Corporate Insurance Bond. Presented by Adrian Boyko, CFP, CLU ChFC Regional Sales Manager-Saskatchewan

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1 Corporate Insurance Bond Presented by Adrian Boyko, CFP, CLU ChFC Regional Sales Manager-Saskatchewan

2 Agenda Taxation of personal income Taxation of corporate income Business structures Corporate insurance and tax Corporate insurance planning Building the cases Corporate Insurance Bond Understanding permanent whole life How it works The secrets

3 Saskatchewan personal tax* rate Combined Saskatchewan and federal personal income tax-rate brackets: 2014 Up to $43,561 26% $43,562 to $87,123 35% $87,124 to $135,054 39% $135,055 and over 44% * All tax information contained in this presentation, whether personal or corporate, is based on current CRA rules and are subject to change at any time.

4 Should you take salary, dividends or both? Salary considerations: RRSP contribution room Canada Pension Plan benefit 2014 maximum CPP benefit $12,150 Personal tax credits Medical, donations, child care tax credits, etc. Dividend considerations No CPP contributions (9.9% of salary) No EI contribution Saving could be directed to TFSA *YMPE $52,500 covered

5 Saskatchewan corporate tax rates (CCPC) Combined federal and provincial rates 2014 Small business rate - first $500,000 13% General business rate (M&P) 25% General business rate (Non M&P) 28% Investment income (rental, interest, royalty, etc.) 46.7% Dividends 33% Capital Gains 22% Eligible dividends If a Canadian-controlled private corporation ( CCPC) has both a general rate income pool (GRIP) and refundable dividend tax on hand (RDTOH) in 2013, there is an advantage for individuals over the $509,000 tax bracket to paying out eligible dividends to recover RDTOH as the personal tax rate on eligible dividends is lower than the 33.33% refund that the corporation will receive. (Personal 24.81%)

6 Do you need a holding company? Advantages can be numerous Potential tax saving Creditor protection Helps purify operating company Makes the operating business more saleable Disadvantages Cost and complexity

7 Do you need a holding company? Tax advantages and income splitting opportunities Cash value life insurance (tax advantaged) Certain tax efficient funds 20-30% more funds available for investment Investments inside a holding company Invest in : real estate, securities, private investments, life insurance policies, etc. taxed virtually the same as personal income (46.7% corporate vs 44% personal)

8 Corporate Insurance Bond...client profile Who is it for? Shareholders of Canadian controlled, private corporations Age 45 and older Strong desire to leave a legacy at death Receptive to long-term planning strategies

9 Corporate Insurance Bond...client profile Holdco with surplus funds to invest Situation Has retained profits or surplus cash Income not needed Corporation currently invests in: GICs Mutual funds Other taxable investments

10 Desired outcomes You (shareholders) want A financial planning strategy that will increase the funds available when you retire The capital to grow tax efficiently To pass on some of the capital to your favorite charity To pass on the bulk of your enhanced estate to your heirs

11 Options to consider Reduce the amount of current and future tax your corporation pays Replace the taxable investments within your corporation with a tax-advantaged vehicle Increase the funds available to your heirs Create a mechanism to move funds out of your corporation tax free on terminal Disposition

12 How does the Corporate Insurance Bond work? Corporation purchases a life insurance policy Corporation is named beneficiary Corporation deposits funds into the policy The cash value grows on a tax-advantaged basis

13 Corporate insurance & tax The CSV is an asset the company can control, so it should be included on the balance sheet* When death occurs the death benefit will be paid to the corporation The CSV component of the death benefit will be eliminated because of that The gross death benefit will be reflected in the financial statement however will not attract any tax liability The corporation also has the proceeds from the death benefit which will be credited to the Capital Dividend Account *James & Deborah Kraft Advisor.ca Feb 14, 2014

14 Result Corporate investment dollars Taxed at the top rate of 46.70% in Saskatchewan is converted $ now in tax-advantaged environment Increases amounts available for retirement Increase the amounts that pass to heirs tax free

15 Case study #1 Corporate Insurance Bond

16 Situation The client Ann - age 55, non-smoker, widow Business owner of Investment Holdco The situation She has a tax liability of $2,000,000 Has assets in Holdco of $2,000,000 Objective She wants to know if she can use the investments in Holdco more tax efficiently to enhance her children s and grandchild's estate values Would like income if possible

17 Strategies Leave the $2,000,000 to grow at interest in Ann s corporation (no insurance) Purchase insurance to cover tax liability Purchase annuity for income Deposit money into segregated fund* SWP cash from segregated fund Deposit cash from SWP to Equimax life insurance policy * Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. Past performance does not guarantee future performance.

18 Strategy details Purchase a non-prescribed annuity Immediately create an annual income of $60,000 for 20 years ($897,014) Capital left $1,102,986 Purchase a segregated fund Use SWP and deplete capital of $1,102,986 over 11 years at 4% Income generated $125,000 Tax at high point $19,063 Purchase Equimax Deposit $106,000 annually for 11 years (from SWP) Take income from years 20 to 45 Outcomes?

19 Corporate Insurance Bond

20 Recap objectives & outcomes Objective Corporate investments Corporate Insurance Bond Leave estate NO YES Have income Age Age Pay taxes of $2,000,000 Balances received or owed by estate YES Same net income Income stops at age 95 No Year 1 - $ 690,542 Age 75 - $1,104,925 Age 95 - $2,000,000 YES $ 60,000 gross $100,000 gross Yes Year 1 $ 983,138 Age 75 $ 870,136 Age 95 $1,239,886 Age 100 $1,322,377

21 Case study #2 Using the strategy to increase income and tax-advantaged growth Planning for retirement income

22 Situation Case study #2 Successful corporation (OPCO) Owners Rick 52 Janice 36 Income coming up to Holdco Approximately $100,000 per year Will retire at Rick s age 65 Want income from Holdco from age 65-85

23 Assumptions used Investments inside of Holdco earn 5% Corporate Marginal Tax rate 46.70% Shareholder dividend tax rate 35.33% Equimax used current dividend scale Income taxed at 35% in policy at withdrawal

24

25 Results by the numbers Objective income Corporate investment Corporate Insurance Bond Deposit for 13 years $100,000 yearly $100,000 yearly Net estate Rick s Age 65 Age 75 Age 85 Age 95 $1,015,556 $ 84,687 $ 0 $ 0 $6,478,279 $3,554,360 $2,979,885 $4,908,352 Income Rick s age 85 Net after-tax income Age 65 Age 75 Age 85 *no income after age 76 NO $117,273 $ 87,172 $ 0* Yes $117,273 $ 87,172 $ 78,923

26 Corporate Insurance Bond Benefits: Increase estate value Tax-advantaged corporate capital Access to capital for income purposes Net death benefit for heirs or charities

27 Understanding participating whole life

28 Why participating whole life? Participating whole life insurance is a good choice for the risk averse client that: Likes guarantees Wants stable growth in their insurance policy Finds well diversified conservative investments appealing Wants hands-off investment management of their premiums vs. active management of universal life

29 What it means to own par whole life Guaranteed death benefit, cash values and premiums Eligible to participate in the distributable earnings of the Participating Account in the form of dividends Dividends are not guaranteed

30 How are dividends calculated?

31 Participating Account experience components The main components: Investment performance Mortality and lapse Expenses Other components: Policy loans

32 Mortality and lapse Mortality experience tends to be relatively stable Has generally improved over time About 30-40% of the total dividend, depending on age and duration Lapse experience also tends to be fairly stable This component will vary by gender, smoking status, issue age and policy duration

33 Expenses Expenses tend to be a fairly small part of the total dividend This component looks at the difference between estimated and actual administration expenses

34 Investment performance The interest portion of the dividend is typically the largest portion of the dividend About 40-65% of the total dividend, depending on age and duration Based on the rate of return earned on the Participating Account assets Will increase by policy duration as the guaranteed cash value increases

35 Definitions Participating Account rate of return (or Par Yield) The rate of return earned on the Participating Account assets in a given calendar year Dividend scale interest rate The rate used in setting the dividend scale Based on recent investment experience in the Participating Account In setting this rate, actual experience will be smoothed to reduce volatility (e.g. equity returns) Dividend interest component A calculated factor based roughly on the guaranteed cash value and the difference between: Dividend scale interest rate, less investment-related expenses, and the interest rate assumed in setting the guaranteed values

36 Policy loans Policy loans form part of the assets within the Participating Account If the policy loan rate is significantly lower than the returns earned on other assets, high policy loan activity will have a negative impact on policy dividends Under the contribution principle, policy loan activity is reflected in the dividends by class The actions of a subset of policyholders will impact the dividends of an entire class

37 Participating Account investments

38 Participating Account investments

39 Participating Account investments

40 Dividend scale interest rate The current dividend scale interest rate is effective July 1, 2014 to June 30, 2015

41 Response to market conditions Sources: Statistics Canada, Bank of Canada, Equitable Life of Canada. Historical Results are not indicative of future performance. As of December 31, 2013.

42

43 Corporate Insurance Bond will help you qualify for our next conference

44

45 Conference at-a-glance CONFERENCE DATES April 1 7, 2016 DESTINATION TWO-YEAR QUALIFICATION PERIOD January 1, 2014 to December 31, 2015 MINIMUM QUALIFICATION REQUIREMENTS 135,000 Conference Credits and 20 settled policies. Space aboard the Avalon Visionary is limited. The top 40 qualifying Individual Advisors with the highest Conference Credits will be eligible to be invited to attend.

46 The best of Holland and Belgium right at your door Awe-inspiring Itinerary Day 1 Amsterdam (Embarkation) Day 2 Amsterdam Day 3 Antwerp Day 4 Ghent Day 5 Keukenhof Gardens Schoonhoven Day 6 Amsterdam (Disembarkation)

47 Won t you join us?

48 Disclaimer This presentation is intended for information purposes only and is provided with the understanding that it does not render investment, legal, accounting, tax or other professional advice. Equitable Life has made every effort to ensure the accuracy of this presentation, however accuracy is not guaranteed. If the information presented here differs from that contained in any Equitable Life policy contract, the policy contract prevails in all cases. If this presentation contains competitive information, we've made every effort to ensure its accuracy as of the date of the original oral presentation. We cannot, however, guarantee the accuracy and, if you have any questions regarding this information, you should contact the competitor directly. Dividends are not guaranteed. They are subject to change and will vary based on the actual investment returns in the Participating Account as well as mortality, expense, lapse, claims experience, taxes and other experience of the participating block of policies. Decreases in the dividend scale do not affect the guaranteed premium, guaranteed cash values, or guaranteed death benefit amount. A copy of Equitable Life s Dividend Policy and Participating Account Management Policy can be found on our website at Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. Past performance does not guarantee future performance. denotes a trademark of The Equitable Life Insurance Company of Canada. Reproduction or redistribution of this presentation, in whole or in part, without permission from Equitable Life is forbidden The Equitable Life Insurance Company of Canada. All Rights Reserved.

49 Questions?

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