Tax Deferral Strategies

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

6. Sample Corporate Share Structure Trustee = Owner

7. Paying for Children’s Education $25,000 Tuition + $15,000 Expenses Shareholder Student Student Professional Jr. Dividend 56,400 40,000 Share. Loan 40,900 (40,900) Taxes (17,513) (930) (6,940) Credits Used 1,113 930 6,040 Net Cash 40,000 40,000 40,000 18,980 Tax Refund Assumptions: Shareholder & Prof. Jr., MTR = 46.41%; No other income for Student

8. Retirement Income Streams 0% IRP OAS 100% TFSA CPP N-R RRSP IPP 0% - 100% 100%

9. Retirement Planning – The IPP Individual Pension Plan “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?

10. Individual Pension Plan (IPP) Individual Pension Plan: Case Study • Assumptions • 50 year old executive / shareholder • Active in business since 1990 • RRSP value ~ $325,000 • Expected 2010 T4 earnings ~ $125,000

11. RRSP vs. IPP (Allowable Contributions) *Includes past service contribution of $171,192 from corporation.

12. RRSP vs. IPP (Plan Balance at Year End) * Includes RRSP transfer-in of $307,500

13. RRSP vs. IPP – Estimated Annual Payout

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

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

16. Growing Non-Registered Investments Tax Preferred Corporate Class Structure Moderate Portfolio Initial Investment $400,000 $400,000 Moderate Portfolio after 10 years $400,000 now worth $642,833 $712,236 Moderate Portfolio after 20 years $657,516 now worth $1,033,087 $937,900 after tax $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. Corporate Insured Retirement Plan Brian:45 year old business owner Needs additional life insurance & retirement income 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

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 $30,000 40/60 80/20 6% 7.4% $60,000 $60,000 $774,500 $1,029,500 N/A $629,000 $129,000 $1,597,000

24. Corporate Estate Bond

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

26. Estate Bond vs. InvestmentsAfter-Tax Estate Comparison

27. Corporate Estate Bond

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 Employee submits claim form & receipts Employer Receives claim form & issues a cheque for 100% of the expense to the trustee (HAWP) Trustee receives the claim and receipts & issues a cheque for 100% of the expense from the HAWP to the employee

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

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