CIFPs
Conference 2007
USING YOUR CLIENTS’ TAX
RETURNS AS A ROADMAP TO TAX &
FINANCIAL PLANNING
ABOUT THE PRESENTER
After completing a B. Comm. with an accounting
major at UBC in 1976, Don articled with a large
international accounting firm before starting
Nilson & Company in 1979. During his articling
period, he gained experience auditing large,
sophisticated accounting systems as well as
smaller private businesses.
Don returned to university in 1980 to complete a
Master's degree. His 100 page thesis, entitled
"Income Taxation of the Small Business Sector
in Canada" provided a valuable insight to
taxation in Canada and other countries.
Don attained his professional accounting qualification
in 1981, his financial planning designation in
1998 and his Trust & Estates designation in
2006. He has been licensed as a Portfolio
Manager with the BC Securities Commission
since 1994.
Since 1980, Don has lectured in accounting and tax
topics for the University of BC, the Society of
Management Accountants of BC, the BC Real
Estate Association and the Certified General
Accountants Association of BC. He presently is
the Team Leader for the delivery of the Taxation
1 course on the internet across Canada and
internationally for the Certified General
Accountants. He has been involved in
developing national exams and curricula for the
professional accounting bodies. Don has
delivered seminars on practice management and
taxation issues within the profession and across
Canada and in the U.S.
BCom MSc (Bus Admin) CMA FCMA CFP TEP
Registered Portfolio Manager
ABOUT THE PRESENTER
Don served on the National Board of the
Financial Planners' Standards Council
through June 2004. He has served as
treasurer of various charitable
organizations. He has also served on the
Provincial Board of his accounting body
and chaired a provincial committee which
oversees the adherence to professional
standards in public accounting.
He has participated in the Press lock-ups of
the federal and provincial budgets.
Don has received lifetime achievement
recognitions from the University of
British Columbia, the Sauder School of
Business, the Certified Management
Accountants of Canada and the
Certified General Accountants
Association of BC.
Don oversees the day-to-day management of
both firms. His primary focus is business
advisory services, corporate and personal
tax, investment management and
business year-ends.
BCom MSc (Bus Admin) CMA FCMA CFP TEP
Registered Portfolio Manager
www.investoru.ca
www.nilsonco.com
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Sir Francis Bacon
Sir Francis Bacon
THE HOLISTIC APPROACH
Structural
Planning
Investment management &
Asset
Allocation
Taxation
FINANCIAL
PLANNING
Wealth
accumulation
& protection
Estate
Planning
Environment
Jacket – page 1
Information page
• Birthdate
– Pension implications
• Retirement imminent?
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Need a 6-step plan?
OAS/CPP/RPP/RRIF
Elect younger spouse’s age for RRIF
$2,000 pension credit (Schedule 1 line 20)
• Not enough assets set aside to retire?
Jacket – page 1
Information page
• Address:
– Own or rent?
• Tax and financial implications
• Appropriate insurance-earthquake?
• Foreign property verification
• Married status
The big picture
• 5 year comparative:
– Sources
– Fluctuations
– Risk exposure
• Life
• Disability
• Critical illness
Jacket – page 2
Total income
• T4 employment
• Income at line 101 on jacket but no, or low,
income on Sched 1 at line 312 (EI)
– An entrepreneur?
• Management of $500,000 superfreebie
– Sale? Freeze? Previous 1994 election?
• Significant retirement asset building req’d
• Any medical (Schedule 1 line 330)?
– Ripe for a company PHSP?
• Death benefit payout policy in place?
Jacket – page 2
Total income
• Pensions
– OAS (line 113)
• 65 or older?
• Defer a year?
– CPP (line 114)
• If client is over 60, what’s the strategy?
– Cash flow needs?
– Paying in vs getting out?
– Excluded years, particularly for Moms
Jacket – page 2
Total income
• Pensions
– RPP/RRIF (line 115)
• There may be a company benefit plan!
– What are the survivor elections on death?
• It may be a RRIF
– Over mandatory withdrawal age or not?
» Can undo if not and don’t need
– Funding of death taxes?
– What are the survivor elections on death?
– Excess withdrawals? Why?
• It may include foreign pensions
– Do they have an accent?
Jacket – page 2
Total income
• Pensions
– RRSP (line 129)
• Client is de-registering? Why?
– Cash problems?
– One-off problem?
» Better solved another way?
– Tax management to deliberately deregister?
Jacket – page 2
Total income
• EI income
– Maternity leave?
• Children coming!!!
– RRSP withdrawals planned?
• Watch spousal contribution trap
Jacket – page 2
Total income
• Investment income
– Limited partnership income (line 122)
• May have some pregnant tax shelter issues
– Dividends (line 120) and interest (line 121)
• Relative amounts may provide insight to risk
profile, eg NO dividends
– Opportunity for better tax-smart investing
– Invest with profile of your beneficiaries?
Jacket – page 2
Total income
• Rental income
– Gross at line 160, net at line 126
– Client has investment property
• Pregnant taxation on gains and recapture
– If net = zero, probable means CCA taken
– Need to manage?
– Clever means to manage the exposure
• Apply wisdom to CCA claiming
• Asset allocation implications
– Client doesn’t have real property
• Indirect vs direct investing, eg REITs
Jacket – page 2
Total income
• Self employment income
– Gross at line 162, net at line 135
• Client making significant income?
– Need it all to live?
– This income fluctuates?
– Assess wisdom of incorporating to smooth and defer tax
and create some tax levers
Jacket – page 3
Net & Taxable income
• Pension deductions
– RPP (line 207)
• There’s a company benefit plan!
– RRSP (line 208)
• There’s a sheltered portfolio!
• Interest (line 221)
– Client is carrying deductible investment debt
• Is leverage appropriate? Reasonable risk?
Jacket – page 3
Net & Taxable income
• Support payments (lines 230 & 220)
– Appropriate tax treatment?
– Is agreement current and satisfactory to
client’s present reality?
Jacket – page 3
Net & Taxable income
• Resource claims (line 224)
– Is client wisely using tax shelters?
– Or inappropriately? given:
• Age
• Risk profile
• Tax position
The Notice of Assessment
• Capital loss carryforwards
• Non capital loss carryforwards
– Both useful in future tax management?
– Should have been a previous carryback?
• MinTax balance forward
• Investment Tax Credit forward
– Both likely have impact on future tax shelter
acquisitions
The Notice of Assessment
• RRSPs
– RRSP room
– RRSP advance and excess contributions
– Home Buyer status
• Impact on future contributions
– Catch up plan?
• CRA Crack down on off-side excess
contributions
Net income statistic
• Drives:
–
–
–
–
–
–
–
Child tax benefit
GST credit
Medical credit
Universal child care benefit
Guaranteed income supplement
Medical premium assistance
Clawback
• Applying for these and/or managing benefit
Couple comparative
• Marginal tax brackets
• Unused credits
– Some transferable credits
• Dividend transfer with new, higher credit system
– Some not
• Clawback
Couple comparative
• Solutions
– Generate income to use credits
• Deregistration
• Forego carryforward deductions/credits
• Income split
– Earned income in owner corporation
– New 2007 pension splitting
– CPP split
Couple comparative
• Solutions
– Portfolio management
• Spousal loans for investment income
• Retention of net proceeds from trading-down home
• Swaps to more tax-smart construct, across
spouses and/or sheltered accounts
• Ownership of passive vs productive assets, eg
cottage
• Asset shedding (to kids)
KIDS
• Drive:
– Single parent exemption
– Child tax benefit
• Enhanced for disabled
– Universal child care benefit
– Child care
– Education transfers
– Disability transfers
– RESP plans
Schedule 1
• Donations (line 349)
– What is your client’s view of gifting?
• Estate planning implications?
• The Carnegie School?
• Do they understand the tax breaks?
– Capital gains tax break in-kind (Sched 9 line 339)
Global Positioning Planner
• You are your client’s GPS!
BEST of ALL