1. 2014 Nova Scotia Tax Changes

2. Capital Gains Exemption The Capital Gains Exemption has increased to $800,000 for the 2014 tax year (indexed to inflation for tax years after 2014) Maximum tax savings of $200,000 ($800,000 x 50% x 50%) Additional $50,000 exemption provides maximum tax savings of $12,500 ($50,000 x 50% x 50%)

3. Personal Income Tax Rates Indexing of tax brackets and personal amount –Federal - 0.9% –Nova Scotia – 0% Top Tax Bracket - $150,000 Only 2014 tax rate changes are to non-eligible dividends

4. Non-Eligible Dividend Gross-Up Gross up rate for 2014 is 18% (previously 25%) Bad News - tax rates going up between 2.86% and 4.69% (depending on tax bracket) Good News – impact on income tested items such OAS clawback and medical expenses

5. 2014 Ontario Personal Tax Rates Top marginal tax rates for individuals – income exceeding $136,270:  Regular income: 50.00%  Eligible dividend: 36.06%  Non eligible dividend: 39.07%  Capital gain: 25.00%

6. 2014 Nova Scotia Corporate Tax Rates Tax rates for corporate income: Active business income eligible for SBD provincial limit (below $350,000): 14.0% (2013 limit was $400,000 and rate was 14.5%) Active business income eligible for SBD Federal limit (between $350,000 and $500,000): 27.0% Active business income not eligible for SBD (over $500,000): 31.0% Investment income: 50.7%

7. Impact on Planning Solutions Incorporation provides greater benefits:  Tax deferral of up to approximately 36% on income eligible for provincial SBD (ultimate tax savings: 2.4%)  Tax deferral of up to approximately 23% on income eligible for Federal SBD (ultimate tax cost: 5.52%)  Tax deferral of up to approximately 19% for other business income (ultimate tax cost: 5.88%)  Tax prepayment of up to approximately 0.7% for corporate investment income (ultimate tax cost: 4.93%) Added benefits to splitting income Added benefits for Corporate Class solutions

8. Salaries Reasonableness CPP / EI - premiums and benefits RRSP contribution room Earned income required by lower income spouse to claim child care expenses

9. Taxable dividends Which family members are shareholders? Eligible vs. non-eligible  Eligible - lower marginal tax rate  Eligible - higher gross up (38% vs. 18%) Refundable dividend tax on hand (RDTOH) – corporate tax refund of 33.33%

10. Redemption of preferred shares Is the client already taking dividends? Minimize estate tax liability

11. Tax-free sources Tax-free capital dividends Shareholder’s loans TFSA’s Personal non-registered accounts (not tax free but potentially lower tax than withdrawals from corporation)

12. New Advisor Tax Reference Card

14. Testamentary Trusts Are testamentary trusts dead?

15. Introduction Testamentary trusts: powerful planning tool providing tax and non-tax benefits Recent tax proposals that might impact on tax benefits What’s left if tax proposals adopted as proposed?

16. Testamentary Trust – Main Features Created by Will Becomes effective only at the time of death of the testator Separate taxpayer for tax purposes: progressive tax rates Income paid/payable to a beneficiary is deductible to the trust and taxable to the beneficiary Amount paid keeps its nature in the hands of recipient beneficiary Income paid to a beneficiary may be taxed in the trust

17. Trust for a spouse Your Spouse Trust for a child His/her child Child His/her child Examples of testamentary trusts Testamentary Trusts for Liquid Assets

18. Example # 1 (Current Tax Rules) Example: $1,000,000 investment portfolio produces $50,000 income Outright to high-rate spouse: $50,000 x 50.00% (NS 2014)$25,000 tax In testamentary trust instead: $29,590 x 23.79% $7,039 tax $14,363 x 29.95%$4,301 tax $6,047 x 36.95%$2,234 tax $50,000 income$13,574 total tax Annual tax saving: $11,426 Trust for spouse Spouse Testamentary spousal trust:

19. Example # 2 (Current Tax Rules) $1,000,000 in trust for Daughter and her 3 children – investments produce $50,000 income – each child requires $16,667 (1/3) per year for tuition, rent, various expenses and children have no other income – Tax each child pays (NS 2014): $8,481 x 0% = $0 tax $2,657 x 8.79%= $233 tax $5,529 x 23.79%= $1,315 tax $16,667 income= $1,548 tax – Total tax of all 3 children on the $50,000: $4,644 tax – Compare tax to Daughter on $50,000 with no trust: $50,000 x 50.0% =$25,000 tax Annual tax saving: $20,356 Trust Her child Child Pay children’s expenses out of trust income Family testamentary trust: Income splitting with low-rate beneficiaries

20. Recent Tax Proposals Budget 2013: intention to hold public consultations on the application of progressive rates to testamentary trusts and estates Finance announced on June 3, 2013 a series of proposals with respect to testamentary trusts and estates and opened a written consultation process that ended on December 2, 2013 The proposed measures would apply in 2016, with no grandfathering

21. Recent Tax Proposals Main change: elimination of graduated rates – application of current top flat rate (rate applicable to income over $135,054 in 2013) Trusts and estates affected: – Trusts created by Will – Estates after 36 months of existence (flat top-rate estates) – Grandfathered inter vivos trusts (pre-June 18, 1971 trusts) Very limited exceptions Multiple other related tax measures

22. Recent Tax Proposals Impact on spousal trusts if adopted as proposed: Tax benefits eliminated Other possible reasons for spousal trusts:  Control over use of trust’s assets  Control over devolution on second death (ultimate beneficiaries)  Assistance in managing assets  Assistance in case of incapacity  Added asset protection

23. Recent Tax Proposals Impact on family trusts if adopted as proposed: Tax benefits may be reduced but not eliminated in appropriate circumstances Progressive rates for trusts for minor children Income splitting with low-rate beneficiaries still possible (for example with children and grandchildren) based on proposals Other reasons for family trusts  Control over use of income and capital of inheritance – to a certain age if intended  Added asset protection (spouse/partner and other creditors)

24. Recent Tax Proposals Tax Planning continues around the Estate trust: Plan to continue estate for 36 months to benefit from marginal tax rates –Allocation among beneficiaries without immediate distribution –Income from allocated assets allocated to specific beneficiary –Leave income allocation and timing of distributions to trustee

25. Conclusion Still recommend testamentary trusts – with comments on proposed tax changes that might impact on potential tax benefits they provide Tax proposals might not be adopted as proposed: wait for final legislation Still a great planning tool providing tax and other benefits in appropriate circumstances

26. Corporate Class Practical Considerations & Planning Opportunities

27. Individuals – Don’t miss out on tax credits and deductions Utilize dividend tax credit and management fee deduction – sometimes the fact that a client paid no tax in a given year means we may have missed an opportunity. –If a client has little other income and a large non-registered Corporate Class account, certain non-refundable tax credits (e.g. dividend tax credit, personal amount, age amount, medical expense tax credit) and other tax credits (e.g. donation credit) may go unused. –Similarly, management fees that exceed other sources of income may create a non-capital loss or result in low tax brackets going unused.  May be an opportunity to trigger unrealized gains on an annual basis to utilize above.

28. Individuals currently invested with a broker Brokerage accounts typically have heavy weighting in Canadian stocks. Canadian stocks often have significant portion of return in form of dividends which create a dividend tax credit – if client has no other income, he or she can receive approximately $30,500 of eligible dividends tax-free in Nova Scotia. Start the conversation from an investment perspective – if they are convinced they want an actively managed diversified portfolio, then without Corporate Class they will have interest and foreign income and capital gains from rebalancing. Canadian dividends are grossed up by 38% – potential impact on OAS clawback when net income exceeds $71,592 ($1 of dividend / $1.38 taxable / 20.7% clawback, not 15%).

29. Prospective clients Dealing with unrealized gain – compare tax cost of triggering gains on existing portfolio with “pay back period” of Corporate Class –Lower distributions and reduced capital gains with Corporate Class –If Corporate Class management fees exceed all other sources of income, the non-capital loss can be carried back for next 3 years to offset gain triggered on previously held portfolio Important line items on personal tax return –Taxable amount of dividends – line 120 and sch.4 –Interest and other investment income – line 121 and 130 and sch. 4 –Carrying charges – line 221 and sch. 4 –Social benefits repayment (OAS clawback) – line 422

30. Corporations Helpful to understand how a corporation is taxed –Passive investment income not eligible for small business rate –Interest and foreign income taxed at 50.7% in Nova Scotia –Capital gains ½ the rates of interest and foreign income –Portfolio dividends at 33.33% in all provinces – 100% refundable through RDTOH account

31. Refundable Dividend Tax on Hand RDTOH – Refundable Dividend Tax on Hand account (temporary tax) Refundable portion of Part I tax assessed on investment income (26.67% Cdn/17.33% Foreign) Part IV tax on Canadian dividends received (33.33%) Dividend Refund $1 from RDTOH for every $3 of taxable dividends paid All taxable dividends paid by a CCPC generate a dividend refund to the extent RDTOH exists $1 of dividend received from our Corporate Class will result in no corporate tax payable if distributed to the shareholder

32. Utilizing non-capital losses inside a corporation Unused tax-deductible management fees inside a corporation create non- capital losses that carry forward for 20 years. Opportunity exists to crystallize unrealized gains to use non-capital losses and create CDA. –CDA created will allow for tax-free payment to the shareholder – consider where shareholder personally requires access to corporate investments. Alternatively, accountant may use current year or previous year’s non- capital losses to offset Part IV tax on dividend income (need to determine if it makes sense to use against this temporary tax). Can also carry back 3 years to offset previous gains (e.g. gains realized on transfer into Corporate Class).

33. T-Class – ideal clients First step – quantify gain that would be triggered on SWP without T-Class and corresponding tax payable –Brand new clients have ACB = FMV, i.e. no gain –Management fees reduce taxable income Additional income for seniors may trigger OAS clawback Individuals currently in a high tax bracket who expect to be in a lower tax bracket in the future will benefit from the deferral Individuals who intend to donate Corporate Class shares in the future

34. T-Class – corporate clients T -Class inside a corporation is only beneficial in select circumstances –Eliminates corporate tax on SWP – but would tax deduction created by management fees offset tax on gain without T-Class? –Are funds from SWP being retained inside corporation or being paid out to the shareholder? –If funds are being paid out to shareholder, what if any personal tax is payable? Tax free withdrawals if shareholder loan exists, high PUC on shares (limited circumstances), capital dividend account balance exists Generally combined corporate and personal tax is less with regular SWP vs. use of T-Class given CDA created with SWP

35. Thank you Assante Wealth Management’s advisory services are offered through Assante Financial Management Ltd., Assante Capital Management Ltd. and Assante Estate and Insurance Services Inc. Assante Estate and Insurance Services Inc. is owned by Assante Financial Management Ltd. and Assante Wealth Management (Canada) Ltd. ®The Assante symbol and Assante Wealth Management are registered trademarks of CI Investments Inc., used under licence.