B8 G THE GLOBE AND MAIL | THURSDAY, MAY 29, 2025 GLOBE INVESTOR | REPORT ON BUSINESS T he going rate to transfer in- vestment accounts from one bank or broker to an- other is roughly $150. Toronto-Dominion Bank has long been under this threshold, but not for much longer. Starting July 1, TD Canada Trust clients who move a tax-free savings ac- count, a registered retirement savings plan or a first home sav- ings account to another financial company will pay $150. Account transfer fees are a mostly hidden but potent exam- ple of financial industry arro- gance. After failing to earn your continuing loyalty, these compa- nies charge you to make your es- cape. Open banking rules that will boost competition cannot come soon enough. TD took a business-as-usual approach when asked for details on the fee hike. “We regularly evaluate our product offering to align with customer’s needs,” the bank said in an e-mail response to questions. “The change to the registered plan transfer fees was made based on various factors, including the costs involved in processing and moving assets to another institution, market con- ditions, and to align with the val- ue we provide our customers.” TD’s fee hike was highlighted in a recent LinkedIn post by Paul Teshima, Wealthsimple’s chief commercial officer. Wealthsim- ple has built the most credible diversified banking, borrowing and investing alternative to the big banks and, guess what, it doesn’t have account transfer fees. Wealthsimple has its own cus- tomer-service vulnerabilities. The interest rate on its chequing account has dropped to the low- er tier among alternative banks in recent months, and its foreign exchange fees looked compara- tively pricey in the latest Globe and Mail digital brokerage rank- ing. Lower forex costs are avail- able if you subscribe to a $10- per-month U.S.-dollar account package. Still, Wealthsimple has a point in drawing attention to TD and other banks that charge clients to take their accounts elsewhere. In total, millions of dollars are charged to a segment of the in- vesting public that can least af- ford them. Bank branches are a natural destination for people who want help investing amounts too small to interest an investment adviser. A $150 fee on a $15,000 ac- count is a 1-per-cent hit, which is significant when you consider that a return of 5 per cent to 6 per cent is what you should ex- pect over the long term from a diversified portfolio. That 1-per-cent fee comes in addition to money already made on that $15,000 account if invest- ed in mutual funds. Bank mutual funds have fees – measured through the management ex- pense ratio shown in disclosure documents and fund profiles – that are typically in the 1.5-per- cent to 2-per-cent range in the balanced and equity categories. Whether you make or lose money in mutual funds, your fees are scooped off the top. Those published returns you see for funds of all types are shown on a net basis, which means fund companies have taken their cut. The money you invest in bank products enriches banks even if you hold guaranteed investment certificates. Money taken in through GIC investments is lent out at a higher rate through mortgages. All banks and brokers have long lists of account fees they charge, some reasonable and some a cash grab made accept- able by the fact that everyone in the industry does it. More com- petition in banking and invest- ing would help. New investing apps from in- ternational players such as Moo- moo and Webull have entered the Canadian market recently. On the banking side, the wait continues for a rulebook that will allow bank clients to secure- ly share financial data with up- start alternative financial com- panies. This form of data sharing is called open banking and it’s seen as a way to kickstart competi- tion, leading to lower fees and more personalized apps and ser- vices. Open banking seems a nat- ural part of the federal govern- ment’s efforts to improve eco- nomic productivity. Less money paid to transfer investment ac- counts means more money left to be invested and spent later on. As for TD, the coming increase in transfer costs is part of a series of fee changes that will increase the monthly cost of some ac- count packages by $1. A rare ex- ception to the higher fee trend: The cost of cancelling an e-trans- fer send money payment falls from $5 to zero. More of that, please. TD’s $75 fee hike tells a story of arrogance The coming increase in transfer costs is part of a series of fee changes that will increase the monthly cost of some account packages by $1 ROB CARRICK OPINION T he 4-per-cent rule involves drawing down income equal to 4 per cent of your savings in the first year of retirement and then increasing that withdrawal by inflation in future years. This rule is well-known but fraught with problems. First, it only ap- plies to a narrow group of retirees: those who retire around age 65 with a 50-50 asset mix of equities and bonds. Second, it doesn’t integrate well with other sources of income. So, if that other income is “bumpy” – different amounts in different years – total income under the 4-per-cent rule will also be bumpy. Its biggest shortcoming, though, is that it doesn’t adapt to changing circum- stances, such as higher or lower investment returns than expected. Consider Mary-Helen, a 62-year-old retiree with husband, Joe, the same age. The couple have $800,000 in RRSPs and $200,000 in TFSAs. Mary-Helen is a runner who expects to live a long life so she wants her money to last at least until age 93. If the couple’s average investment return net of fees is just 3 per cent, howev- er, the chart shows they will run out of money by the time they are 90. (They still have some income, thanks to their pensions from the Canada Pension Plan and Old Age Security.) If they instead achieved net investment returns of 6 per cent a year for 10 years, then dropped to 3 per cent, their money would not run out. Whether they earn a 3-per-cent or a 6-per-cent return, however, their income under the 4-per- cent rule is the same up until 90, which I see as a shortcoming of this rule. By using an algorithm, the couple can estimate their retirement income with more confidence. A previous column of mine generated some questions about the algorithm used to determine how not to run out of money in retirement. Here is a deeper explanation. By algorithm, I mean an online calculation tool that determines how much income you can draw under a given set of assumptions for investment returns, inflation and longevity. A sophisticated algorithm will also take into account CPP and OAS pensions and the impact of starting those pensions earlier or later. If the algorithm assumed a 3-per-cent return in all future years and future income is never recalibrated, the result would be the purple line in the chart. A much better result can be obtained by rerunning the algorithm every year (the blue line) to reflect actual experience (such as higher or lower returns). The algorithm approach allows for higher income – in most years – than the 4-per-cent rule because it can be used to find the optimal age to start CPP pen- sion. Not every algorithm does this. In the case of Mary-Helen and Joe, the best age to start CPP turned out to be 70, even though waiting beyond age 62 diluted their CPP pensions a little. To be clear, you might assume a 3-per-cent investment return in the algo- rithm not because you think it is most likely but because you want to be safe. If you earn more, this will eventually work its way into the calculations when you rerun the algorithm in future years. Some examples of sophisticated algorithms include the Government of Can- ada Retirement Income Calculator, the Retirement Planning Calculator (Cana- dian), the Moneyready app and, of course, the Personal Enhanced Retirement Calculator. In addition, most banks and insurance companies, and many in- vestment managers, offer free online calculators. FREDERICK VETTESE A sophisticated algorithm will account for CPP and OAS pensions Retirement income under different strategies Including CPP and OAS pensions Age 65 70 75 80 85 90 0 20K 40K 60K 80K 100K 120K 140K $160K THE GLOBE AND MAIL, SOURCE: AUTHOR’S CALCULATIONS Assumptions used by the algorithm to produce the results in the chart: Future return assumed by the algorithm 3%, net of fees Actual investment return (net of fees) 6% for 10 years, then dropping to 3% Amount of CPP as a % of the maximum (at 62) 90% CPP as a % of maximum if start age is 65+ 85% OAS pension Full amount When CPP starts At age 70 When OAS starts At age 65 Amount of assets left at age 93 (using the algorithm approach) $150,000 Age when both spouses die 93 4% rule with 3% returns 4% rule with 6% returns Algorithm (use one time only) Algorithm (rerun it annually) [ CHARTING RETIREMENT ] T his week, an employee asked me a personal fi- nance question. It was an easy question, so I finished my response with “It’s not rocket sci- ence.” But to be fair, when it comes to taxes on real estate, sometimes it feels like it. Today, I want to share the story of two brothers who lost a court deci- sion (1351231 Ontario Inc. v. The King, 2025 FCA 53) a few weeks ago. THE STORY In 2008, the brothers purchased a condominium in Ottawa through their corporation. They rented out the condo from 2008 until 2017 to a number of differ- ent long-term renters. In Febru- ary, 2017, and for a little over a year, they changed to short-term rentals (defined as fewer than 60 days) by listing the condo on Airbnb. The brothers then sold the condo in April, 2018. Neither the buyer nor the corporation remit- ted GST/HST on the sale. The Canada Revenue Agency didn’t like this much and assessed the corporation for GST/HST of $77,080. Now, if you sell a property that is considered to be a “residential complex” (and you’re not a builder and didn’t claim a GST/ HST input tax credit on the pur- chase earlier), then there’s no need to charge GST/HST on the sale. The brothers in the case ar- gued that the condo was a resi- dential complex. The court didn’t accept this argument because a residential complex “does not include a building, or that part of a build- ing, that is a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises ….” The judge at the Tax Court of Canada concluded (and the Fed- eral Court of Appeal agreed) that short-term rentals are similar to a hotel, motel, an inn, a boarding house or a lodging house and are therefore not residential com- plexes. It didn’t matter that the condo had been rented to long-term renters (and was therefore a “res- idential complex”) for most of the time it was owned. It’s the status of the property on date of the sale that matters. Fair? May- be not. But it’s how the law is worded. Further, the court noted that GST/HST applied on the change in use of the condo from long- term to short-term rentals. You see, subsection 206(2) of the Ex- cise Tax Act can apply to deem you to have received a “taxable supply” and therefore liable to pay GST/HST – when changing the use of a property by more than 10 per cent to a commercial use such as short-term rentals. THE SCENARIOS This story got me thinking about the many situations where peo- ple buy, sell or change the use of a property and can get caught owing GST/HST unexpectedly. Here are a few scenarios to watch for Purchase of a new property. If you buy a newly constructed res- idential property, GST/HST gen- erally applies. The good news? The government has promised to exempt first-time home buyers from this tax, although legislation to enact this hasn’t been introduced yet. Here’s a tip: If you’re a buyer, make sure your purchase agreement says that GST/HST is included in the price to avoid problems with CRA lat- er. Purchase of a substantially ren- ovated property. Similar to buy- ing a new home, a property that has been substantially renovated – which involves significant al- terations such that 90 per cent or more of the interior has been re- moved or replaced – generally requires the seller to charge GST/ HST. The same tip above applies here: your agreement should specify that GST/HST is included in the price. Converting to commercial use. The brothers in the 135 Ontario case originally purchased their condo to rent out long-term, which avoided an obligation to charge GST/HST on their rents and would have side-stepped GST/HST on the property sale. But when they changed the use to short-term rental, the change itself triggered a GST/HST liabil- ity since it was more than a 10- per-cent change in use. Converting from commercial use. What if you own a residence that you’ve been renting out as a short-term rental and then con- vert the property to non-com- mercial use (such as a long-term rental or principal residence)? This change in use can result in a GST/HST liability on the change. Sale of a commercial property. If the property you’re selling doesn’t meet the definition of a “residential complex” – perhaps because it’s a short-term rental property – then you could face GST/HST on the sale – just as in the 135 Ontario case. The bottom line? These are complex rules. Visit a GST/HST expert if you think they might apply. Complicated tax rules can lead to unexpected GST/HST on real estate TIM CESTNICK OPINION FCPA, FCA, CPA(IL), CFP, TEP, and an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.