Posted on April 28th, 2016 by Brad Giroux in Business Transition & Family Enterprise Advisory, Financial Planning & Wealth Management

Diminishing Tax Advantages

Although anyone can take advantage of tax-saving programs, not everyone will. For those that do implement these programs, they may be able to save thousands and even millions of dollars. Sounds too good to be true? It is and that’s one of the reasons why the government introduced Bill C-43, which becomes effective January 01, 2017, leaving little time for people and businesses to get these tax-saving programs in place. Bill C-43 will reduce the tax-effectiveness of these structures, but any that are implemented before the deadline will be grandfathered under the old Canada Revenue Agency (CRA) rules. Not everyone will rush to implement these tax-saving opportunities, but if its right for you, make sure you don’t miss this once in a lifetime chance. These programs may not appeal to those who are not concerned about saving taxes, however for those who are concerned about paying less tax, you don’t want to miss this window of opportunity as CRA rarely gives us this kind of advanced notice.

Let’s look at a few situations where these financial strategies might make sense:

  1. Now that they are empty nesters, Bill and Julie have decided to sell their business, retire, and travel. After many years of working with their trusted team of Advisors and according to their financial plan, Bill and Julie have enough money saved personally to support them throughout their retirement. The issue at hand is what to do with the proceeds from the sale of their business? They plan to leave it to their children, but they are concerned about the tax liability that will be levied when the money is taken out of their holding company. Using a Corporate Estate Bond, Bill and Julie can tax shelter the savings in their holding company and avoid the tax when it passes to their children via a Capital Dividend Account, saving a significant portion of their investments from being eroded by tax.
  2. Alice, a successful professional, has maximized her RRSP contributions and Tax-Free Savings Account and is looking for a tax-effective way to invest additional savings. Through the use of a Retirement Income Enhancer, Alice is able to contribute an unlimited amount of money into this strategy and away from the prying eyes of CRA. When she’s ready to start using the money, Alice can structure this part of her income to be received tax-free, saving her thousands of dollars each year.
  3. Min and Shan have two beautiful grandchildren whom they adore. Shan’s pension along with the money she and Min have been able to save throughout their working lives provides enough to support them in their retirement, but it won’t leave much for their grandchildren whom they care so much about. The Estate Bond or Wealth Transfer Strategy will permit Min and Shan to accumulate or even enhance the inheritance to their two grandchildren, without having to pay significant tax on the proceeds, leaving the legacy they’ve always dreamed about.

So what is this great tax-saving product that has such a broad use in a variety of different situations? Well, we’ve heard it referred to as an Estate Bond or Corporate Estate Bond, Retirement Income Enhancer, Estate Preserver, Wealth Enhancer, Generational Wealth Transfer and so on. Although each of these tax-saving strategies has a different purpose, they all have one thing in common. They all use some type of permanent life insurance as the foundation and it’s this type of tax-effective life insurance that bill C-43 will be clamping down on at the end of this year. These strategies can still work in the future, but if you want the maximum tax-savings benefit that they can offer, you might want to talk to your Accountant or Financial Planner very soon. These strategies take time to implement and if not fully implemented before January 01, 2017, CRA will be imposing the new rules and you will miss out on a once in a lifetime opportunity. These products can be used in a variety of different situations to reduce tax, preserve family wealth or protect your business assets. These programs may prove to be a very important part of your overall financial or business plan and often take three to six months to implement.

If you think one of these programs might be beneficial for you, be sure to talk to your trusted Advisor today.


About the Author

Brad GirouxVice President, DJB Wealth Management Inc. | CFP®, CLU, CHS

As Vice President of DJB Wealth Management Inc., Brad is a firm believer in holistic planning, through a seamless integration of accounting, financial planning and investment management. 
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