DAW SPECIAL REPORT Economic Update: Opportunities for Wealth Planning with Your Clients

Evelyn Jacks, President of Knowledge Bureau, kicked off Toronto’s Distinguished Advisor Workshop with an information-packed economic update.

The session featured significant changes in the April 21 federal budget, summarized key demographic trends, and identified many ways for advisors to turn change into opportunities for wealth, retirement, and transition planning with clients.

Following are just a few of the highlights.

Summary: We are in the middle of some significant tax reform in this country. The number and range of these tax changes are a huge patchwork quilt that clients find it hard to make sense of. As an advisor, you need to see the bigger picture and show your clients how specific changes are relevant to their situation.

Small Business: Canada is becoming something of a tax haven compared to its G7 counterparts. Small businesses will soon see a 2% reduction in corporate tax, falling to 9%, by 2019. But at the same time, the gross-up for dividends from those corporations will increase approximately 2%, which has implications for retirement income planning  for retiring business owners. All this change means that there is a significant post tax season opportunity to do some more tax planning with your small business clients over the summer, before the rates start to change in early 2016.

Families: Clients are confused about the differences between the  Child Amount on the tax form (which is disappearing), the Universal Child Care Benefit (UCCB) – for which a large lump sum payment is appearing in July, and the Child Tax Credit, which could be changing due to family net income results on the 2014 tax return. The confusion, in fact, is so great that many of them use the terms interchangeably. Some families may see tax relief from these programs, but they may not work for others, depending on the individual situation.  Now is a good time to shore up knowledge on the basics to be a better educator and advocate for tax efficient education planning for confused families. In fact, as an advisor, you can help them to sort through the impact on their family finances, and leverage investing opportunities created by higher tax refunds or from the lump-sum UCCB many will see in July. This is a great time to do knowledge-based marketing with your clients who have children, showing them how to redirect their family benefits into RESPs, TFSA, or non-registered accounts in their child’s name.

As an advisor, you can help them to sort through the impact on their family finances, and help them to leverage investing opportunities created by higher tax refunds or from the lump-sum UCCB many will see in July. This is a great time to do knowledge-based marketing with your clients who have children, showing them how to redirect their family benefits into RESPs, TFSA, or non-registered accounts in their child’s name.

Retirement Planning: This is a great time to show your clients who are seniors or those planning for retirement how they can rethink retirement savings. For example, the $4,500 increase in TFSA contributions, to $10,000 annually, is an unprecedented opportunity to melt down RRIFs and create a whole new stream of tax-free savings in retirement.

For your clients approaching 65 and with very low income and significant RRSP holdings, it is a good idea to transfer assets from the RRSP to a TFSA. Sooner is better for these clients, allowing them to minimize the tax hit in retirement.

Sooner is also better for seniors who are in a lower tax bracket now than they will be at death; encourage these clients to melt down their RRIF and invest in TFSAs faster than they would have previously planned.

These rule changes and others mean that now is a great time to have a conversation with your clients about retirement income planning and succession planning. Have this conversation every year, with the goal of working towards tax-free retirement income.

TFSAs: For all your clients—not just those in retirement or approaching it—the new TFSA rules and increased eligible contributions present enormous opportunities to help your clients and their families create extreme wealth. For example, they can now invest, tax-free, significant sums from inheritances, bonuses and other unusual income. Or they can roll over proceeds from the sale of a principal residence—from one tax-exempt asset to another.

Personal tax planning is back in vogue and helping your clients and all the beneficiaries of the family estate to navigate the mounting reforms can be a jackpot for advisors and clients alike.