Presentation on theme: "T is for Tax Efficient T Class funds can defer more capital gains tax."— Presentation transcript:
T is for Tax Efficient T Class funds can defer more capital gains tax
Option worth considering Creative solutions to fund retirement Generate tax- efficient income
T Class funds Special class mutual fund Pay a set amount of monthly cash flow Tax-efficient income in non-registered accounts Works similar to Systematic Withdrawal Plans (SWPs) Designed to defer more capital gains tax
A unique structure No mutual fund unit redemptions required to make payment Mainly of a return of capital Lower tax but reduces ACB
Benefits of T Class funds Tax-efficient income Defer capital gains Deferred tax continues to grow Choose when to claim capital gains Pay less tax and keep more money
Tax efficiency at its best Lower income on tax return Old Age Security (OAS) Age Credit Return of capital distributions (once zero ACB) Taxed as capital gains Remain tax efficient
Taxation of different income types InterestRRSP/RRIF withdrawals Eligible Canadian dividend income Capital gains Return of capital Tax rate46.41% 24.64%23.21%0% Withdrawal amount $1,000 Taxes owed $464 $246$232$0 After-tax income $536 $754$768$1,000 For illustrative purposes only. Results are rounded to the nearest dollar. Assumptions: based on 2007 top individual marginal tax rates for Ontario. ACB is greater than zero.
Investment strategies using T Class funds 1.Investors with maturing bonds and GICs 2.Investors who require cash flow with registered and non- registered investments
Tax efficiency of different distribution types RRSP or RRIFT Class fund WITH income T Class fund WITHOUT income Monthly withdrawal$2,000Monthly distribution consists of $200 interest income, $300 Canadian dividends, $100 realized capital gains and $1,400 return of capital $2,000Monthly distribution that consists entirely of return of capital $2,000 Tax on return of capital (0%) Tax on $1,400 return of capital (0%) $0Tax on $2,000 return of capital (0%) $0 Tax on withdrawal (46.41%) $928Tax on $200 interest income (46.41%) $93Tax on $0 interest income (46.41%) $0 Tax on $0 Canadian dividends (24.64%) $0Tax on $300 Canadian dividends (24.64%) $74Tax on $0 Canadian dividends (24.64%) $0 Tax on $0 realized capital gains (23.21%) $0Tax on $100 realized capital gains and dividends (23.21%) $23Tax on $0 realized capital gains (23.21%) $0 Monthly cash flow after tax$1,072Monthly cash flow after tax$1,810Monthly cash flow after tax$2,000 For illustrative purposes only. Results are rounded to the nearest dollar. Assumptions: Based on 2007 top individual marginal tax rates for Ontario. Return of capital levels will fluctuate based on the level of income earned and distributed by the fund, as well as availability of the original capital.
So whats the catch?
Financial markets Investment value may fall Monthly distributions are not guaranteed
Protection Other sources of income Conservative withdrawal option Best used to supplement income
Ability to defer capital gains Larger capital gain Incur tax liability on your timetable Distribute any taxable income and capital gains
Limited number of funds available T Class not offered on every mutual fund provided Other options Balanced funds Dividend funds Asset allocation funds Managed solutions
Ensure fund provides long-term growth The more growth experienced by the underlying investment, the longer your savings will last.
Speak to your Advisor Product diversification T Class mutual funds Dependable and diversified retirement income plan
Important notes The commentary in this presentation is for general information only and should not be considered investment or tax service to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. Manulife Investments is the brand name identifying the personal wealth management lines of business offered by Manulife Financial and its subsidiaries in Canada. As one of Canadas largest integrated financial services providers, Manulife Investments offers a variety of products and services including: segregated funds, mutual funds, principal protected notes, annuities and guaranteed interest contracts. Manulife and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation.