CIFPs Conference 2007 USING YOUR CLIENTS TAX RETURNS

CIFPs Conference 2007 USING YOUR CLIENTS’ TAX RETURNS AS A ROADMAP TO TAX & FINANCIAL PLANNING

ABOUT THE PRESENTER After completing a B. Comm. with an accounting major at UBC in 1976, Don articled with a large international accounting firm before starting Nilson & Company in 1979. During his articling period, he gained experience auditing large, sophisticated accounting systems as well as smaller private businesses. Don returned to university in 1980 to complete a Master's degree. His 100 page thesis, entitled "Income Taxation of the Small Business Sector in Canada" provided a valuable insight to taxation in Canada and other countries. Don attained his professional accounting qualification in 1981, his financial planning designation in 1998 and his Trust & Estates designation in 2006. He has been licensed as a Portfolio Manager with the BC Securities Commission since 1994. Since 1980, Don has lectured in accounting and tax topics for the University of BC, the Society of Management Accountants of BC, the BC Real Estate Association and the Certified General Accountants Association of BC. He presently is the Team Leader for the delivery of the Taxation 1 course on the internet across Canada and internationally for the Certified General Accountants. He has been involved in developing national exams and curricula for the professional accounting bodies. Don has delivered seminars on practice management and taxation issues within the profession and across Canada and in the U. S. BCom MSc (Bus Admin) CMA FCMA CFP TEP Registered Portfolio Manager

ABOUT THE PRESENTER Don served on the National Board of the Financial Planners' Standards Council through June 2004. He has served as treasurer of various charitable organizations. He has also served on the Provincial Board of his accounting body and chaired a provincial committee which oversees the adherence to professional standards in public accounting. He has participated in the Press lock-ups of the federal and provincial budgets. Don has received lifetime achievement recognitions from the University of British Columbia, the Sauder School of Business, the Certified Management Accountants of Canada and the Certified General Accountants Association of BC. Don oversees the day-to-day management of both firms. His primary focus is business advisory services, corporate and personal tax, investment management and business year-ends. BCom MSc (Bus Admin) CMA FCMA CFP TEP Registered Portfolio Manager

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Sir Francis Bacon

Sir Francis Bacon

THE HOLISTIC APPROACH Structural Planning Investment management & Asset Allocation Taxation FINANCIAL PLANNING Wealth accumulation & protection Estate Planning Environment

Jacket – page 1 Information page • Birthdate – Pension implications • Retirement imminent? – – Need a 6 -step plan? OAS/CPP/RRIF Elect younger spouse’s age for RRIF $2, 000 pension credit (Schedule 1 line 20) • Not enough assets set aside to retire?

Jacket – page 1 Information page • Address: – Own or rent? • Tax and financial implications • Appropriate insurance-earthquake? • Foreign property verification • Married status

The big picture • 5 year comparative: – Sources – Fluctuations – Risk exposure • Life • Disability • Critical illness

Jacket – page 2 Total income • T 4 employment • Income at line 101 on jacket but no, or low, income on Sched 1 at line 312 (EI) – An entrepreneur? • Management of $500, 000 superfreebie – Sale? Freeze? Previous 1994 election? • Significant retirement asset building req’d • Any medical (Schedule 1 line 330)? – Ripe for a company PHSP? • Death benefit payout policy in place?

Jacket – page 2 Total income • Pensions – OAS (line 113) • 65 or older? • Defer a year? – CPP (line 114) • If client is over 60, what’s the strategy? – Cash flow needs? – Paying in vs getting out? – Excluded years, particularly for Moms

Jacket – page 2 Total income • Pensions – RPP/RRIF (line 115) • There may be a company benefit plan! – What are the survivor elections on death? • It may be a RRIF – Over mandatory withdrawal age or not? » Can undo if not and don’t need – Funding of death taxes? – What are the survivor elections on death? – Excess withdrawals? Why? • It may include foreign pensions – Do they have an accent?

Jacket – page 2 Total income • Pensions – RRSP (line 129) • Client is de-registering? Why? – Cash problems? – One-off problem? » Better solved another way? – Tax management to deliberately deregister?

Jacket – page 2 Total income • EI income – Maternity leave? • Children coming!!! – RRSP withdrawals planned? • Watch spousal contribution trap

Jacket – page 2 Total income • Investment income – Limited partnership income (line 122) • May have some pregnant tax shelter issues – Dividends (line 120) and interest (line 121) • Relative amounts may provide insight to risk profile, eg NO dividends – Opportunity for better tax-smart investing – Invest with profile of your beneficiaries?

Jacket – page 2 Total income • Rental income – Gross at line 160, net at line 126 – Client has investment property • Pregnant taxation on gains and recapture – If net = zero, probable means CCA taken – Need to manage? – Clever means to manage the exposure • Apply wisdom to CCA claiming • Asset allocation implications – Client doesn’t have real property • Indirect vs direct investing, eg REITs

Jacket – page 2 Total income • Self employment income – Gross at line 162, net at line 135 • Client making significant income? – Need it all to live? – This income fluctuates? – Assess wisdom of incorporating to smooth and defer tax and create some tax levers

Jacket – page 3 Net & Taxable income • Pension deductions – RPP (line 207) • There’s a company benefit plan! – RRSP (line 208) • There’s a sheltered portfolio! • Interest (line 221) – Client is carrying deductible investment debt • Is leverage appropriate? Reasonable risk?

Jacket – page 3 Net & Taxable income • Support payments (lines 230 & 220) – Appropriate tax treatment? – Is agreement current and satisfactory to client’s present reality?

Jacket – page 3 Net & Taxable income • Resource claims (line 224) – Is client wisely using tax shelters? – Or inappropriately? given: • Age • Risk profile • Tax position

The Notice of Assessment • Capital loss carryforwards • Non capital loss carryforwards – Both useful in future tax management? – Should have been a previous carryback? • Min. Tax balance forward • Investment Tax Credit forward – Both likely have impact on future tax shelter acquisitions

The Notice of Assessment • RRSPs – RRSP room – RRSP advance and excess contributions – Home Buyer status • Impact on future contributions – Catch up plan? • CRA Crack down on off-side excess contributions

Net income statistic • Drives: – – – – Child tax benefit GST credit Medical credit Universal child care benefit Guaranteed income supplement Medical premium assistance Clawback • Applying for these and/or managing benefit

Couple comparative • Marginal tax brackets • Unused credits – Some transferable credits • Dividend transfer with new, higher credit system – Some not • Clawback

Couple comparative • Solutions – Generate income to use credits • Deregistration • Forego carryforward deductions/credits • Income split – Earned income in owner corporation – New 2007 pension splitting – CPP split

Couple comparative • Solutions – Portfolio management • Spousal loans for investment income • Retention of net proceeds from trading-down home • Swaps to more tax-smart construct, across spouses and/or sheltered accounts • Ownership of passive vs productive assets, eg cottage • Asset shedding (to kids)

KIDS • Drive: – Single parent exemption – Child tax benefit • Enhanced for disabled – Universal child care benefit – Child care – Education transfers – Disability transfers – RESP plans

Schedule 1 • Donations (line 349) – What is your client’s view of gifting? • Estate planning implications? • The Carnegie School? • Do they understand the tax breaks? – Capital gains tax break in-kind (Sched 9 line 339)

Global Positioning Planner • You are your client’s GPS!

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