Advisor Guide. Tax-Efficient Investing at its Best

Transcription

1 Advisor Guide Tax-Efficient Investing at its Best

2 A Mutual Fund Corporation According to Section 51(1) of the Income Tax Act: The investor may switch between the various classes of capital stock of a corporation without tax consequences. Income tax becomes payable only when capital stock holdings in the corporation are sold.

3 CI Corporate Class Tax-deferral advantages of $ an RSP Canadian Income Ability to lock in investment gains without triggering a taxable event $ Switch between funds $ Tax-efficient source of stable monthly income Control when you pay tax on your investment. Global $ Specialty No capital gains are triggered when switching to different funds

4 Across the Capital Structure Tax is paid every year on income Inclusion rate is 100% for interest income or 50% for dividends 50% Dividend-paying common shares RETURN 100% Income trusts 50% Preferred shares 100% High-yield corporate bonds 100% Government bonds 100% Investment-grade corporate bonds VOLATILITY

5 With Corporate Class Tax is paid at time of redemption* Inclusion rate is always capital gain at 50% 50% Dividend-paying common shares RETURN 50% Income trusts 50% Preferred shares 50% High-yield corporate bonds 50% Government bonds 50% Investment-grade corporate bonds VOLATILITY *Dividends are minimized and can only be tax-advantaged dividends or capital gains, not interest income.

6 Negative After-Tax Returns Real After-Tax GIC Returns 5% % 3% 2% 1% 0% -1% -2% 1-year GIC avg. After tax After inflation Source: Bank of Canada, Statistics Canada. Based on the average one-year GIC rate, a top marginal tax rate of 46.4% for Ontario in 2008 and the annual rate of inflation.

7 A Level Playing Field Trust Corporate Class Canadian Equity Fund Bond Fund Global Equity Fund Bond Fund Canadian Equity Fund Global Equity Fund

8 Why is Tax Efficiency Important? The difference in the after-tax value of $10,000 in income from interest, dividends, capital gains and return of capital 1 Net Taxes Paid $10,000 $10,000 $8,000 $6,000 $5,360 $4,640 $7,694 $7,680 $4,000 $2,306 $2,320 $2,000 $0 Interest Income Dividend Income Capital Gains Return of Capital 1 Assumes a top marginal tax rate of 46.41% for Ontario, 2009.

9 Turning Income into Capital Gains After-tax returns Gross Tax* After Tax Interest Income 4% 2% = 2% Capital Gains 4% 1% = 3% Difference +50% *Marginal tax rate of 46.41%. (Capital gains inclusion rate of 50%.) Results have been rounded to the nearest whole number.

10 Why CI Corporate Class? Provides the ability to: SWITCH between funds without tax consequences DEFER income tax on fund earnings CONVERT dividend and interest income into capital gains At no additional cost over the equivalent trust fund

11 Switch Corporate Class Trust Year 1 Initial investment $10,000 $10,000 Year 6 Value $20,000 $20,000 Switch investment taxes paid $0 $2,000 Reinvested amount $20,000 $18,000 Year 12 Value $40,000 $36,000 Switch investment taxes paid $0 $3,600 Reinvested amount $40,000 $32,400 Year 18 Value at redemption $80,000 $64,480 Taxes owed $14,400 $6,480 Total after-tax $66,000 Difference $7,680 $58,320 Scenario assumes taxes are paid from the gains of the investment before reinvesting in another investment. Taxes are calculated as follows: closing value less initial investment x 40% estimated MTR = taxable capital gains x 50% estimated MTR = tax paid at switch.

12 Defer Signature Canadian Bond Corporate Class & Signature Canadian Bond Fund A $100,000 investment from December 2003 to December 2008 Corporate Class Trust Amount invested on December 31, 2003 Unrealized capital gains Distributions (realized gains before tax)* Income tax paid on distributions** $100,000 $18,916 n.a. n.a. $100,000 $0 $18,159 $8,428 Actual after-tax value of investment at December 31, 2008*** $118,916 Difference $9,322 $109,594 * 2004 distribution $0.24 per unit, 2005 distribution $0.21 per unit, 2006 distribution $0.19 per unit, 2007 distribution $0.18 per unit, 2008 distribution $0.19 per unit. ** Assumes top marginal rate of 46.41% for Ontario, Actual distribution is taxed by type of income. *** Assumes tax is paid outside the account and lowers the value of the investment.

13 Convert Cl Canadian Bond Corporate Class Cl Canadian Bond Fund Investment $100,000 SWP at 4% annually* $4,000 Income tax at 46.41% MTR capital gains at 50% $37 Net income $3,963 Investment $100,000 Annual interest distribution 4% $4,000 Income tax at 46.41% MTR interest income at MTR $1,856 Net income $2,144 Difference $1,819 annually, or 85% more income * Assumes 96% return of capital, which does not attract tax, and 4% capital gains, redeemed at year end. Assumes top marginal rate of 46.41% for Ontario, 2009.

14 Investment Options Wide investment choice with more than 55 funds covering Canadian and global income, balanced and equities, as well as Portfolio Select Series managed portfolios.

15 T-Class T-Class provides an income solution that creates a predictable tax-efficient cash flow using CI Corporate Class funds. By tapping into the unrealized gains in their Corporate Class funds, your clients can create a predictable, monthly income stream and still allow their investments to continue growing at rates that can potentially match, or outstrip the rate of withdrawal. They receive a tax-efficient income without sacrificing the potential for growth. With T-Class they are able to have steady income from non-conventional sources, such as equities and balanced portfolios. tax-efficient income guaranteed monthly distributions of 100% return of capital (ROC) available for more than 30 CI Corporate Class funds provides a high level of sustainable, tax-efficient cash flow with choice of two annual target distribution levels 5% or 8%

16 How does T-Class work? This chart represents how T-Class works over time. 1 The original investment which equals the adjusted cost base (ACB) 2 Represents the increase in the market value of the portfolio as it grows over time 3 As the client withdraws monthly income which is ROC each withdrawal lowers the adjusted cost base, until such time that, 4 The ACB reaches zero and from there on any future withdrawals will be tax-advantaged capital gains 2 Market Value 1 Value 3 Original ACB 4 Time Declining ACB

17 CI Private Managed Assets CI Private Managed Assets is a flexible program providing institutional and high net worth investors with superior service and access to CI portfolio managers through a variety of platforms. World-class money management Asset allocation pools and U.S. dollar mandates also available Daily liquidity and account values Transparent institutional fees

18 Portfolio Select Series Portfolio Select Series is a comprehensive investment program, delivering institutional quality investment solutions: Core Portfolios multi-asset, multi-style, multi-manager optimized portfolios. Flexibility to choose Managed Portfolios or Custom Portfolios. Truly tax-efficient, based on CI Corporate Class platform. Software guides you through the entire process, including customization. Additional services portfolio rebalancing, monitoring, personalized investment policy statements and quarterly reporting. Support and monitoring on your behalf make the choices simpler. All unit types available A (front end, DSC, low load), F, W, I. Cost-effective program with competitive management fees. Minimum initial investment of $50,000 per Managed Portfolio or $50,000 per account for Custom Portfolios.

19 For more information on CI Corporate Class, please contact your CI sales team or visit All charts and illustrations in this guide are for illustrative purposes only. They are not intended to predict or project investment results. CI Investments, the CI Investments design and Harbour Advisors are registered trademarks of CI Investments Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. TM Signature Funds, Signature Global Advisors, Cambridge Funds and Cambridge Advisors are trademarks of CI Investments Inc. 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I Head Office / Toronto Calgary Montreal Vancouver Client Services English: French: HARBOUR ADVISORS CORP_CLS_BRO E