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Tax Deferral Strategies. Catalin Zetu, PFP, MBA Professional Financial Planner. Strength ● Stability ● Performance. Investors Group Inc. (IGM Financial) Over 80 years strong Over 100 wealth management centres across Canada 4400+ Professional Consultants Serving 1 in 18 Canadians - PowerPoint PPT Presentation
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Tax Deferral Strategies
Catalin Zetu, PFP, MBA Professional Financial Planner
Strength ● Stability ● Performance
Investors Group Inc. (IGM Financial) Over 80 years strong Over 100 wealth management
centres across Canada 4400+ Professional Consultants Serving 1 in 18 Canadians Publicly traded (TSX:IGM)
The Investors Group Advantage…Of Industry Leadership
Source – IFIC
Tax Deferral RRSP vs. Individual Pension Plan Tax Efficient Investments Retirement Compensation Agreements Insured Retirement Plans Estate Bonds Health And Welfare Trusts
Agenda
Sample Corporate Share Structure
Trustee = Owner
Paying for Children’s Education
$25,000 Tuition + $15,000 Expenses
Dividend
Share. Loan
Taxes
Credits Used
Net Cash
Shareholder Student Student Professional Jr.
56,400
(17,513)
1,113
40,000
40,000
(930)
930
40,000
40,900 (40,900)
(6,940)
6,040
40,000
Assumptions: Shareholder & Prof. Jr., MTR = 46.41%; No other income for Student
Tax Refund 18,980
0%
100%
100%
0% - 100%
Retirement Income Streams
Retirement Planning – The IPP
“Super-RRSP”
Additional pre-tax funds out of corporation in a tax-deferred manner
Based on benefit formula Who does it best suited for? Who’s involved?
Individual Pension Plan
Individual Pension Plan (IPP)
Assumptions
50 year old executive / shareholder Active in business since 1990 RRSP value ~ $325,000 Expected 2010 T4 earnings ~ $125,000
Individual Pension Plan: Case Study
Year AgeIPP
Contribution ($)
RRSPContribution
($)
IPP Advantage
($)
2010 50 198,970* 22,000 176,970
2015 55 39,879 27,254 12,625
2020 60 57,251 35,620 21,631
2025 65 82,191 46,554 35,637
*Includes past service contribution of $171,192 from corporation.
RRSP vs. IPP
(Allowable Contributions)
* Includes RRSP transfer-in of $307,500
Year AgeIPP
Balance ($)RRSP
Balance ($)
IPP Advantage
($)
2010 50 546,709* 352,336 194,373
2015 55 995,223 652,570 342,653
2020 60 1,729,182 1,128,641 600,541
2025 65 2,912,165 1,870,978 1,041,187
RRSP vs. IPP
(Plan Balance at Year End)
RRSP vs. IPP – Estimated Annual PayoutRRSP vs. IPP – Estimated Annual Payout
Year AgeIPP
Payout ($)RRSP
Payout ($)IPP
Advantage ($)
2010 50 29,761 19,180 10,581
2015 55 57,594 37,764 19,830
2020 60 108,006 70,496 37,510
2025 65 200,475 128,799 71,676
46.4% 46.7%
Top personal marginal tax rate
Corporate tax rate on passive income
Tax Quiz
Retirement Income Tax Planning
Interest Dividends Capital Gains
income
Fully TaxableEvery year
income
Tax-preferredEvery Year
income
50% taxableWhen You Choose
Corporate Class Structure
50% taxable When You Choose
income
Growing Non-Registered Investments Tax Preferred
Moderate Portfolio Initial Investment $400,000
Moderate Portfolio after 10 years $400,000 now worth $642,833
Moderate Portfolio after 20 years $657,516 now worth $1,033,087
$937,900 after tax
Corporate Class Structure
$400,000
$712,236
$1,268,200
$1,063,525 net after tax13% More
Tax rate = 46.7%Rate of return on regular portfolio: 1.5% interest + 0.5% dividends + 1.0% capitals gains + 3.0% deferred growth = 6.0%
Rate of return on corporate class portfolio: 0.25% capital gains + 5.75% deferred growth = 6.0%
Retirement Compensation Agreements: Retirement Compensation Agreements: Features Features
Defined under section 248(1) of the Income Tax Act
Contributions are deductible
Business owner or key employee Upon Sale of Business
Bullet-proof creditor protection Avoids payroll taxes Benefits taxable when received: tax deferral
RCA StructureRCA Structure
Contributions50%
Contributions50%
50% of Income earned in IA remitted to RTA annually
50% of withdrawals remitted to IA annually
Withdrawals at retirement.Member taxed
Funding the RCA: Tax Deferred Funding the RCA: Tax Deferred
Investment Grade Insurance Split Dollar Arrangement
Corporate Class Investments Little or no income distributions
Corporate Insured Retirement Plan
Secret 7The Best Tax Shelter!!
IRP: Participating PolicyIRP: Participating Policy
CCPC
LIFE INSURANCE
Option 1 Traditional investment portfolio earning 6% Invest $30,000 per year for 20 years Investment subject to tax
Option 2 IRP – Investment Grade Insurance Contribute $30,000 per year for 20 years $1,000,000 death benefit
Brian: 45 year old business owner Needs additional life insurance & retirement
income
Corporate Insured Retirement Plan
Corporate IRP – Participating PolicyCorporate IRP – Participating PolicyTraditional Investment
Corporate IRP
Annual Contribution
Portfolio Mix (FI/Equity)
Rate of Return
Annual Income (Age 65 to 85)
Investment Values at age 65
Guaranteed Cash Value at age 65
Death Benefit at age 85
$30,000
6%
$60,000
$774,500
40/60
N/A
$129,000
$30,000
7.4%
$60,000
$1,029,500
80/20
$629,000
$1,597,000
Corporate Estate BondCorporate Estate Bond
Option 1 Traditional conservative investments earning 5% Invest $20,000 per year for 10 years Investment subject to tax, probate costs
Option 2 Estate Bond – Investment Grade Insurance Contribute $20,000 per year for 10 years $500,000 death benefit (on 2nd death)
Corporate Estate Bond
Jack & Jill: 65 year old couple Wish to leave an estate for children
Estate Bond vs. InvestmentsEstate Bond vs. InvestmentsAfter-Tax Estate ComparisonAfter-Tax Estate Comparison
Corporate Estate BondCorporate Estate Bond
AgeDeath Benefit
$500K plus CSVAfter-Tax Rate of
Return
85 $685,000 8.1%
90 $710,000 6.2%
95 $730,000 5%
HAWP - FeaturesHAWP - Features
Enable all uninsured medical, dental, and vision expenses to be paid out of pre-tax expenses, as incurred
Fund group critical illness and long term care insurance.
HAWP - BenefitsHAWP - Benefits
Employer pays with pre-tax income Fully tax deductible to corporation Employee will not include taxable benefits Very flexible choice of expenses that can be
covered – medical, vision, & dental procedures
HAWP - PaymentsHAWP - Payments
Trustee receives the claim and receipts & issues a cheque for
100% of the expense from the HAWP to the
employee
Employee submits claim
form & receipts
Employer Receives claim form & issues a cheque for 100% of the expense to the trustee (HAWP)
Tax Deferral RRSP vs. Individual Pension Plan Tax Efficient Investments Retirement Compensation Agreements Insured Retirement Plans Estate Bonds Health And Welfare Trusts
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