RRIF Taxes
Many Canadians find one of their most significant assets is their registered investment portfolio. Due to the income tax regime that has prevailed in Canada this is true for high and low income earners alike. The deductibility of the deposit allows greater amounts to be set aside and the true compounding of investments adds to this larger sum in a more significant way than tax exposed returns can.
a) Your Most Vulnerable Estate Assets are NOT:
.. Your Home
• Principal residences pass completely free of tax to the next generation.
.. Your Investment Portfolio
• Tax is paid on distribution of income along the way.
• Only 50% of the capital gain is taxable.
• Your costs of acquisition are returned tax free.
¾ Shares in Your Own Company
(Although liquidity to pay taxes may be a huge problem)
• $500,000 of gains may be tax free under the capital gains exemption.
• Your costs of acquisition and shareholder loans are returned tax free.
• Only 50% of capital gains are taxable.
¾ Your Real Estate Holdings
(Although liquidity to pay taxes may be a huge problem)
• Only 50% of capital gains are taxable.
• Only the recaptured portion of depreciation claimed is fully taxable.
• Your cost base is returned tax free.
b) Your Most Vulnerable Estate Asset is Your Registered Portfolio BECAUSE:
.. 100% of your contributions are fully taxable.
.. 100% of your gains are fully taxable.
100% of everything is taxable!
c) RRIF Insurance is for the client who:
.. Is probably at or nearing retirement.
.. Has consistently set aside funds in RRSPs or pension plans.
.. Is reasonably confident they have set aside more than enough to satisfy their dreams.
.. Is reasonably confident they will leave at least some remainder of their registered portfolio to the next generation.
.. Wants to maximize the benefits of these investments for their loved ones.
d) The Concept
Unfortunately it is not unreasonable to expect to lose nearly half of a registered portfolio to taxes. The entire portfolio remaining at the death of the surviving spouse will be added to the final year’s tax return. This ensures it is taxed at the highest rate possible. It is added to other income in that final year’s tax return as well as being added as a lump sum to ensure the impacts of averaging or graduated tax scales are eliminated.
Life insurance offers the opportunity to use discounted dollars in a tax-deferred environment to
replace values lost through taxes. Some tax advantages of life insurance include:
.. The ability to earn interest in a new tax deferred environment.
.. The ability to convert those returns to tax free returns if left until death.
.. Mortality gains at death are also one of the few gains free of income tax.
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