Tax-Free Savings Account(TFSA) trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company.

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1 Tax-Free Savings Account(TFSA) Registered trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company.

2 Tax-Free Savings Account Canadians need all the help they can get to save money a flexible, general-purpose account that will allow Canadians to earn tax-free investment income - Canada Revenue Agency

3 Introduction to the TFSA

4 Overview The most powerful personal savings incentive since the introduction of the RRSP Effective January 2009 Canadian residents 18 years or older Need a Social Insurance Number $5,500/yr *contribution limit periodically indexed to inflation by increments of $500 amounts withdrawn added to contribution room for future years excess contribution subject to 1% tax/month *$5k in the years 2009 to 2012

5 Key Features Eligible Investments Segregated Funds, GIO and TIO, etc. Deposits and Growth $5,500 annual contribution limit Interest, capital gains and dividends tax-free Unlimited carry-forward of unused contribution room Qualified investments the same as for RRSPs Withdrawals At any time, for any purpose Do not affect federal income-tested benefits The amount withdrawn can be re-contributed in the following years

6 Special Considerations

7 Added Benefits Income, losses, gains, withdrawals Are not included in income tax calculations Will not affect eligibility for federal income-tested benefits or credits OAS (Old Age Security) CCTB (Canada Child Tax Benefit) GST credit Employment Insurance Benefits

8 Spousal Features More than one TFSA allowed Within the annual contribution limit Funds can be transferred directly between spouses respective TFSA plans on marriage breakdown No extra room to transferor but retains room for transferee Spouse can be named as successor account holder Assets can be transferred to spouse s TFSA without impacting room but unused room of deceased spouse is lost

9 Marital Breakdown & Non Residency Separation or divorce Tax-free transfer to spouse/partner s TFSA Non-resident Can maintain account No new contributions allowed Investment income & withdrawals tax-free

10 Things to Remember No tax deduction on borrowing to invest Excess contributions are taxed at 1% a month Withdrawals cannot be re-contributed in the same year One investor can own more than one TFSA if total deposits are within their annual contribution limit Growth after death is taxable If not withdrawn after a year taxed as inter vivos trust max rate

11 The TFSA Advantage

12 Benefits Seniors & Low Income Investors Unlike RRSP, contributions can be made after age of 71 Tax free income doesn t affect eligibility for income-tested government benefits (OAS, GIS, GST credit, etc.) Emergency savings High Income Investors RRSP supplement Pension adjustments, maxed out contribution limit, etc.

13 Benefits Young investors in lower tax brackets Larger down payment faster HBP $25,000 withdrawal limit* Start with TFSA, then use accumulated unused RRSP contribution room to get bigger deduction when you are in a higher income tax bracket Use tax refund to begin rebuilding TFSA up to the total amount withdrawn plus new contribution room *As of January 27, 2009

14 For a Lifetime of Savings $150,000 $100,000 College $10,000 New Home Down payment $25,000 Renovation $30,000 Child's Wedding $15,000 Save $300/month RV $40,000 Save $200/month Save $250/month +$40,000 vs. Non Registered Save $300/month $50,000 Save $150/month Save $175/month $ Amounts expressed in constant dollars and investments assumed to earn a real rate of return of 3.5% (5.5 minus 2% for inflation). Tax savings calculated using an average combined federal-provincial tax rate of 21% on investment income consistent with middle income earners investing in a balanced portfolio (40% interest 30% dividends and 30% capital gains). Source:

15 TFSA vs. Non-Registered

16 Low to Moderate Income Tax bracket: $10-39k per annum Contribution: $5,500 per annum for 25 years Earnings: 6% a year compounded Total Earnings: $182,360 (TFSA) vs. $162,249 (Non-Reg.) Tax Savings = $20,111 Assumption: (Asset mix) 40% interest, 30% dividends, 30% capital gains Assumes an Ontario marginal tax rate of 20.05%, marginal CDN dividends tax of eligible 0% other 2.77%, and marginal capital gains tax of 10.03%. All contributions are made at the beginning of the year. For illustration purposes only and not indicative of future returns.

17 Middle Income Tax bracket: $40-79k per annum Contributions: $5,500 per annum for 25 years Earnings: 6% a year compounded Total Earnings: $182,360 (TFSA) vs. $141,519 (Non-Reg.) Tax Savings = $40,841 Assumption: (Asset mix) 40% interest, 30% dividends, 30% capital gains Assumes an Ontario marginal tax rate of 32.98%, marginal CDN dividends tax of eligible 14.19% other 17.81%, and marginal capital gains tax of 16.49%. All contributions are made at the beginning of the year. For illustration purposes only and not indicative of future returns.

18 High Income Tax bracket: $80-129k per annum Contribution: $5,500 per annum for 25 years Earnings: 6% a year compounded Total Earnings: $182,360 (TFSA) vs. $133,732 (Non-Reg.) Tax Savings = $48,628 Assumption: (Asset mix) 40% interest, 30% dividends, 30% capital gains Assumes an Ontario marginal tax rate of 43.41%, marginal CDN dividends tax of eligible 25.40% other 28.82%, and marginal capital gains tax of 21.70%. All contributions are made at the beginning of the year. For illustration purposes only and not indicative of future returns.

19 Summary +$40,841

20 TFSA for Retirement Savings Should a TFSA complement or replace my RRSP? If the marginal tax rates at deposit and withdrawal are the same, the TFSA and the RRSP are equally effective If the marginal tax rate at withdrawal is lower than at contribution: the RRSP wins If the marginal tax rate during withdrawal is higher than at contribution: the advantage goes to a TFSA

21 TFSA vs. RRSP TFSA RRSP Tax deduction on contribution No Yes Tax sheltered growth Yes Yes Tax free withdrawals Yes No

22 What are the options? 2013 Annual Maximum $5,500 Contributions TFSA RRSP Non-Registered Not tax deductible 18% of Earned Income (up to $23,820) Tax deductible n/a Not tax deductible Eligible Empire Life Investments Segregated Funds GIO s Segregated Funds, GIO s Segregated Funds, GIO s Withdrawals Tax free Taxable Not taxable Primary Uses Any purpose Retirement* Any purpose Government Income Benefits Eligibility unaffected Affects eligibility Does not affect eligibility Age Restrictions Age 18 no maximum age No minimum ** age 71 (mandatory conversion) Unused Contribution Room Carried forward Carried forward n/a Taxes on Earnings / Growth Tax-free Deferred Taxable n/a *RRSP withdrawals used for the HBP (Home Buyers Program) must be re-contributed in 15 years and the LLP (Lifelong Learning Program) must be re-contributed within 10 years. ** Earned income required to make contributions

23 More Information? Empire Life website Canada Revenue Agency website

24 Important Notes Past performance is no guarantee of future performance. The information in this presentation is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance made on or misuse or omissions of the information contained in this presentation. Please seek professional advice before making any decision. A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Registered trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company. March 2013

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