A sudden spike in your client's plan is usually caused by a significant financial event occurring in that year. While there are several possible causes, the most common include:
- The sale of a major asset, such as a property or business.
- A large inheritance, gift, or other windfall.
- A scheduled RRIF to TFSA conversion.
- A large withdrawal from a taxable investment account.
- A one-time expense or financial goal.
How to identify the cause
The easiest way to determine why a spike has occurred is to review the affected year in Year View.
Review the following sections for unusually large transactions:
- Cash Flow for asset sales, windfalls, or other income.
- Investments and Retirement for large distributions from accounts.
- Expenses for one-time goals, tax bills, or significant spending.
- Taxes for the details on unusually high tax liabilities.
In most cases, the source of the spike can be identified by comparing the values in the affected year with the years immediately before and after.
Capital gains tax may appear one year later
One common point of confusion is the timing of capital gains tax.
Voyant models capital gains tax in arrears, meaning the tax is applied in the year following the taxable event.
For example, if a client makes a large taxable withdrawal in 2035, the capital gains tax generated by that withdrawal will appear as a tax expense in 2036. This can create what appears to be an unexpected spike in the following year's Expenses or Total Need, even though it was caused by a transaction in the previous year.
If the spike appears in the Expenses section rather than Cash Flow, reviewing the previous year's activity will often explain the increase.
Within Year View, you can also review the Change percentage for each expense compared with the previous year. If you notice an unusually large increase, it may indicate that a significant financial event occurred during that year.