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

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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 RRIF minimum for 2008 reduced by 25%   Can re-contribute amounts already withdrawn Deadline – later of:  March 1, 2009  30 days after Royal Assent 2

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 3

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 4

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) 5

Capital loss planning – spousal transfer of losses

  Spousal loss transfer Victor + Maureen • • Maureen Victor  – ABC Shares - $10,000 accrued capital gain – XYZ Shares ACB - $50,000  FMV - $40,000 6

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 7

Tax Shelters



“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

  Auditing 100,000 taxpayers $2 Billion in denied donations 8

Tax Alert – December 4, 2008

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Klotz / Nash / Quinn / Tolley (2005)

Klotz v The Queen, 2005 FCA 158.

AG (Canada) v Nash et al, 2005 FCA 386.

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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.

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ICAN – August 11, 2008

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Park Lane – September 3, 2008

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Banyan Tree (2008)

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Banyan Tree – October 20, 2008

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

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Pinnacle Foundation (November 17, 2008)

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

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Grad v. Mintz (2008)

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Redeemer Foundation (2008)

 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 v. Canada (National Revenue), 2008 SCC 46. 20

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. 21

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 22

TFSA Withdrawal – Example

2009 2010 2011     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

Opening Balance Contribution

– 5,000 5,250 10,763 5,000 5,000

Growth

250 513 788

Ending Balance

5,250 10,763 16,551  In 2012, new contribution room is: • • $5,000 for 2012 + $16,551 withdrawn in prior year $21,551 23

TFSA – Investment Strategy

  Conservative: • Holding spot for highly-taxed fixed income investments Aggressive: • Holding spot for risky, speculative stocks/funds • • Unlimited upside  Limited downside  tax-free no capital loss 24

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 25

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 26

TFSAs & Beneficiary Designations

 Provincial legislative issues • Beneficiary designations • • Successor account holders Probate tax 27

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:

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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.

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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).

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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 30

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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