year-end tax call jamie golombek, managing director, cibc private wealth management

YEAR-END TAX CALL

Jamie Golombek, Managing Director,

CIBC Private Wealth Management

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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Can re-contribute amounts already withdrawn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

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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

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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

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

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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)

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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

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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

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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

“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

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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.”

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.

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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.

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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

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Opening Balance Contribution Growth Ending Balance

2009 – 5,000 250 5,250

2010 5,250 5,000 513 10,763

2011 10,763 5,000 788 16,551

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

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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

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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

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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

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TFSAs & Beneficiary Designations

Provincial legislative issues

• Beneficiary designations

• Successor account holders

• Probate tax

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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.

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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

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Q & A

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