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Tax Deferral Strategies. Catalin Zetu, PFP, MBA Professional Financial Planner.

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Presentation on theme: "Tax Deferral Strategies. Catalin Zetu, PFP, MBA Professional Financial Planner."— Presentation transcript:

1 Tax Deferral Strategies

2 Catalin Zetu, PFP, MBA Professional Financial Planner

3 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)

4 The Investors Group Advantage… Of Industry Leadership Source – IFIC

5 Tax Deferral RRSP vs. Individual Pension Plan Tax Efficient Investments Retirement Compensation Agreements Insured Retirement Plans Estate Bonds Health And Welfare Trusts Agenda

6 Sample Corporate Share Structure CORPORATION FAMILY TRUST BENEFICIARY (Owner) BENEFICIARY (Spouse) BENEFICIARY (Child 1) BENEFICIARY (Child 2) BENEFICIARY (Child 3) Trustee = Owner

7 Paying for Children’s Education $25,000 Tuition + $15,000 Expenses Dividend Share. Loan Taxes Credits Used Net Cash ShareholderStudent Professional Jr. 56,400 (17,513) 1,113 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

8 0% 100% 0% - 100% Retirement Income Streams

9 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

10 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

11 YearAge IPP Contribution ($) RRSP Contribution ($) IPP Advantage ($) 201050198,970*22,000176,970 201555 39,87927,254 12,625 202060 57,25135,620 21,631 202565 82,19146,554 35,637 * Includes past service contribution of $171,192 from corporation. RRSP vs. IPP (Allowable Contributions)

12 * Includes RRSP transfer-in of $307,500 YearAge IPP Balance ($) RRSP Balance ($) IPP Advantage ($) 201050 546,709* 352,336 194,373 201555 995,223 652,570 342,653 2020601,729,1821,128,641 600,541 2025652,912,1651,870,9781,041,187 RRSP vs. IPP (Plan Balance at Year End)

13 RRSP vs. IPP – Estimated Annual Payout YearAge IPP Payout ($) RRSP Payout ($) IPP Advantage ($) 201050 29,761 19,18010,581 201555 57,594 37,76419,830 202060 108,006 70,49637,510 202565 200,475128,79971,676

14 46.4%46.7% Top personal marginal tax rate Corporate tax rate on passive income Tax Quiz

15 Retirement Income Tax Planning Interest DividendsCapital Gains income Fully Taxable Every year income Tax-preferred Every Year income 50% taxable When You Choose Corporate Class Structure 50% taxable When You Choose income

16 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 tax 13% 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%

17 Retirement Compensation Agreements: 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

18 RCA Structure Contributions 50% Contributions 50% 50% of Income earned in IA remitted to RTA annually 50% of withdrawals remitted to IA annually Withdrawals at retirement. Member taxed

19 Funding the RCA: Tax Deferred Investment Grade Insurance Split Dollar Arrangement Corporate Class Investments Little or no income distributions

20 Corporate Insured Retirement Plan Secret 7 The Best Tax Shelter!!

21 IRP: Participating Policy CCPC LIFE INSURANCE

22 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

23 Corporate IRP – Participating Policy Traditional 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

24 Corporate Estate Bond

25 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 2 nd death) Corporate Estate Bond Jack & Jill: 65 year old couple Wish to leave an estate for children

26 Estate Bond vs. Investments After-Tax Estate Comparison

27 Corporate Estate Bond Age Death Benefit $500K plus CSV After-Tax Rate of Return 85$685,0008.1% 90$710,0006.2% 95$730,0005%

28 HAWP - 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.

29 HAWP - 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

30 HAWP - 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)

31 Tax Deferral RRSP vs. Individual Pension Plan Tax Efficient Investments Retirement Compensation Agreements Insured Retirement Plans Estate Bonds Health And Welfare Trusts What We Have Covered:

32 We have set aside complimentary, one-hour no obligation timeslots for consultations. The Next Step…


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