Client Case Studies

Challenge:

A high earning young professional wanted advice on how to mitigate taxes by utilizing available tax shelters on an annualized basis. If possible, he wanted some ideas about gifting to a charity to start building a legacy for his family.

Recommendations:

• The client took advantage of his full Registered Retirement Savings Plan (RRSP) contribution room (often we would recommend a spousal contribution to even out investment assets, but this was not necessary), full Tax-Free Savings Account (TFSA) contribution room, but still wanted to look at creating a legacy.
• The client had large unrealized capital gains in a non-registered portfolio. We spoke with the client about the benefit of contributing shares in kind to a charitable organization as you then get the full contribution amount but don’t pay tax on the capital gain. We were going to rebalance the portfolio so rather than sell and make a cash donation, we donated shares that had some of the highest capital gains. The client worked with his accountant to ensure that this strategy aligned with his long-term tax planning strategy.
• The client wanted to donate to a local community arena that was doing a capital raise for upgrades to the facility. The client worked with the arena board to secure naming rights for five years and to have other advertising benefits for his business. The community arena was not set up to receive stock donations, so the client set up a Family Fund through the Saskatoon Community Foundation. The client was able to transfer shares in kind to his family fund, they were sold, and the funds were distributed to the community organizations (which needed to have a registered charity number).
• The client’s $100,000 donation cost approximately $44,000 in after-tax dollars. If the client had looked at doing a pure cash donation, the after-tax cost would have been approximately $52,000.

Results:

We provided our expertise to the client and his family, allowing them to mitigate as much tax as possible while striving to help them accomplish their goal of creating a legacy within the community. The clients utilized different tax planning strategies including RRSP contributions for both spouses, max TFSA contributions for both spouses and charitable giving to accomplish a two-pronged approach of saving for their retirement, while also creating a family charitable fund that could be used for philanthropy.

Links:

Saskatoon Community Foundation 

AWPG – Donating Shares: A Tax Efficient Form of Philanthropy

Before acting on any of this information, please contact your tax and/or legal professional. Please note that while current at the time of publication, tax rates are subject to change.

Challenge:

A client sold their business (not real estate) and needs to replace the income from the business with cash flow from their investments. The client continues to own a large commercial building worth $12,000,000 and used some of the proceeds from the business to pay off most of the commercial mortgage. The income from the commercial property will continue to pay off debt and expenses within the business for a few years before being paid off fully. The share sale resulted in the client being able to flow some of their capital gains exempt funds to their personal name, but the client was in a high tax bracket due to the significant funds moving from corporate to personal assets.

Recommendations:

• The client took advantage of a significant amount of unused Registered Retirement Savings Plan (RRSP) room, making a $312,000 contribution to their RRSP. The client also had $73,000 of Tax-Free Savings Account (TFSA) contribution room to try to move as much money tax-free as possible.
• The client had approximately $1,400,000 in registered plans and wanted to utilize the registered plans to generate income and allow her cash account and tax-free savings account to accumulate to flow more tax efficiently to beneficiaries.
• The client wanted less exposure to the overall market, and we employed a strategy utilizing structured notes with a 30% protection barrier, which yielded the client approximately 10.32% annualized in income flow. This income generating strategy produced approximately $140,000 per year in cash flow that the client was able to withdraw through a Registered Retirement Income Fund (RRIF), creating T4 RRIF income.
• With the high earning rate within the RRIF, the client is withdrawing the income being generated each month, allowing the overall portfolio to grow as the TFSA and non-registered accounts continue to grow.
• We worked with the client’s accountant to ensure that they would be able to tax plan for the approximate income being generated and withdrawn from the RRIF, as well as other sources. This has allowed the client to focus on debt repayment within the corporation and tax plan to pass the building on to their children.

Results:

The client was going through a transition period where they were going from being heavily involved in a business, to a less stressful retirement lifestyle. The client needed to address tax issues, and we made recommendations on the proper accounts to fund, as well as looking at charitable giving options. The client chose to focus on utilizing investment vehicles that could defer tax and lower the overall tax bill in the year of business sale. We were able to work through different investment options to ensure the client was in a portfolio that addressed the desire to have a steady income and less risk than a pure equity portfolio. We have helped the client grow their capital while also providing significant income flow to ensure that they can enjoy a comfortable retirement.

Before acting on any of this information, please contact your tax and/or legal professional. Please note that while current at the time of publication, tax rates are subject to change.