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YEAR-END TAX CALL

YEAR-END TAX CALL. Jamie Golombek, Managing Director, CIBC Private Wealth Management. Agenda. New RRIF minimum rules Capital loss planning Tax Shelters Tax-Free Savings Accounts. Adjusted RRIF Minimum - 2008. RRIF minimum for 2008 reduced by 25%

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YEAR-END TAX CALL

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  1. YEAR-END TAX CALL Jamie Golombek, Managing Director, CIBC Private Wealth Management

  2. Agenda • New RRIF minimum rules • Capital loss planning • Tax Shelters • Tax-Free Savings Accounts

  3. Adjusted RRIF Minimum - 2008 • RRIF minimum for 2008 reduced by 25% • Can re-contribute amounts already withdrawn • Deadline – later of: • March 1, 2009 • 30 days after Royal Assent

  4. Adjusted RRIF Minimums - 2008 • Adam, age 76, RRIF Value - $150,000, Minimum amount – 7.99% • Required RRIF Withdrawal for 2008 - $12,000 • New minimum amount for 2008 – 75% of $12,000 • $9,000 • Scenario 1: • No minimum taken out yet • Take out $9,000 in December 2008 • Scenario 2: • $1,000/month taken out (i.e. $11,000 to date) • Can re-contribute $2,000 • Scenario 3: • $6,000 taken out to date • Only need to take out $3,000 in December 2008

  5. RRIF Minimums • A Better Riff on Retirement: The Case for Lower Minimum Withdrawals from Registered Retirement Income Funds • By William B.P. Robson • Current policy forces seniors to make minimum withdrawals from Registered Retirement Income Funds (RRIFs) whether or not they make financial sense • Since 1992, when changes to the Income Tax Act last adjusted minimum withdrawals, life expectancy is up and real returns on investment are down • As a result, RRIF holders now face dramatic erosion in the purchasing power of tax-deferred savings in their later years. The required minimum withdrawals should fall, or even disappear

  6. Capital loss planning • RRSP transfer • Loss denied • Crystallize first, wait 30 days to buy back • Switch funds (3rd party) • Corporate to trust version (vice versa)

  7. Capital loss planning – spousal transfer of losses • Spousal loss transfer • Victor + Maureen • Maureen – ABC Shares - $10,000 accrued capital gain • Victor – XYZ Shares • ACB - $50,000 • FMV - $40,000

  8. Capital loss planning – spousal transfer of losses • Step one – Victor sells XYZ shares for $40,000 • Capital loss of $10,000 • Step two – Maureen buys XYZ shares, pays $40,000 • Victor’s $10,000 capital loss is now “superficial” • Added to ACB of Maureen’s shares ($10,000 + $40,000 = $50,000) • Step three – Maureen waits 30 days, sells for $40,000 • ACB - $50,000 • FMV - $40,000 • Capital loss of $10,000 can be used against ABC accrued gain

  9. Tax Shelters • Auditing 100,000 taxpayers • $2 Billion in denied donations • “If it sounds too good to be true, don’t fall for it…The Canada Revenue Agency (CRA) is auditing all tax shelter gifting arrangements.” • CRA – August 13, 2007

  10. Tax Alert – December 4, 2008

  11. Klotz / Nash / Quinn / Tolley (2005) Klotz v The Queen, 2005 FCA 158.AG (Canada) v Nash et al, 2005 FCA 386.

  12. ICAN (2008) • International Charity Association Network • “Global Learning Gifting Initiative” • 2006 – #1 Charity in Canada • $464 million in charitable receipts • 16 employees • By comparison: • United Way of Greater Toronto • $95 million in charitable receipts • 200+ employees International Charity Association Network, 2008 FCA 114.

  13. ICAN – August 11, 2008

  14. Park Lane – September 3, 2008

  15. Banyan Tree (2008)

  16. Banyan Tree – October 20, 2008

  17. CHT 2008 / World Health Initiatives (Nov. 3, 2008)

  18. Pinnacle Foundation (November 17, 2008)

  19. Charities Complaints E-mail – (Nov. 20, 2008)

  20. Grad v. Mintz (2008)

  21. The mission of the Redeemer Foundation is “to advance learning and the dissemination of knowledge at Redeemer University College by funding and managing financial support programs for students." Our vision is “to make Redeemer University College education affordable for all qualified students in the world.” Redeemer Foundation (2008) Redeemer Foundation v. Canada (National Revenue), 2008 SCC 46.

  22. Stein v. Stein (2008) • Wayne + Malka Stein • Divorced after 12 years of marriage • $1.7 MM of assets divided equally • Wayne invested in Film Tax Shelter Limited Partnerships • CRA reassessed, matter before the courts • Question: Must Wayne’s contingent tax liability be taken into account in the division of assets? Stein v. Stein, 2008 SCC 35.

  23. TFSA – Introduction • “The TFSA is a new general-purpose tax-efficient savings vehicle for Canadians that complements existing registered savings plans for retirement and education like Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans.” • Eliminates “double taxation” of savings

  24. TFSA Withdrawal – Example • Withdrawals from TFSA re-establish contribution room in following year • Contribute $5,000/year for 3 years • Total $15,000 • Invest at 5% per year • Value at end of 3 years $16,551 • In 2012, new contribution room is: • $5,000 for 2012 + $16,551 withdrawn in prior year • $21,551

  25. TFSA – Investment Strategy • Conservative: • Holding spot for highly-taxed fixed income investments • Aggressive: • Holding spot for risky, speculative stocks/funds • Unlimited upside  tax-free • Limited downside  no capital loss

  26. TFSA – Other Opportunities • Gift funds to spouse / partner to contribute • Attribution rules will NOT apply • Gift funds to kids > 18 • TSFA funds can be used as collateral to secure loan • No impact on government-tested benefits • GST credits • Child Tax Benefits • GIS • OAS

  27. TFSAs & Death • Tax-free upon death • Leave to spouse, kids, grandkids, anyone! • Spousal / partner tax-free rollover • Successor account holder – spouse / partner • Tax-free transfer

  28. TFSAs & Beneficiary Designations • Provincial legislative issues • Beneficiary designations • Successor account holders • Probate tax

  29. TFSAs & Beneficiary Designations • An Act to Amend Chapter 36 of the Revised Statutes, 1989,the Beneficiaries Designation Act Be it enacted by the Governor and Assembly as follows: 1 Clause 9(1)(b) of Chapter 36 of the Revised Statutes, 1989, the Beneficiaries Designation Act, is amended by adding ", “a tax-free savings plan" immediately after "fund" in the second line. 2 This Act comes into force on such day as the Governor in Council orders and declares by proclamation.

  30. TFSAs & Beneficiary Designations • Section 49 (1) of the Law and Equity Act, R.S.B.C. 1996, c. 253, is repealed and the following substituted: • (1) In this section: • "registered plan" means • (a) a retirement savings plan that • (i) was created before, or is created after, January 1, 1971, and • (ii) is registered under the Income Tax Act (Canada), or • a TFSA within the meaning of the Income Tax Act (Canada).

  31. TFSAs & Non-residency • TFSA remains tax-free upon emigration • No future contributions permitted (without incurring penalty taxes) • No withholding taxes upon ultimate NR withdrawal • Other country may tax annually • EG – not protected in Canada – U.S. tax treaty

  32. Q & A Please enter your question in the space provided below or if you would like to ask your question over the line dial:1-800 736 4594

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