Presentation to the Estate Planning Council of Abbotsford on June 18, 2015 by Cindy David - Senior Estate Planning Advisor - Raymond James

1. June 17th, 2015
Corporate Insurance and Tax Planning
Presented to: EPC Abbotsford, BC
Presented By:
Cindy David, CFP, CLU, FEA, TEP
President, Estate Planning Advisor
Cindy David Financial Group Ltd.

2. The Opportunity
45.80*
Personal Tax
13.50
Corporate Tax
Shouldn’t you keep the difference?
*Reverting back to 43.7% after 2015

3. Benefit of Incorporation
Clients are incented to take
advantage of the
TAX DEFERRAL
CCPC Tax Rates
Province
Personal
Top Marginal
Tax Rate
Small
Business
Tax Rate
Tax
Deferral
British Columbia 45.80% 13.50% 32.30%
Alberta 39.00% 14.00% 25.00%
Saskatchewan 44.00% 13.00% 31.00%
Manitoba 46.40% 11.00% 35.40%
Ontario 49.53% 15.50% 34.03%
Québec 49.97% 19.00% 30.97%
New Brunswick 46.84% 15.50% 31.34%
Nova Scotia 50.00% 14.00% 36.00%
P.E.I. 47.37% 15.50% 31.87%
Newfoundland 42.30% 14.00% 28.30%

4. Incorporation
Savings on non-deductible and some deductible
expenses:
• Pay non-deductible expenses such as life insurance premiums and
entertainment expenses with after tax SBD income.
• Leveraged insurance strategies create NCPI and Cost of Insurance
deductions
 NCPI and CDA credits reducing dramatically after January 1, 2017

5. The Dilemma
But then clobbered over the
head with
PASSIVE
investment income tax

6. Potential Solutions
• Individual Pension Plans
• RRSPs
• Retirement Compensations Arrangements
• Corporate Estate Bond
• Insured Retirement Strategy
• Corporate Insured Annuity
• Immediate Financing Arrangements (IFA)
• Cascade Strategy
Access to Tax-Preferred Investing
Requires
Salary

7. Ways To Pay Estate Tax Traditional
Insurance Solutions
• Buy $2,700,000 of Joint-Last-To-Die life insurance
• Term to 100, or
• Universal Life with Level Cost of Insurance
Every insurance solution is much cheaper
than the present value of self insuring:
$803,595
T100 UL UL
Life Pay 10 Pay 5 Pay
Annual Outlay $19,206 $44,430 $94,371
Years Payable 41 10 5
Total Outlay $787,446 $444,300 $471,855
Present Value at 3% $463,148 $423,436 $369,198
Savings with insurance $340,447 $380,159 $434,397

8. Use Insurance for Tax-Sheltered Investing
MTAR – Maximum Tax Actuarial
Reserve, S148 ITA
Investment
Tax
(45.67%)
Investment
Insurance
Plan A Plan B

9. Corporate Estate Bond
Ideal Candidate:
-Age 50-65
-conservative investor
-not likely to spend the capital
“We’re growing and protecting the nest egg, we want
to own and control the money for now, but ultimately
it’s for our children or charity long term”

10. Corporate Estate Bond
8.83%

11. Corporate Insured Retirement Strategy
Ideal Candidate:
-ages 30-50
-wants to create long term retirement income
-good saver
“We’re saving so we can spend it in retirement.
We’re looking to create pension-style income since
we don’t have pensions through employment. Any
estate benefit is a bonus”

12. Corporate Retirement Strategy
Rate: 4.84% 1st 10 years, 6.84% thereafter Corporate Tax Rate on Investment Income: 44.67%
Initial Death Benefit Shareholder Dividend Tax Rate: 33.71%
Corporate Insured
Retirement Strategy (CIRP)
Taxable Corporate
Investment
Year Age Annual Deposit
After Tax
Dividend to
Shareholder
Net Estate
Value
After Tax
Dividend to
Shareholder
Net Estate
Value
1 41 46,000 0 1,095,400 0 31,958
2 42 46,000 0 1,139,278 0 65,430
3 43 46,000 0 1,183,843 0 100,463
4 44 46,000 0 1,230,148 0 137,111
5 45 46,000 0 1,280,222 0 175,425
6 46 46,000 0 1,330,294 0 215,460
7 47 46,000 0 1,380,729 0 257,273
8 48 46,000 0 1,430,590 0 300,923
9 49 46,000 0 1,481,622 0 346,468
10 50 46,000 0 1,534,035 0 393,972
11 51 46,000 0 1,611,623 0 443,500
12 52 46,000 0 1,697,803 0 495,117
13 53 46,000 0 1,793,081 0 548,893
14 54 46,000 0 1,897,977 0 604,899
15 55 46,000 0 2,013,018 0 663,207
16 56 46,000 0 2,135,665 0 723,895
17 57 46,000 0 2,226,273 0 787,041
18 58 46,000 0 2,405,379 0 852,725
19 59 46,000 0 2,553,537 0 921,031
20 60 46,000 0 2,711,333 0 992,047 e&oe

13. 21 61 46,000 0 2,878,223 0 1,065,862
22 62 46,000 0 3,053,407 0 1,142,568
23 63 46,000 0 3,237,354 0 1,222,262
24 64 46,000 0 3,430,536 0 1,305,041
25 65 46,000 0 3,633,414 0 1,391,008
26 66 0 114,748 3,669,064 114,748 1,329,878
27 67 0 114,748 3,707,914 114,748 1,266,810
28 68 0 114,748 3,750,008 114,748 1,201,741
29 69 0 114,748 3,795,422 114,748 1,134,603
30 70 0 114,748 3,772,300 114,748 1,065,326
31 71 0 114,748 3,733,408 114,748 993,839
32 72 0 114,748 3,693,375 114,748 920,067
33 73 0 114,748 3,652,070 114,748 843,933
34 74 0 114,748 3,609,350 114,748 764,657
35 75 0 114,748 3,566,397 114,748 681,541
36 76 0 114,748 3,521,771 114,748 594,396
37 77 0 114,748 3,475,306 114,748 503,019
38 78 0 114,748 3,426,829 114,748 407,201
39 79 0 114,748 3,376,152 114,748 306,719
40 80 0 114,748 3,306,868 114,748 201,341
41 81 0 114,748 3,234,371 114,748 90,821
42 82 0 114,748 3,158,416 90,821 0
43 83 0 114,748 3,078,744 0 0
44 84 0 114,748 2,995,087 0 0
45 85 0 114,748 2,907,161 0 0
46 86 0 2,294,960 2,653,282 1,926,789 0
Corporate Retirement Strategy
Corporate Insured Retirement
Strategy (CIRP)
Taxable Corporate Investment
Year Age Annual Deposit
After Tax Dividend
to Shareholder Net Estate Value
After Tax Dividend
to Shareholder Net Estate Value
e&oe

14. Insurance Funding Options – Immediate
Financing Arrangements (IFA)
Reduce insurance cash flow costs further by
using two tax advantages
1. Tax-deferred investment growth
 inside a tax-exempt life insurance policy
2. tax deductible loan interest and deductible NCPI
 when loan proceeds used for investment purposes

15. Immediate Financing Arrangements – Who Can
Benefit?
• Real estate corporations
• CCPC with high cash flow
• Holding Companies with trapped corporate
surplus
• Oversized RRSPs
• High marginal tax bracket

16. Mechanics of an IFA
1. Buy Permanent life insurance plan and pay maximum
deposits (MTAR), deposits can be short term -3yrs, medium
term 8-10 years, or lifetime
2. Borrow and invest suitably so that the interest is tax
deductible
• The loan increases each year which provides larger tax
deductions and reduces the cash outflow
• Loan collateral grows by return of the insurance funds
3. Loan is fully underwritten by 3rd party lender

17. Zero
Cash
Flow

18. Corporate Insured Annuity
Combination of permanent life insurance and annuity income
(2 insurance products)
WHO?
-age 70+
-high tax bracket
-GIC refugee
-non-smoker
-insurable
-lots of corporate cash

19. Corporate Insured Annuity
Annuity Type: Single Life Corporate Tax Rate on Investment Income: 45.67%
Initial Death Benefit: $150,000 Personal Dividend Tax Rate: 29.12%

20. Corporate Insured Annuity
Annuity Type: Single Life Corporate Tax Rate on Investment Income: 45.67%
Initial Death Benefit: $150,000 Personal Dividend Tax Rate: 29.12%

21. Corporate Insured Annuity
Annuity Type: Single Life Corporate Tax Rate on Investment Income: 45.67%
Initial Death Benefit: $150,000 Personal Dividend Tax Rate: 29.12%

22. Cascade Strategy
What is it?
A plan for tax efficient succession of wealth to children AND grandchildren
Issues to consider:
Ownership
Control
Taxation
Access to capital
Insurance Costs
The Fine Print:
Children must be named Successor Owner
Child or grandchild must be 18 or older (income attribution)

23. Cascade
Strategy
Initial Policy Owner: Parent Marginal Tax Rate: 43.7%
Life Insured: Son (Male, 57)& Daughter-in-law (Female, 58) Ownership Transfer: Year 5
Initial Death Benefit: $240,040
Withdrawals Net Values
Year Age Annual Deposit Before-tax Withdrawals Cash Surrender Value Death Benefit
1 58 20,000 0 11,247 316,027
2 59 20,000 0 23,087 340,898
3 60 20,000 0 35,584 365,971
4 61 20,000 0 48,945 391,625
5 62 20,000 0 63,566 418,586
6 63 20,000 0 81,161 445,473
7 64 20,000 0 108,357 472,329
8 65 20,000 0 128,153 498,730
9 66 20,000 0 144,177 525,473
10 67 20,000 0 166,296 552,580
11 68 0 0 176,350 553,033
12 69 0 0 188,346 555,276
13 70 0 0 202,397 559,395
14 71 0 0 218,397 565,481
15 72 0 0 237,179 573,625
16 73 0 0 257,609 583,054
17 74 0 0 280,046 593,819
18 75 0 0 304,589 606,017
19 76 0 0 331,388 619,746
20 77 0 0 360,541 635,107
21 78 0 19,316 364,151 624,654
22 79 0 19,316 365,765 614,876
23 80 0 19,316 367,598 605,599
24 81 0 19,316 369,666 596,841
25 82 0 19,316 371,984 588,622
26 83 0 19,316 371,450 576,750
27 84 0 19,316 370,808 564,999
28 85 0 19,316 370,043 553,360
29 86 0 19,316 369,154 541,823
30 87 0 19,316 368,132 530,381
31 88 0 19,316 366,975 519,023
32 89 0 19,316 365,684 507,741
200,000 231,792

24. Legislative Update
Federal Budget proposals relating to trusts, donations,
annuities, and life insurance exempt test became law on
December 16, 2014
Trust changes in force January 1, 2016
Charitable changes in force January 1, 2016
Exempt Test changes in force January 1, 2017
Annuity changes in force January 1, 2017

25. Legislative Update
Source: CALU
$100,000 Life Annuity with 3 year Guarantee
Current Interest Environment Age 70

26. Legislative Update
NCPI Changes:
• Lower NCPI impacts CDA for corporate policies
• Lower NCPI means higher ACB
• Higher ACB means lower CDA
ACB Changes:
• ACB goes to zero 7-17 years later
• Good news for transferring policies
• Bad new for corporate CDA
• CDA = Death benefit – ACB
• Higher ACB means lower CDA

27. Legislative Update
OPPORTUNITIES!
• Higher NCPI is good news for:
− Collateral loan deduction on leveraged insurance
− Capital Dividend Account for corporate insurance
• Term Conversions
• Prescribed Annuities

28. Thank you!
Questions??