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Invest Today with Tomorrow in MindTM Turning Actionable Tax Ideas into a Lifetime of Advantage for Your Clients HARNESS THE POWER OF COMPOUND GROWTH OPTIMIZE TAX-DEFERRED INCOME PROTECT THE TRANSFER OF WEALTH Dealer Use Only Introduction When Asked What is Most Important to Clients… The answers consistently given are: 1 Capital Preservation 2 Growth 3 Tax Minimization Dealer Use Only Introduction Large Market and Inefficient Investments Pre-retirees and retirees represent a “sweet-spot” People aged 55 and up control 80% of investable assets1 Total Investable Assets Age: 16-30 1% Age: 30-55 19% Age: 70+ 27% Many are in highly taxed investment vehicles Over $730 billion sitting in GICs, certificates of deposits and other savings accounts2 $121 billion in fixed income mutual funds3 Age: 55-70 53% $19 billion in Canada Savings Bonds4 Sources: 1Capgemini, The Canadian Wealth Management Market 2004/2005, 2Investor Economics 2005 Household Balanced Sheet Report, 3IFIC September 2006, 4Government of Canada, Debt Management Strategy, April 2006 Dealer Use Only Introduction Not All Cash Flows are Taxed Equally Interest / Income You keep 53.6% Tax paid 46.4% Dividends You keep 68.7% Tax paid 31.3% Capital Gain You keep 76.8% Inefficient cash flow Tax paid 23.2% Return of Capital You keep 100% (taxes are deferred) Efficient cash flow Assumes a marginal tax rate of 46.41%, top rate for Ontario; non-eligible dividends Dealer Use Only Introduction What is Invest Today with Tomorrow in Mind™? Understanding how decisions made today will impact your clients throughout their accumulation, decumulation, and wealth transfer phases of life Focusing on how long-term tax efficient and tax effective investment strategies impact your clients’ overall wealth plan Protecting your business from the inevitable impact of your clients’ RRIF drawdown and general tax erosion Dealer Use Only Dealer Use Only Actionable Strategies Harness the Power of Compound Growth Using Corporate Class to Get Your Client’s Assets Working Harder Flexibility to change investments without incurring a taxable event Benefit from compounded growth Keep your client’s assets invested in a lower tax bracket for life Dealer Use Only Actionable Strategies How Does Corporate Class Work? Change investments as your client’s life changes under a tax deferred structure Defer taxes on capital gains when switching between investments Enables a lifetime of flexibility Corporate Class Fund A Fund B Fund C Fund D Fund E Fund F Fund G Fund H Dealer Use Only Actionable Strategies Corporate Class in Action During the Accumulation Phase Your client keeps $183,721 more on their $100,000 investment! 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Using Corporate Class: $826,695 The Difference: $183,721 Not Using Corporate Class: $642,974 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Funds: TGF TISF BCEF FTBGP Investment Dates: 1986-90 1991-96 1996-02 2002-06 Taxes*: $10,257 $45,024 $42,753 n/a Total $98,034 *Capital Gain taxes are paid by Non-Corporate Class investors when switching between funds Source: Globe HySales and Franklin Templeton, January 1, 1986 to March 31, 2006 To simulate the Corporate Class returns for pre-inception periods, annual Series A returns of the Funds were reduced by 22.5 BP (capital tax charges on Corporate Class), BCEF Series F returns were reduced by 169BP (actual return difference between series A and Corporate Class) Assumes: dividends reinvested, all taxes paid MTR 46.41%. Assumes investment on Jan.1 of the year shown and switch on Dec.31 of the year shown, excluding Franklin Templeton Balanced Growth Portfolio where the switch was not made and is indicated as n/a. Dealer Use Only Actionable Strategies Corporate Class in Action During the Decumulation Phase Your client gets 30% more After-Tax Income After Tax Income $60,000 Amount invested: $50,000 Corporate Class: $826,695 $40,000 Series A: $642,974 $20,000 Total After Tax Income: In Corporate Class: $1,034,003 30% More After Tax Income $30,000 In Series A: $792,280 $10,000 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Year Series A Corporate Class Scenario assumes effective tax rate is 27.94%. Marginal tax rate of 46.41%, 8% return per year, withdrawing 8% of income per year. The 8% return is hypothetical and for illustration purposes only, actual fund returns may differ. Dealer Use Only Actionable Strategies Corporate Class in Action At the Transfer Phase Your client benefits by a total of $377,274 $241,723 More Income $1,034,003 $135,551 More Asset Value $639,839 $792,280 $504,288 Cash Flow Received Wealth at Transfer (over a 20 year period) (At year 40) Capital gains tax paid at year 40 is $186,856 on $826,695 for the Corporate Class Investment and $138,686 on $642,974 for the Series A investment. Assumes both are redeemed at the end of year 40. Net amount after all capital gain taxes paid Dealer Use Only Actionable Strategies Application #1 Clients looking for a core investment solution that evolves with their risk tolerance and life stages. Dealer Use Only Actionable Strategies Quotential and Corporate Class Benefits: Switch among 7 fully diversified portfolios Address your clients’ risk profiles throughout their life stages without triggering a taxable event Defer tax event until client is in lower tax bracket Benefit from compounded growth Dealer Use Only Actionable Strategies Application #2 Individual and corporate clients seeking preferential tax treatment on their fixed income investments. Dealer Use Only Actionable Strategies Preferential Tax Treatment on Fixed Income Investments Corporate Class Tax Shelter For Individual Clients: Beneficial for short-term transitory assets. Clients can hold investments in Corporate Class without triggering taxes Ideal tax efficient income for clients who are approaching or are in retirement. Income investments are drawn down through a SWP and are in the form of capital gains Managed Yield For Corporate Clients: Capital gains have better tax treatment, allowing a corporation to bank any losses to reduce tax liability Dealer Use Only Actionable Strategies Application #3 Clients looking to complement their RRSP Dealer Use Only Actionable Strategies What About RRSPs? RRSP Non-Registered Tax Deduction Tax deduction (with loan)* Retirement Savings Retirement savings Tax-deferred flexibility Tax-deferred flexibility (with Corporate Class) Maximum annual contribution No maximum contribution of $19,000 Upon Decumulation… RRSP Non-Registered Full amount is taxed as income Cash flow is generally taxed as capital gains*** Forced to redeem at 69** No forced redemption *Interest may be deductible if certain criteria are met. Speak to your tax adviser about your specific situation. **Required to either redeem at 69 or rollover into a RRIF. ***Distributions may be taxed as income Dealer Use Only Actionable Strategies Corporate Class vs. RRSPs In Accumulation A $45,762 difference after 20 years after tax! Monthly Contribution/ Payment Corporate $50,000 loan invested in Class Loan Corporate Class Funds with a monthly interest payment of $250* RRSP PAC** $250 After 20 Years… $233,048 ($50,000) loan principal = $183,048 $137,286 *For demonstration purposes only. Assumes the RSP and Corporate Class investments both grow at 8% annually and the $50,000 loan is an interest only loan with a rate of 6% with a marginal tax rate of 46.41%. Interest payment is deductible only if all conditions are met. Investor should talk with their tax advisor to discuss their specific situation. **A pre-authorized contribution (PAC) plan allows you to invest a specific amount of money at regular intervals. Dealer Use Only Actionable Strategies Corporate Class vs. RRSPs In Decumulation Corporate Class $18,644 pre-tax cash flow per year $3,232 in taxes per year (taxed as $183,048 Over 20 years RSP 51% More/Year capital gains) $15,412 after-tax cash flow per year $13,983 pre-tax cash flow per year $137,286 $6,490 in taxes per year (taxed as interest income) $7,493 after-tax cash flow per year For demonstration purposes only. Assumes the RSP and Corporate Class investments both grow at 8% annually and the $50,000 loan is an interest only loan with a rate of 6% with a marginal tax rate of 46.41%. Dealer Use Only Actionable Strategies Tools Show the Benefits of Corporate Class to Your Clients Dealer Use Only Actionable Strategies Summary of Corporate Class Choose from a wide range of investment solutions 7 Quotential Portfolios: Canada’s #1 Managed Program 27 Individual Mutual Funds Benefit from compound growth – Your clients will have more $$ for retirement and more $$ for their estate Defer taxes until your clients are potentially in a lower tax bracket = more money in their pocket Dealer Use Only OPTIMIZE TAX-DEFERRED INCOME Dealer Use Only Actionable Strategies Optimize Tax-Deferred Income Using Series T to Put More Money In Your Client’s Pocket Flexibility to structure income around a clients’ specific requirements Provide high, predictable cash flow while ensuring the lowest tax bracket on investment returns Continue to grow your clients’ assets Dealer Use Only Actionable Strategies How Does Series T Work? Using the power of ROC, Series T allows your clients to defer capital gains tax until later and enjoy a higher cash flow now Market Value Value Original ACB The ACB is lowered by each monthly distribution. If units are sold, the market value minus the current ACB is taxed as a capital gain. Declining ACB Time Sample Monthly RoC Distribution Dealer Use Only Actionable Strategies Customize Your Cash Flow Switching between Series T and Series A of the same fund or portfolio is not a taxable disposition. This allows you to fine-tune your clients’ cash flow. A T 8% targeted distributions are not guaranteed and may change at the discretion of Franklin Templeton Investments. Dealer Use Only Actionable Strategies Series T in Action During the Decumulation Phase Give Your Clients 16+ Years of Tax Deferred Income* Initial Investment in Series T $600,000 16 2/3 years Gives you: $36,000/year (tax deferred) Ending Value: $1,017,003 * Assumes 8% annual growth with 6% annual Return of Capital. Returns are hypothetical and for illustration purposes only, actual fund returns and target distributions may differ. Dealer Use Only Actionable Strategies Series T in Action At the Transfer Phase A higher net value to your client’s Estate Total cash flow over 16 2/3 years: $600,000 Total Market Value: $1,017,003 Taxes Payable at the end of 16 2/3 years: $235,995 Net After-Tax Value: $781,008 Total Value to Client over 16 2/3 years: $1.38 million * Assumes 8% annual growth with 6% annual Return of Capital and assumes a tax rate of 46.41%. Returns are hypothetical and for illustration purposes only, actual fund returns and target distributions may differ. Dealer Use Only Actionable Strategies Applications for Your Practice Series T is suitable for: Clients looking for regular, tax efficient income through an investment vehicle that can weather different market environments Also Consider Series T for: Risk averse clients seeking income and estate preservation Clients facing an Old Age Security (OAS) clawback Philanthropic clients planning to give some of their investment to charity Dealer Use Only Actionable Strategies Looking for Income and Estate Preservation? The best of both worlds… GIC Initial Investment Annual ROR Series T $500,000 $500,000 5% 5% Return $25,000 gross $25,000 net** Minus ($11,602 taxes*) ($7,500***) = $13,397 net = $17,500 net + $500,000 Insurance Policy What’s Left in Your Pocket? *Assumes a tax rate of 46.41%. **Assumes no income distributions and no capital gains distributions ***For demonstration purposes only. Series T Example: Client purchases $500,000 last to die insurance, Cost is based on the average cost of insurance for a 65 year old couple based on Equitable Life Insurance rates. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Unlike GICs, mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government insurer. Assumes that Series T is continued to be held. Taxes will be payable if investment is redeemed. Approximate annual cost to purchase $500,000 Last to Die Insurance Policy Dealer Use Only Actionable Strategies Clients Fighting the OAS Clawback Don’t let your clients miss out on potentially $4,152 extra cash a year* Transfer client’s interest-bearing securities worth $100,000 into a Series T fund with an 8% pre-tax ROC distribution1 OAS clawback is reduced by $1,200 and taxes are potentially reduced by $2,952 Client’s total annual after-tax cash flow increases from $58,912 to $63,064* $64,000 $63,000 $62,000 $61,000 $60,000 $59,000 $58,000 $57,000 $56,000 Bonus Cash Flow from OAS Clawback Reduction Bonus Cash Flow from Tax Savings Keep more of your OAS using Series T funds – OAS Clawback reduced by $1,200 Put more money in your pocket – Taxes reduced by $2,952 After Tax Flow from using Regular Funds 1 8% targeted distributions are not guaranteed and are subject to change at any time. Tax rate of 32.98% is assumed based on a client’s gross annual income is $70,000 from pension. The 2006 threshold for OAS Clawback is $62,144. Dealer Use Only Actionable Strategies Client Seeking to Reduce Taxes through Charitable Giving Donating Series T in-kind gives your client a tax advantage of $27,180 over a cash donation* Scenario 1: Redeem Series T and donate its net value in cash $100,000 ($18,564) $81,436 $19,230 $40 Scenario 2: Donate Series T in kind at full market value $20 Ending market value of units : Taxes on capital gains: Your donation receipt+: Total Tax Reduction $K Your donation receipt: Gross tax benefit of the receipt: Your capital gains taxes: Tax credit from receipt and total Tax reduction: $100,000 $46,410 ($0) Tax Reduction from Donation $50 $30 $10 $- Cash Donation In-kind Donation $46,410 *Based on a $100,000 donation,+ tax credit receipt from $37,794. Assumes a tax rate of 46.41% Dealer Use Only Actionable Strategies Tools Show the Benefits of Series T to Your Clients Dealer Use Only Invest Today with Tomorrow in MindTM Turning Actionable Tax Ideas into a Lifetime of Advantage for Your Clients HARNESS THE POWER OF COMPOUND GROWTH OPTIMIZE TAX-DEFERRED INCOME PROTECT THE TRANSFER OF WEALTH Dealer Use Only