wild type, the clade which is within the lineage and of course, the variants which are these sort of supercharged lineages which are causing so much of the problems that we are seeing at the moment. So. covid, or sars-cov-2, has continued to evolve and evolving as we sequence these different strains, we see more and more changes. So in order to differentiate these different lineages from each other, we give them numbers and names.
And that's why we get like be one one, seven or a two, etc.. And you can see on the right hand side here, as these viruses circulate in different continents on the on the globe, they evolve even further and become even more specialized. So we are seeing these huge collections of different lineages and of different clades. And then, of course, when we have intercontinental travel or travel between different provinces and people are infected with these clades or these variants, they bring them back. And what does the virus do? Well, it takes off in whatever area you happen to be. So it's kind of really important that we are keeping our eyes on the circulating viruses by doing a lot of work in terms of sequencing them to determine what the RNA genome comprises of. And I apologize if I use terms that you're probably not familiar with. I hope it will become increasingly clear as I go through the talk. So here is what was happening in Alberta. So you can see this from the Alberta Health website. And of course, really back in February of last year, we had the introduction of sars-cov-2 into Canada and into Alberta. And then we went into our first wave or on May, and then we had a series of lockdowns and trying to understand what the virus was about.
And really initially we had a relatively poor understanding of what the virus was about, what its transmission patterns were like. And I think as you can see from the news, you know, we've learned a lot more. We've now we now understand how it's transmitted, the importance of social distancing, the importance of masking. But despite that, because this virus can grow and transmit so easily, you can see fairly quickly if you don't take sufficient precautions, you can end up with a second wave, as we recently had over the winter. And that's not uncommon with a lot of respiratory viruses. You do tend to get them occurring much more with higher frequency in the winter. And then more recently as we had our lockdown's, we had the introduction of variants, the most well known being the UK variant, the one one seven, and that has largely driven this most recent peak in this infection. So you can see variants have had a very important part in the way in the epidemiology of covid, and they will continue to have a big part as we go forward unless we can actually control that. So this graph also shows you the numbers of cases, the number of active cases which are down here in the bottom, so every time you have an outbreak or you have a wave, you also tend to get these freaks in a number of cases that are occurring.
Of course, most people recover, but as well, a lot of individuals do die. So the importance of this is that in order to control the virus, we really only have two main applications. More recently, it's been vaccination, which has been really important. And I'll come to that further on. But also in terms of social distancing, in terms of the measures to separate us because of transmission of the virus, which is largely a contact and four, the transmission route. So this is a relatively recent graph of the variance that we have in Alberta, so you can see at the top here, as of the 7th of June, we had a total of about close to 50000 variant of concerned cases, the greatest, greatest proportion of these, actually, the U.K. variance. So you can see close to 45000 to about 44000, and that's to be one one seven Var.. We also have a few variants from South Africa. Thus far, they don't seem to have done much more than be a very small minority. The Brazilian variant, which is P1, which is of some concern as well, because at the moment it is causing large outbreaks in South and in South America. And of course, the most recent one, which is the Indian variant, I think of it as the hot and spicy variant. This one is definitely one that we need to keep our eye on because from reports elsewhere, it can literally take over fairly quickly.
And then we have a bunch of other presumptive areas of concern, which I'll come to shortly. But you can see the variants do, in fact, account for a large number of hospitalized cases. And down at the bottom here, you can see probably around this point here, which will probably be in January, we had a sporadic number of these introductions of these variants. But how quickly the B one one seven variant, which is in orange, took off and you can see how quickly it drove the third wave. The reason the numbers seem to have dropped off is not because they've actually dropped off is because at the provincial lab where we do all of the variant testing, we had to be a lot more selective in terms of the positives we were testing for because we were also having to deal with doing the sort of diagnostic testing for people who were sick with covid. But you can see how quickly the numbers arise. And in fact, we were testing every single positive. So you can see, you know, the proportions as well of the other variants in this graph. But the point I'm trying to make is that in about two to two and a half months, we went from a fairly low number of cases with this variant to a very almost completely the majority of cases were due to the UK variant. So let's talk a little bit about variants.
And I'm showing you this cartoon. I know it looks incredibly busy, but just bear with me. So there are three diagrams. So this top one here, which is entitled Single Stranded RNA Genome, shows you what the virus actually looks like. So the virus has a number of different enzymes and proteins which allow to replicate in the human host cell. And that's all of these first few ones. The most important one is the spike protein. This is the one everyone talks about. This is the piece of the protein of the virus to which we make our vaccines. And it's this little piece here at the tip of the outer periphery of the virus. So this is the spike protein which mutates and is the one that gives rise to these different variants and in part to the different lineages. So I'm going to take you from this protein to show you what it actually looks like on these models. So what this first one is showing you is a model of what the proteins would look like when they bind to the human receptor cell, which is this one in green down here called ASW or angiotensin converting enzyme number two. You can see these three sites here. See our one see are two and C are three are the active binding sites. And what it means are these sites are most closely in contact with this receptor site on the human cell and it's color coded down here.
So changes at these points actually improve the fitness of the virus or can make it more lethal for the virus. So they are so they will die. So when we talk about the emergence of mutations, I've highlighted a couple here. So this one in black and this other one here in black as well. And so these are areas where there has been a single amino acid change. And if you remember from your chemistry in the past, amino acids are the building blocks of proteins. So when you join up amino acids, you get different structures. And if you change the charge or the shape of the amino acid, you can also alter the rest of the structure of the virus. So these are two important amino acid changes which have resulted in the emergence of these new variants. So. These have occurred on the spike protein over here and down here on the left, you can see how we've used this information. So, for example, for the UK, variant B one one seven, there is this amino acid change here where it's gone from an aspiring gene donated denoted by this letter N to a tyrosine amino acid change. That single change has allowed this virus to become a variant with improved transmissibility. And there are a couple of other changes here. So one for the South African variant, one for the Brazilian variant, and the most recent one for the UK variant, which is the one we are all concerned about.
And I reflected these changes over here. So now you kind of understand why it is so important to keep looking for the emergence of these mutations on the RNA of the virus, to map them, then to changes on the spike protein, because in turn it can actually affect the vaccine or it can affect the properties of the virus itself. So over the page here, you can see what happens when the virus first meets human cells. So this is the virus. It finds its target on the surface of the meaning of the of the human cell, which, as I mentioned, previously used this receptacle, Aissatou. It then tricks the cell into gobbling it up very much like eating a sort of cookie. And it's enclosed in this little ball called the endosome. And when it's in there, it actually under the surface proteins, which are the actual spike protein, undergo a change so that they split the virus open and allow its RNA to get into the cell. And the RNA then codes for the extra amino acids. And in turn, those join up to from proteins and as well the nucleic acid, which then releases a brand new virus. And on it goes on its way. So you can see that the receptors are the key in terms of where the virus attaches.
And making this receptor bond stronger improves the ability of the virus to transmit as well. So what we've been finding is that these receptors, Aissatou and more recently for the Delta variant, which is the Indian variant, it has another receptacle. Furin allows it to actually spread more widely and produce a lot more virus, which can have consequences in terms of transmission as well. And so here you can see this receptor spike protein. Here you can see it consists of three components and within it's the furin. And this is the active point which actually binds to the human cells. So you get a sense of how important the receptors are to the virus itself. And that's why its goal is to continue to evolve, to become a lot more and to change to accommodate anything. So what is a variant? Well, there are two groups of variants. The first one are the variants of concern. So these are the ones that are actually causing increased transmission or they cause worse disease or worse outcomes. They have an effect in terms of the vaccines or the therapeutics. And the show has actually classify these because previously we were using lineages and numbers and it was getting confusing for everyone. So down here now we have the alpha variant, which is the UK, which originated in the UK, which is B one one seven, and that originated in about 2020.
And I mentioned previously these are the ways we classify them. They are different classifications, but let's stick to the actual label. So the alpha variant is equivalent to be one one seven. The beta variant is the South African variant, which is B one three five one, and that actually emerged in around May of 2020. We have the gamma variant, which is the P one variant, which is also of concern, and that came from Brazil and around November 2020. And then the Delta variant, which is the Indian variant. And there are a number of different varieties of this of this particular variant. But this one initially was a variant of interest. So what that meant was that we noticed that this variant was replicating or transmitting extremely quickly in India, and it was then upgraded to a variant of concern in May when it was realized because of its properties, that we really should we should actually be following it much more closely as it actually continues to circulate. So those are variants of interest. So those are variants of concern. I apologize. A variant of. Interest is similar to a variant of concern, but at the moment, it's not causing huge big outbreaks. But we need to keep our eyes open so that if it actually acquires more mutations, then clearly it is going to going to become a lot more significant as an agent of concern. And so we have a whole bunch of these down here, and I'm not going to go through every single one.
What I'm going to talk about now is the different types of tests that we use. So the majority or the most front line tests for the diagnosis of covid are molecular tests. And the way we do the diagnosis is quite, quite complicated. But it's an important component of the testing that we are doing here are the problem. We are doing much of the testing that's restricted to outbreaks, health care workers. And of course, if we are seeing cases where the vaccine, where the where the individual who has been fully vaccinated then acquires the infection, that's really an important aspect in terms of identifying those variants to see whether they have acquired these mutations. And the way we do that actually is fairly neat. So you've probably heard of the polymerase chain reaction or PCR, and there are two cycles to it. So there's a hot cycle and a warm cycle. So the hot cycle is when the when the two strands of DNA because, you know, DNA is complementary, there are two strands of DNA. So when we separate the strands of DNA, we then add primers and primers are little chunks of DNA which will bind to a complementary set on that initial template. And then when we cool it down and add an enzyme that recognizes these double strand of pieces, it will amplify it.
So we have a cycle of separating the DNA off, then cooling the DNA and then measuring the signal using a probe. And each cycle is called a CTY value. And so if you start off with a lot of DNA or RNA, then you can appreciate that the signal will come up sooner. So a lower sweet value or cycle threshold value allows you to infer that you have a lot more DNA or RNA present. And whereas if the curve is further down, you know, there's much less of the DNA or the RNA present. What you can what we also do as well is to use that technology to figure out where these mutations can occur because every amino acid is coded for by three of these base pairs. So by targeting where the change has occurred, you can actually determine whether the particular virus you have carries that mutation. And I and I'm trying to simplify it as best as I can, but it's actually a really clever way of doing it that allows us to do it fairly quickly. And so those are what we use as targeted assays for mutations. But as well, in some cases, we can't figure out what it is through these assays. So we have to literally sequence the whole length of the virus and that process is a lot slower. So we've been using a combination of both these assays to actually determine, you know, which of the strains that we're identifying have these mutations.
So we can tell relatively quickly what is a UK variant, what is a South Africa variant we have. It takes a little bit more time to get it to a Brazil variant and it takes a little bit more time to get to an India variant. But we are working on some methods which we hope will allow us to do that a lot more quickly, because what we want to know is what these strains are and where they are. And that's important in terms of vaccination. It's important in terms of what is causing these outbreaks, and it's also important in terms of who's being affected. So you can see down here on the right hand side, a lot more of our hospitalized cases are from younger individuals. And in part that's due to the fact that quite a few of these people have not been vaccinated. So the importance of vaccination is really quite apparent. But as well, it depends on whether they've had one dose or two doses of the vaccines, because that is also becoming an important component in terms of variant transmission. So I'm going to moving on to the next piece and in terms of variance, so as I mentioned, contact and droplet is the most important component of transmission. You can see this gentleman here who's sneezing and sort of expelling this cloud of particles which carry the virus.
And so for the most part, it's this cloud that you want to keep yourself distant from, which is why wearing a mask is so important. And as well, if you're unwell, staying at home is also extremely important. But in addition, we are also finding that you can have some of these particles actually carry in the air for a period of time. And that's why we are seeing probably some more cases of aerosol transmission and as well with some of these variants, because we have these changes associated with increased transmission. That's why we are also seeing another component of increasing transmission or increasing infection. The other issue that we're concerned about is do these variants cause more severe disease or less severe disease? And earlier on, when we were finding out about the U.K. variant, it was thought that the U.K. variant, in fact, did not give you any more severe disease than the standard wild type lineage that was circulating. But since then, we've learned that it's probably slightly different and it can result in more hospitalizations with the more recent India variant or the other or the Delta variant. What we are finding is that this virus in India has been associated with higher rates of gastrointestinal upsets or blood clots or strokes. Thus far, the same hasn't been seen in other areas where it's widely circulating. But, you know, it still remains to be seen.
The data is still fairly short, short in terms of when it has since has first emerged. So what's really important in trying to control these, the circulation of the parents who are clearly vaccination is the big key. And you can see down here the number of doses administered and the doses received and all. And though we know that one dose of the vaccine is generally reasonably good, certainly against the more recent variants, it probably is not as effective as we would like, which is why it's becoming increasingly important that especially for the sort of Indian variant, that we actually are a lot more vigilant in terms of increasing our vaccination rates, because that is going to increase the ability to keep the virus out of the circulating population as much as possible. Oh, as my computer frozen, no. OK, so this slide actually shows you the efficacy of the different vaccines against the variance. So you can see on the left hand side, there's the Pfizer, Moderna, JNJ, AstraZeneca back. So as you know, the Pfizer and Moderna are the two RNA vaccines, Amarone vaccines. Johnson, Johnson and AstraZeneca are the sort of vector mediated vaccines. And Sinabung is actually a whole cell virus, which is not being used in in in America or in Canada, but it's widely used in China and Southeast Asia. And it doesn't have as good a property or as good protection against these variants as, in fact, the MRSA or the other vector vaccines are bad for the most part.
You can see that against B one one seven. These vaccines are fairly reasonable against B three five one know there's a degree of variation and the same is true against P one, which is the Brazilian variant. So clearly, even though we have people being vaccinated, it is really important to see how the vaccines behave in the background of the variants that are circulating, because when a lot of these vaccines were being developed, in fact the variants were not circulating at the time. These variants have only come along since the virus has been allowed to continue its spread across the globe. So. So this is my almost last slide, but and I know it looks terribly complicated, but it comes from a recent pre-print of the effectiveness of covid-19 vaccines against hospital admission, especially with respect to this new Delta variant, the Indian variant. So in broad strokes, the first of the key points is that two doses of either the Pfizer, which is the MRSA versus the AstraZeneca, which is the vector vaccine, are pretty good. So they can significantly reduce symptomatic disease or hospitalization. The key point here is the lower this number is, the better it is. So 51 percent means your odds are 50 percent. It's not always like point one three, 13 percent, because deriving odds ratios is a little bit more complicated.
But what it does show you that either having two doses of the vaccine certainly reduces your risk of symptomatic disease for the UK variant. It also reduces your chances of ending up in hospital from 78 to 92 percent once again for the UK variant and similarly for the Indian variant. You can see, although it's less effective against the Delta variant, it certainly still has its relative efficacy. The second dose is one dose of Pfizer versus one dose of AstraZeneca are fairly similar. But it's only when you have your two doses that in fact the RNA vaccines have a slight edge over the current, have a slight edge over the current. Vector vaccines, so I think that that is something that a lot of the pharmaceutical and vaccine producing companies are focusing on in order to improve the sort of vaccines that are being made, especially to target them against the variants which are beginning to emerge. Now, I think that's going to continue to be an emerging story. So what do we have to look forward to? Well, I think we need to keep our eye on the ball. I think it is really important that we continue to follow this virus really closely. The other thing that we really do need is a lot of global cooperation in terms of sequencing the virus, exchanging the data, doing more clinical trials of different vaccines.
It's also important that we have global fairness in the distribution of these vaccines because there's no point in all of us in North America having two doses of the vaccine while we allow this pandemic to rage on in Africa or in India or in South America, because guess what's going to happen? We're going to have the emergence of new variants. And with time, those variants will come over to North America and then we will be in the same position as before. So basically, it is really important that we have globally, you know, we have a global approach if we're going to try and keep this virus at bay, because I don't think we're ever going to be able to eliminate that. I know that sounds really probably pessimistic, but I think the odds of us actually eliminating covid-19 are pretty much vanishingly remote. So in summary or finally, I don't think we are there yet. I think we have a way to go. But I think certainly now that we have vaccines, we're beginning to better understand the virus that, you know, our chances of actually mitigating the severe disease. The number of deaths that we were seeing in the earlier part of this pandemic are going to decline. And I think that is something that we are going to have to continue to work with and to understand. And with that, I'm going to close unless someone has and take any questions.
Well, Dr Fonseca, first off, I just want to say thank you for a very detailed discussion on what covid-19 is and the progress that's being made in your community, I think in the interest of time, because we have gone over the one hour allotment. Any questions that you have for Dr Fonseca in regards to covid-19? Please send along to our group. And if it's OK with you, Doctor Fonseca, we'll just ask you those questions and get the answers to the people individually.
Yep, sorry about that. I talk too much.
It was good. It was all good. It was a great presentation. And I really appreciate you taking the time to do that and very much appreciate everybody who's attended today, taking a time to No. One, talk about health and how we deal with this covid-19 pandemic. As you point out that probably here for a while. And number two, what do you do in the investment community in regards to dealing with various crises? So, Dr Fonseca, thank you and thank you to all of the people who joined the call today. And with that, we will end the webinar, have a great day, everybody.
A COVID tax season—Are you ready?
A COVID tax season—Are you ready?
Thank you for attending our presentation today called a Covid tax season. Normally, we'd see many friendly faces in an audience at a venue, but of course, today is not like that. We're presenting virtually for the fourth time this past year due to the circumstances we're all faced with. My name is Colin Andrews. I'm a First Vice President and Portfolio Manager with the CM Group at CIBC Wood Gundy in Calgary. And joining me today are Blair Howell and Jamie Golombek. Blair will be moderating the discussion, is a certified financial planner and wealth manager on our team, the CM Group. And he has over 20 years of experience working in finance and banking. And of course, we have our presenter, Jamie Golombek, who is the Managing Director, Tax and Estate Planning with CIBC, is a member of the CIBC Retail Markets team, working closely with Private Wealth Management and CIBC Wood Gundy to support their high net worth clients and deliver integrated financial planning and strong advisory solutions. So Jamie joined the firm in 2008 after 12 years of working in a global investment company where he was involved in both internal and external consulting on all areas of taxation and estate planning. Jamie, before we get started, I just have a couple of housekeeping items to address for the crowd. There is an option to ask questions during the presentation. The questions will be managed by the organizer and we will answer them as best we can. And I know you have a question. Answer session, heat up at the end. But if for some reason we cannot get to your question during the presentation, we will email you back response or set up a call to answer that question. Now, technology is a great thing when it works, as we were just talking about before launching this. If for some reason there's any glitch in today's presentation because it does happen, I'm sure today will go off without a hitch. But if it does, the presentation is being recorded and will be available for viewing at a later time. Indeed that works best for you. And at this time, I usually tell people where the washrooms are located and what food and beverage we're having, because usually it's a lunch and learn format. Of course, given today's global pandemic and lock down in our current situation, everybody is viewing this from their own remote location. So I guess you're on the hook for your own your own food and beverage. Which reminds me, you can see the presenters myself, Jamie and Blair. You can see the presentation. However, we cannot see or hear any of the attendees and you cannot see or hear each other. So you can sit back and relax, enjoy the presentation. Although, Jamie, I got to tell you, discussions about tax and relaxation don't always go hand in hand. So we're going to get into it in a minute. I just want to carry on introducing Jamie. Jamie is quoted frequently in the national media as an expert on taxation, writes a weekly column called Tax Expert in the National Post, has appeared as a guest on BNN, CTV News, The National. And I got to tell you, Jamie, probably your most famous presentation was when you joined us for a podcast, Free Lunch back a few a few months ago. And thanks for doing that again. In his spare time or in your spare time, I guess you also find time to be to teach MBA course at the Schulich School of Business, which is pretty remarkable considering all of these list of accolades that I could go on and on. And and different organizations you are part of, and things like the Investment Funds Institute of Canada's Tax Working Group, the Ontario Institute of Chartered Accountants, the Illinois CPA Society, the Estate Planning Council of Toronto, the Canadian Tax Foundation and the Society of Trust and Estate Practitioners. And that's quite a mouthful, Jamie. So obviously I wanted to get those out there so that our our viewers can see that we have a real expert today and we're really keen to have you here and welcome, Jamie.
Well, thanks very much, Colin. And welcome, everyone. Thanks to Blair and Paige and everyone else who organized this today, I'm going to spend 30 minutes to take you through the hot issues. My agenda is three parts. Number one, filing your tax returns and just some tips for the next six weeks. Number two, our best three ideas. Number three, our crystal ball. What can we expect in a budget next month or perhaps later in the year from a wealth planning or perspective? So let's begin with the basics. Filing your tax return. I'm going to go pretty quickly. I think a lot of you are familiar with some of the material, but then, of course, we have the Q&A at the very end. So, again, just a reminder to type your questions into the chat. We'll try to address as many as we can before the top of the hour. So, again, the due date has not changed as of today at 12:00 p.m. Mountain Time. That could change this afternoon. That could change tomorrow. As you saw yesterday, the US IRS extended the deadline by a month to May the 17th. From April the 15th. I had to call into the CRA I heard from this morning. As of today, there have been no changes. I wouldn't be surprised if they extend it in the next few days. However, you didn't hear it from me. The deadline is still April 30th. If you have self employment income, it's June the 15th. However, if your income was under seventy five thousand dollars and you received some Covid related benefits, even if you file on time, you will not be charged interest if you don't pay as long as you make the payment by April 30th 2022. So a bit of relief there for those whose income is under seventy five thousand dollars. In terms of the other things to think about taxable Covid benefit. So we have a number of covered benefits in 2020 that were received. Some of them were are subject to tax. Some of them are not subject to tax. These are all the ones that were subject to tax. And again, some of them have received withholding and some of them have not. So I think it's important to remember that all these things must go on the tax return for the CERB or the student benefit. There was no tax or could not be a tax owing to the other things like the recovery benefit. There is a 10% withholding that was already applied, which may not be enough. So many people might actually owe money when they file a tax return for 2020, depending on your personal situation. Of course, all these benefits would have been received on a T slip. So again, you'll know about it. It's on the T4A or the T4E, depending on how you apply. It's all considered to be other income on the tax return. The biggest question a lot of people are asking is working from home, you can clearly see that I'm working from home also home office expenses, right. A few things different for this year. Two methods to do it, temporary Flat-Rate method of the detailed method. There's a special form for Covid. The T77S can be followed with your tax return as part of all the software. And a tax preparer, of course, would certainly have that have that information.
So let's go into it. The temporary method, that's the easy method. Two dollars a day for every day you work up to two hundred days. Again any full or part time days, count sick days, days off vacation. Obviously, those don't count. The best thing about the temporary method is you don't have to keep track of any expenses. You don't have to have your receipts. You don't even need a form from your employer saying that you are working from home. So two dollars a day, that's a simple method. The detailed method, on the other hand, is a little bit more complicated obviously. The detailed method, if you qualify, you've been working for as a result of Covid, then you can take the actual expenses and then you prorate them by the ratio of work to use the personal use. You're going to need a signed form from your employer, the T2200 or the short form version of that, to be able to claim those on your return. Now people ask me all the time, what do you mean detailed method? What's deductible, what's not deductible?
Well, again, on the detailed method, you can deduct your rent, utilities, your access to the high speed internet. Certain maintenance and repairs. And if you're a commissioned employee, can even write off your home insurance and property tax. That being said, what's not deductible is your mortgage. Which means, as you'll see in a second, for most people that are home owners, it doesn't make sense to use the detailed method because when you add up utilities, you really prorate it. And then if using a shared space you prorate it further by the number of hours you work in a week. You'll see that it's not a lot in terms of deductions. So again, not deductible capital expenses, furniture, wall decorations, things like that. For the whole workspace to be using the detailed method, you can really only use the portion of the space that you use for work. So, again, if you've got a designated workspace, so this here is a designated space. This is a spare bedroom. I'm in my daughter's spare room. She's off at university, although, of course, there's no classes there. They're all doing it remotely. I guess it's more fun to do it remotely from a home that's not your parent's home. But anyway, this is a spare room. I use this full time for work. No one else uses this room. So this is a designated space. On the other hand, if you're working from a dining room table or kitchen table, you'd have to prorate it based on the work size, other words the square footage that that room is part of the home and also about the number of hours that you work at that kitchen table divided by the 168 hours in a week. There's more than one worker, by the way, you could calculate your own workspace. So very simple example. We've got Brit, Brits a renter, and she works 37.5 hours a week, 9.5 months. And she's renting. She rents a thousand square foot home or condo, and effectively she has a spare room and she's working from that spare room full time, so we calculate out of the detailed math and she takes her twenty seven hundred dollars a month of expenses for 9 months. She prorates it by 20%. And you can see that her deduction is very generous. Her deduction in this case is approximately five thousand two hundred and thirty dollars. If she used the two dollars a day method, of course, that would only be a maximum of four hundred dollars. So our renter is generally better off using the detailed method than a homeowner. Let's take a look at a homeowner. Sasha works the same amount of time during the same type of home, but this time Sasha owns his home. Texture condo, he pays condo fees of 600 bucks a month and utilities of two hundred dollars, the condo fees are not deductible. So effectively, what you have to do is take the two hundred dollars a month of utilities multiplied by the ratio of the square footage of the kitchen, which is 20 percent, and then multiply that by 37.5 hour work week over one hundred and sixty eight hours. You can see that under the dump method, Sasha can only claim eighty five dollars for the year. As a home office deduction. Better off using the two dollar day method. So again, for homeowners, two dollars a day makes sense. If you don't know what to do, just go online, use the CRA calculator. You can calculate the Home Office expenses. It will tell you what method is best for you.
Let's move right on. What else is new on the 2020 return? It's not a lot, but if you're a digital news junkie like myself and you get a digital newspaper on your iPad or On your phone or your PC, you can write off 15% of nonrefundable federal credit on any amount you spend for eligible digital news, up to five hundred dollars. So at 15% that's a credit, that's worth seventy five dollars. By the way, if you're like me and you have a combined digital and print subscription, that gives you the digital copy, but you've got a physical paper on a few days a week, let's say like me, the weekend, you can only use the digital portion of that for the expense. You can go online and see what the cost of a digital only subscription would be and use that on your tax return.
All right, let's move on now to our best three ideas. The second part of our presentations that we're going to move on from the tax season and talk about what can we do for 2021, because not a lot you can do on your tax return. Because that's basically retrospective. It's last year. What can we do this year? Number one, maximize all registered plans. We just run a brand new piece of a few weeks ago on building family wealth or registered plans. If you're interested, take a look at it. In terms of building wealth with RRSPs and TFSAs and RESPs and even disability plans. Just spend a few minutes on this for you. Reminder, we're in a new year. RRSP limit for this year, twenty seven thousand eight thirty. You had income of at least one hundred and fifty four thousand last year at 18 percent. You're going to hit that maximum less any pension adjustment. Or in the New Year of TFSAs. If you haven't already made your 2021 TFSA contribution, great time to do it. That's another six thousand dollars. And by the way, TFSAs, of course, have only been around since 2009. So, again, depending on how old you are and how old your kids are and how old your grandkids are. This is an amazing opportunity to catch up on TFSA room to a maximum of seventy five thousand five hundred. In other words, if you're at least 30 years old this year and you never had a TFSA, you could put it seventy five five. You can give your spouse another seventy five five to open up their own TFSA. If you've got kids that are at least 18, you can give them money to open up their own TFSA. Some of our wealthiest clients are using TFSA for intergenerational wealth transfer. So again, take a look at this. It's certainly a great opportunity. We've written a lot of reports on RRSPs versus TFSA versus paying down the mortgage. You see, mathematically, they're all the same. So five fifty hundred dollars income when I choose to contribute to my RRSP and I'll pay tax now. That money grows and at the end of the year, if I cash it in, I pay tax. I have a thousand and fifty dollars. TFSA works exactly the same way in reverse, right? If I earn fifteen hundred dollars of income, I pay tax on the income. I put the after tax amount into my TFSA and grows tax free if I'm paying down debt and my rate on my mortgage was five percent. That again exactly the same thing I'm using after tax dollars to pay down my mortgage, I save a thousand dollars capital fifty dollars of principal of interest and again I'm ahead by a thousand and fifty.
So again, mathematically that's all the same. In reality, of course, we know it's not the same. So I think the common rule that we all say is that if you're at a high rate now, you're going to be a lower rate when you retire. Do RRSPs, then do TFSAs. When it comes to paying down debt, if your mortgage rate is 1.5, 1.6, 1.7%. To me, it doesn't make any sense at all to aggressively pay down a mortgage no matter how big it is. If you're not maximizing your tax free savings inside of your RRSP and TSFA. We actually wrote a report a few years ago called Mortgages or Market, which is all these reports are available online through CIBC. We'll give you a website at the very end of have you download them, but basically said, you know, people are aggressively paying down their debt. But if your mortgage was at three percent, but you can get a rate of return over the next 30 years on average of six percent, you'd be crazy not to do your RRSP or TFSA before pay down any of that debt. And that close to true in this scenario, because simply you're already taxed for investment returns, there are simply higher than a low interest rate mortgage. So, again, it's something to talk about, certainly with your advisors. But this is certainly a strategy that's worked for for many of our clients. Register plans are also very helpful for business owners. I've heard so many people say, well, you know, a business owner, I own a professional Corp, I'm a doctor, I'm a medical Corp, I'm a lawyer, I'm a legal Corp. I just have a small business. I leave all my money in the business every year. I don't bother with RRSPs or TFSAs, you're wrong. You're basically wrong. You don't believe me, take a look at our brand new research reports. RRSPs and TFSAs where we prove mathematically that most, not all, but most business owners would do well, paying themselves enough salary to make a maximum RRSP contribution and, pay enough income every year, whether it's salary or dividends, to be able to pay out enough money to make a six thousand dollar annual TFSA contribution. Remember, at the end of the day, yes, you got a deferral in the corp, but that corp is paying tax at about 50 percent on the investment income, whereas if it's inside of a TFSA at the tax rate on that income is zero. So, again, something to look at. And again, if you believe me, please read my reports and then call me.
Let's move on to the next strategy, personal insurance. Again, I'm not here to sell any one life insurance, but I can tell you that among our very successful clients, life insurance plays a huge role, whether it's universal or life, a whole life in terms of a replacement for fixed income. I call it insurance for people who don't need insurance, the opportunity to use a portion of your wealth park it into a permanent life insurance policy to increase the value of the estate on a tax free basis, because the income inside the policy is reinvested on a pretax basis and on death, the entire amount goes Tax-Free to the beneficiaries as a tax free benefit down death. So again, this is a great alternative to fixed income. We've seen some very, very high yields on some of the whole life product being offered right now. I think it's worth taking a look at it.
Our third idea is to prescribe rate loan idea that just confirmed recently that the CRA prescribed rate will remain at 1% until June 30th. That gives you three more months. If you haven't done this already, to set up an income splitting family loan, prescribed rate loan. We call it the 1% solution.
We wrote about this last year. Happy to get you a copy of this material. But basically, there's a big spread right between the top rate number and the bottom rate on interest income, regular income. Forty eight percent of the high rate. Twenty five percent of the low. That's a twenty three percent spread. So if we can move income from a high income family member, low income family, a spouse, maybe it's a partner, maybe it's children, we can actually save some sort of amount of tax within the family. Got a simple example here of Jack and Diane. If you know the reference, you can probably age where I was in about grade seven in this case is our high income earner. Jack is our low income earner. We're going to do a prescribed rate loan to show you how the math works. But again, if Diane's not top Alberta rate of forty eight percent. Jack's my bottom rate of twenty five percent. We're going to do is going to take Diane's money instead of giving it to Jack, because if we gave it to Jack, all the income gains would attribute back to Diane. We're going to loan it to him. We're going to make a five hundred thousand dollar loan. We're going to charge the minimum CRA prescribed rate at one percent. By the way, if you do this before June 30th, you can lock in the rate for life. So even if rates go up one day, you'll be able to lock in a prescribed rate for life at one percent. So on this example, on a five percent rate of return, we get twenty five thousand dollars of income again. Normally, this is a mix of Canadian dividends with the dividend tax credit, capital gains realized deferred, 50 percent tax, a little bit of foreign income for a tax credit. To make the math really simple today, just pretend that it's all just straight income. So you got twenty five thousand dollars of income. We got to pay five percent sorry, one percent interest on the loan for this to work for CRA, not one percent on five hundred thousand. Five thousand dollars. That's a deduction to Jack, but it's taxable to Diane. That's a real opportunity. There is not twenty five, it's only twenty. Well, we income split the twenty if we have the top rate of forty eight, the bottom rate at twenty five to twenty three percent spread. So in twenty thousand forty six hundred dollars of tax savings every year and a half million dollar loan, so this works great with spouses and different tax rates partners, it also works with children.
I got three kids I would never hold my youngest, who is now 15 and half a million bucks because you never pay me back. So instead, what I would do is set up a family trust, get a lawyer, of course, get this done properly, set up a family trust, make a loan to the family trust, have the family trust, do my investing, and then have all the investment income paid or payable on behalf of the kids. The kids are in private school. They have summer camp that doing hockey was doing lacross. Any expenses the kids can be paid for out of the trust. So effectively what you're doing is using pretax dollars to pay all the kids expenses that the kids have no tax and no income. They're going to pay zero if any tax. In fact, the magic number for Alberta for 2021 is fifty four thousand dollars in Canadian dividends. In other words, an individual in Alberta with no other source of income can earn fifty four thousand dollars a year of Canadian dividends without paying one cent of federal Alberta tax because of the basic personal amount and the dividend tax credit. So again, this is a great strategy. Many of our clients are using a dividend portfolio in a family trust to pay all the kids expenses. They're doing this for grandkids as well. So, again, certainly a great opportunity for income splitting in 2021.
RESPs again, if you've got kids or grandkids, there's any remote chance I get to go to school, post-secondary education, I hope your maximizing RESP. Typically what happens is we tell clients to open up the areas the year the kid is born. The parents say, you know, these kids are expensive. I've got diapers, I've got childcare. I got to buy a car seats. Expensive. So they wait, they wait and wait. And finally they start at age 10 they put it in a box and they try to catch up. Because there's the kind of education savings grants which are worth 20 percent on the first thirty six thousand dollars of contributions. So the maximum grant is seventy two hundred dollars, which means you've got to put in thirty six thousand. But they wait, they do at age 10 and they try to catch up because you only catch up to years at once and that works out OK. Because if you start at age 10, by the end of the four years of school, they're able to take out about thirteen thousand dollars a year for four years. Now, could you do better? Obviously, you could right, because if we convince a client to put in the same thirty six thousand dollars, which started in the year zero, the year the kid is born, we put in twenty five hundred dollars a year to maximize those annual grants of five hundred dollars. And we stop. We hit thirty six thousand dollars. We got the seventy two hours of grants for all of a sudden if we wrote again, we're using a very conservative three percent compound annual rate of return, all of a sudden we've boosted four years of education at sixteen thousand three hundred fifty four dollars three hundred fifty dollars a year. That's about sixty five thousand dollars over four years. And all of it in many cases, as you'll see, is tax free. The best strategy is the ability to over contribute and actually put in fifty thousand to an RESP, not just thirty six. You're not going to get a grant anything above thirty six. So the strategy is to put in the 16,500 at birth, which is the extra 14 plus the twenty five hundred. You need to get the grant and then continue on twenty five hundred dollars a year to age 14. Effectively what happens here is you because you upfront funded the RESP, that I'll pay for twenty three thousand dollars a year. Four years of education and using just a three percent conservative rate of return, as I alluded to earlier, this twenty three thousand a year, which is barely four times that's about ninety thousand bucks, is all tax free. Why? Because when I take out that ninety thousand dollars, fifty thousand after tax contributions that comes out tax free, the other forty thousand dollars is educational assistance payments payable to the child. The child has the basic personal amount and they have tuition as a credit. Remember the tuition right now at six thousand dollars is the average undergrad tuition in Canada, that's twenty thousand dollars your income, but only taking out ten thousand of income annually from the RESP. And our best case scenario, we're basically talking zero tax or minimal tax on RESPs. I think of RESPs as a TFSA for education. Again, if the kid doesn't go to school, he can give the money to another kid. You don't have any kids that are going to school. Always take your contributions back then all the income and growth you take back if you have RRSP room, great. You put it into RRSP. If not, there is a 20 percent penalty tax. So the government grants have to be repaid downside and all that stuff is pretty minimal. So you're seeing lots of parents and sometimes grandparents set up RESP for all of the children.
Finally, five minutes left, we'll open up for your questions, What's my crystal ball? We did a video on this a few months ago. I want to give you some of the highlights of what could happen in tax policy in Canada. Number one, tax rates. How high can you go? And I've been asking this question for years. I thought we could go no higher than 50, but I was wrong because in Alberta, 8 of the 10 provinces have a top rate of 53 or 54%. So a question, can you go much higher? And I'm not sure that you can. You've seen the arguments, the Laffer Curve. You know, higher rates don't necessarily mean more revenue. There is certainly a psychological disincentive to work with your rates over 50%, not only that. People start hiring accountants and lawyers to do tax planning and use all the things that I just showed you the last 20 minutes to reduce their tax below the top rate. So I'm not sure we're going to go much higher. In fact, if you look at our statutory rate, we're number seven in the world in terms of tax rate. So could you go much higher like Sweden or Japan? I guess it's possible, but I think we're pretty high, especially compared to the US. The top rate, California, federal California's rate about 50%. You move to Florida, the top rate, is only 37 because there's no state income tax. So, again, we have very, very high rates, obviously, Alberta is a tax haven, that's what we call it, out in Ontario. Lowest province in Canada other than Saskatchewan, if you exclude the territory. So, again, most of Canada, very, very high rates. I don't think we're going to go any higher, although there is rambling, rumblings of a super high rate. We saw the announcement yesterday by Joe Biden that the United States is going to tax U.S. people making over four hundred thousand dollars as a family at a higher rate. So, again, we're seeing these changes globally could it come to Canada. There is rumors that there could be an ultra high rate in Canada as well.
Now, in terms of who's paying taxes, we already have the top 10% paying the majority of taxes. If you look at some of the research done by the Fraser Institute, the top 10% of income earners in Canada are already paying 50% of all the personal income taxes paid. So I'm not really sure that we can go much higher than that. If you break it down, one final slide here, if you look at all the different tax payers in Canada, we have 28 million people file the tax return for the 2017 tax year. That's the most recent data we have. Of those, those with income over one hundred thousand comprise about 9% of all tax payers. But the income is not evenly distributed. Most of that income, in other words, if you look at the top 9% of people, 35% of all the income in Canada was reported by the top 9% of income earners. But what's more astounding is the tax. The top 9% of Canadians paid 55% of all personal income tax in Canada. So I don't know. I think we're already pretty taxed very highly on the high.
Capital gains, inclusion rate, that's probably the question I get most every single day, almost every single week. The capital gains inclusion rate used to be zero before 1972. It jumped up to 50 percent with tax reform. The current provision, they had that for many, many years until 1988. It went up to two thirds. After that, we peaked at 75% in 1990. It stayed that way for a long time until it dropped twice in the year 2000 and now we're back at 50%. So again people ask, could we raise the inclusionary? I think it's possible because look at what this government has basically said, in terms of taxing the wealthy, bringing in that top rate five years ago. This is not a well friendly government. So, again, if they look at who earns capital gains, who pays capital gains tax is for the most part, the wealthy. And therefore, I think that's certainly on the table. I'm not sure they'll do it in a budget next month because politically, with a minority government, it's very unpopular. But if they get re-elected, if they have a confidence vote and a spring election, they get re-elected, especially if the majority. I wouldn't be surprised, if you see an inclusion rate bump.
Principal residents concerned the sacred cow of taxation, you would never tax a principal residence, would you? Right now in Canada, there's an unlimited gain on the principal residence, which can be tax free. That's very, very different than the situation in United States. United States, the only tax the gain above two hundred and fifty thousand dollars per person. Five hundred thousand US per couple. So, again, politically, I think it's political suicide. I don't think they're going to do it. But that being said, I think at some point you're going to see some type of tax. I don't think it would be retroactive. That would be unfair, would punish people who've been saving their entire life via their principal residence, assuming it was going to provide tax free retirement. However, I think what they could do is prorate the gain. So if they start taxing this in 2022, they could basically say years of ownership prior to 2022 are tax free, years after that are taxed. Well, they wouldn't get you wouldn't have to get a valuation. That's too messy. So what they would do is just prorate it. So if you sell your home next year and 2022 and you had it for 20 years, they would take one twentieth if 20 years is the year of ownership and then say you have to pay tax on the gain one twentieth of the gain. So I guess it's possible it won't be in a budget, but it could come as future tax policy.
What about wealth tax? We got lots of questions about a wealth tax rate. Last summer, the Parliamentary Budgetary Office said if they imposed a one percent wealth tax on people with over 20 million dollars, there'd be about fourteen thousand families that would pay to bring it about five and a half billion dollars of revenue. That's not an insignificant number. Now, they tried this November of course, it was defeated in the house was proposed by the NDP. So, again, the wealth tax is controversial. If you look at the pros and cons, you can read dozens of articles about it, whether it makes sense, double taxation, you've already paid tax once on it. Do you pay tax a second time? It is certainly a way of trying to deal with some of the inequality. Canada doesn't have a wealth tax. Again, very few countries do. You go back to 1990, 30 years ago, you had 12 countries of the wealth tax. If you advanced to the year 2000, you only had about nine countries that still had a wealth tax and have actually, if you go to today, today, right now, as of 2020, there's only four countries in the world that still have a wealth tax. And in fact, could Canada be the fifth? I'm not sure that's a lot of problems with measuring it, with double taxation, with policy. How do you measure the value of the family farm? How do you measure your artwork hanging on your wall? How do you measure small businesses? There's no liquidity. I'm not sure we're going to go with a wealth tax. What might be happening, though, is an estate tax. We don't have any form of estate tax. Some provinces, not Alberta, some provinces have a significant prorate. Significant like one and a half percent. But that's not an estate tax. Take a look at the United States. Right. The United States has a 40 percent estate tax. And if you read the Biden proposal, he wants to bring that to 45 percent and he wants to bring the US exemption from 11.7 Million, US down to 3.5 Million, the rate it was in 2009. So right now, very few people pay the estate tax. Only two thousand people are estimated to have died last year and paid the estate tax in the United States. But again, this is a way of getting money for very, very wealthy people before it transfers to the next generation. In Belgium, the rate is 80 percent. So could we see some form of the estate tax? It's possible we already taxed capital gains on death on a realize basis, they don't do that in the US, but they're talking about that as part of the Biden proposal as well. So, again, I think all those ideas that I just thought about, the inclusion rate, some kind of estate tax federally, it could happen. It probably won't happen in a budget next month, but long term down the horizon, I wouldn't be surprised if we see some of this. Now, all of the information that we talked about today, certainly available online. We can get you copies of our slides afterwards. However, if you want details of the bulletins or any of the brochures, anything we really talked about, certainly all available CIBC.com under a section called the Advice Center. We have a tax tip area. My own website, jamiegolombek.com authorized by CIBC. I have everything I've ever written in 20 years. All my National Post columns are updated three times a week. In addition, in all 100 bulletins we've read, the first part of CIBC are all posted online. So I think with that I will stop talking and I guess we'll turn it back to you for maybe some questions.
Well. Thanks, Jamie. I don't see any questions coming in. If anybody has one, you can ask questions to the webinar screen or the chat. Just kind of going back, there was a lot of great stuff there, Jamie, a lot of information. But one thing you did talk about is, you know, the planning for 2021, as you know, seeing groups very big on having goals and plans and looking for efficiencies ahead of time. A lot of clients have asked about kind of doing the spouse alone or or the prescribed rate. But that's always just want to clarify. That's always after we've used up RRSP and TFSA. And these are your dollars.
But what if you have one major income earner and they're putting money in their RRSP and they're tax free, would the loan apply to kind of an RRSP loan from one spouse to another in terms of just making sure they're topped up or going into a tax free savings account?
Yeah, you certainly can gift money. You don't even need a loan. Right. You can give money to the other spouse to make their own contributions. So while the money is inside of the recipient TFSA, there's no attribution of any kind. So that's a very common strategy as well. If the other spouse doesn't have the cash to give them the money to make their own contributions, that's sort of our strategy for sure.
Another question I had, and it came up just to kind of your views, you know, we have a lot of clients who make regular RRSP contributions or even lump sums for the year earlier on in the year. But as we know, a few people have lost income for the year. And if they had made RRSP contributions, obviously, is there a strategy or is there any point putting that off to claim it for the following year just to.
Yeah, thought also at the time value of money question, so I think for the most part, unless you have a really wildly high swinging income from one year to the other, it's usually good to claim it right away, assuming you've got some kind of tax payable. Might as well get 25% back now that maybe 30% back next year, because you've got the time value of money. Obviously on the refund perspective. That being said, if you're really in the low bracket this year, I wouldn't claim it. You might wait till next year when you're back in a higher bracket. People that are on maternity leave, paternity leave. People lost their jobs. Certainly is a valid strategy. Obviously you want to make that contribution to get the income all tax free while it's inside the plan? But certainly you may not decide to claim that for a year or two to be able to claim that deduction when it's more valuable to you.
Jamie, I got one for you. You speak with passion and conviction, which is great, and I know you're going to speak passionately about this when I listen to you on BNN, maybe a week or so ago and a caller called in and made some comment about the conspiracy theory that all of the wealth management firms have around RRSP investment, how silly it is. And you I just want to make it clear for all of our viewers, listeners and future listeners, your opinion on is an RRSP worth it? I know you can speak professionally.
I would say for most people, it's worth it. I mean, maybe 90% or more, because what's the alternative? So we can get into a debate of RRSP versus TFSA. That's not the debate we're having. So for some people, they shouldn't do RRSPs if they have maximize their TFSA. The question that I try to answer most common that the viewer had on TV is if I do an RRSP I lose the benefits of the capital gains at 50%, I lose the dividend tax credit, which is beneficial for Canadian dividend stocks and funds. So wouldn't I be better off without an RRSP? In other words, the question doesn't become RRSP versus TSFA. The question becomes RRSP versus no RRSP. So I ask them what's the alternative to the RRSP? And the answer is, well, just open up a regular non registered investing account. I said, but the problem with that is you're going to pay tax on that money, with an RRSP you actually pay no tax on the investment income. So we can prove to you mathematically, we have a report called Just Do It, just like the shoe company Google, just do it Golombek. That'll be the first hit on Google. We already prove mathematically that no matter what scenario you're in, an RRSP will be a non registered account. Because there simply no tax on the investment income. Remember when you put money into the RRSP then the deduction from your income. In other words, if you're in a 50% or 40% tax bracket, you actually have double the amount working for you, then you would have you pay tax on your income first. Then you invest in a non registered account. So in fact, the mathematics, people get confused with this refund. We wrote another report called Blinded by the Refund. So take a look at that. Google Blinded by the Refund Golombek. First hit on Google. Very easy to find. But basically we prove mathematically the refund is of no consequence to you at all. Because of that tax later on right? So it just depends on what rate you're in today, versus what rate you'll be at in the future. That's where the RRSP versus TFSA. But in all cases, the RRSP is going to be a non registered investment hands down. So take a look at our report that we have the seven common myths of an RRSP. You can take a look at that one as well, because we go through all these in great detail. We put all the math behind it. Analyze this to the depth.
And as I said, I could speak with passion and conviction about it, so I wanted to ask it the I have a follow up to that. And that is, could you maybe just spend a minute talking about the benefits of doing a spousal RRSP contribution versus not.
Oh, absolutely. I mean, the idea of a spouse RRSP is that you contribute based on your contribution room, you get the deduction, but your spouse gets the money. So assuming you're okay with that. The advantage for that is that when the spouse takes the money out in retirement, they're theoretically at a lower rate than you. So we see this very common way. There's a big difference in income levels between two spouses or partners. Once a high income spouse, the other one's a zero or a stay at home or low income spouse. And this is where the spouse RRSP works perfectly because the high income person has all his income and all of these assets in their name that they have a pension plan. The lower income has nothing or virtually nothing. So the idea is by every year the high income spouse contributing to the RRSP of the other spouse, the high income person gets the deduction. They need it to reduce their taxes by 48% and over the long spouse get the cash, which means that when they take the money out there, the bottom rate, they're basically paying 25% tax on the withdrawal or no tax if they have no other income in that particular year on the first 40 thousand or so. So spousal RRSPs are the way to go when there is a massive difference in tax rates between both spousal or partners. Absolutely.
And one follow up to that, and this would be the last time I bug you about that, but let's say you're this isn't a personal situation, by the way. But let's say you want to make a Spousal RRSP contribution, but maybe you're hesitant about where your relationship is going in the future. Doesn't the assets still fall under like a family asset that would be split in a marital situation anyways? Or could you talk about that?
Absolutely. People asked this question all the time. There's zero risk. I mean, the end of the day, whether the RRSP is in your name or their name on a division of property upon marriage breakdown, doesn't matter whose name it's in, it's all going to be split anyway. And you can always split it on a tax free basis. You can move assets between spouses, RRSPs between spouses. And we have some things on TFSAs. All tax free upon divorce or breakdown of the common law relationship. So there's really no concern there. You're giving them all the money. But at the end of the day, unless they spend that money, because there's nothing left, right, that's always a risk. But if the money is there, then, of course, absolutely nothing that would be part of the family property and you'd split that no matter whose name it is. So no concern there Colin.
Right. Blair, you had a question about RESPs we were talking about before the recording.
Well, yeah, I mean, it was yeah, it was kind of nice you brought that up, you know RESPs are obviously a very important part for not only younger families, but growing families, kids going to school. Maybe talk a bit about, you know, we always go through family RESPs kind of having that group RRSPs compared to having a separate RESP for each child. And I guess really kind of what comes out, because it's kind of a combined the end of the day, a combined income, but all of a sudden child one's starting university. It's expensive. And, you know, you're taking it is going to be enough left for child three and how that's calculated.
Yeah, a big fan of the family plan. I set up a family plan, you know, twenty years ago. My daughter is now 19. She's in her second year of school. It's working fantastic. So I'm very happy. I have all three kids on the same plan. The kids are only two years apart each. Right. So in six years, I guess four years, really, they're all two years apart. So I think RESPs worked very well for families. I would keep one family plan if the kids are relatively close in age, relatively close meaning like under ten years, I would say from oldest to youngest, because they're all within ten years. It makes sense because really these RESPs can last for thirty five years. That's more than enough time for your kid to graduate medical school. So, you know, I'm not worried about it in terms of running out of time where we see second marriages, where we see kids, where there's a big age gap, that's when you want to start another plan for that new young kid or that kid of the second marriage, etc. third marriage, whatever it is, because then you could run out of time before they're ready to go to school or finish medical school or whatever. You're up at the thirty five. You're thirty nine. You're actually thirty nine years I think. Thirty contribute for thirty five to thirty nine. So a lot of flexibility. That wasn't always the case. Right. That's recently. But in terms of the hodgepodge of money, that's the part I like the best, because the only requirement for these family plans is that no, not more than seventy two hundred dollars of grants can be paid to any one child. So like other than that, it's game on. Like, you can do whatever you want. So you don't have to ever give money to kids two and three. If you want to give all the money to kid one great. It's family plan, you're the controller. The only restriction is that kid A cannot get more than seventy two dollars of grants. So once you've taken out EAPs, in which case they do proration based on totally EAPs to total grants, once they receive more than that, those grants can't get paid to that kid. So the end of the day could be stuck paying back some grants. If you have the kids going to school, but you have such flexibility. Remember, the contributions are your money as the parent. You always get your money back, right? So if you put in fifty thousand dollars for three kids, that's one fifty. That's the parent's money. You can do whatever you want with that money. It's only the income and the growth that's used for education and the grants. So I love the family plan. It gives me enormous flexibility. Now, I might I do have a spreadsheet where I am tracking how much I'm spending on kid A and then how much I want to spend on kid B, because I want to be fair, not to give one kid a disadvantage over the other and start applying for student loans, but I don't have any legal obligation to do so. So I love the family plan.
Hey Jimmy, we actually do have a question coming in, and I think you spoke to it, I think it's a bit more of a clarification. But sorry, let me just the question is, you mentioned loaning money to a child with the current one percent prescribed rate to be taxed in their hands. All they see is their concern and then manage it properly. But is there a minimum age you could provide a loan to a child that have those gains taxed in their hands?
So, again, I would never do a loan directly to a child if they're under the age of majority. I think it's 18 in Alberta is that right?
Yeah, so if they're under 18, I wouldn't give a loan directly. I would do a lawyer, do a family trust because you don't want children entering into binding contracts that they are going to sue you if something goes wrong. So at the end of the day, I don't want to do loans to minors. There's legal issues with that and we strongly discourage it. The strategy still works. You can do it with a two year old. We've got clients doing this to pay for their families' nanny for their two year old and their four year old and all their preschool and all that stuff. Right? So I would do it for a family trust. If you want to do a direct loan to a child, make sure that child is at least 18 years of age and has the ability to sign for that loan.
I don't think I'll be giving my 17 year old any money in the form of a loan or a gift, because I know that it will go away quickly. Are there any final points you want to make before we wrap it up for today, Jamie?
Well, I think the most important thing to remember is that we just scratched the surface today. I went super fast and I don't expect anyone to even remember anything. I want people to understand that just there are things that can be done. So they should book an appointment, come and talk to us. They are not going to charge you. Just come in and we'll go through the strategy. We can sit down and go through this deck with the one page at a time. In other words, make an appointment. Let's talk to you. We can do it virtually, be doing whatever you want, but there's lots of great ideas here. I give you at least seven or eight different ideas. There's got to be at least one thing that applies to every single client that's on the call. So I think it's a wonderful opportunity to really engage. Now is a great time to get ready for 2021. Last year is already history. We're already filing our returns. It's not much you can do. Claim some home office expenses. Good for you. You already paying those expenses. That's historical. What are you going to do in 2021 to be able to reduce the amount of tax that you pay and effectively save for retirement, kid's education and the future.
Excellent, excellent. Well, that's great, thanks. Thanks again, Jamie. We really appreciate it. And we're looking forward to I'm going to have you back on the Free Lunch podcast at some point in the in the near future and encourage everybody that joined the call to take advantage of those resources. And Blair and I were talking before the presentation that it really all comes down to planning. What kind of planning have you done? What kind of planning can you do? So please reach out to us. We're always happy to talk about this stuff with with all clients we deal with and friends and family members of those people to get a lot of questions. So thanks, Jamie, and thanks, everybody, for joining us.
Yeah, thanks, Jamie.