SMART INVESTMENT PLANNING

Canadians need to save for many different purposes over their lifetimes. Reducing tax on savings can help. That is why the Government has introduced a new Tax-Free Savings Account (TFSA). It is the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).

The TFSA allows Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used for any purpose, such as to purchase a new car, renovate a house, start a small business or take a family vacation. Canadians from all income levels and all walks of life can benefit.

How the TFSA Works

• Starting January 1, 2009, if you are a Canadian resident aged 18 and older, you can save up to $5,000 every year in a TFSA. (The contribution limit will be indexed to inflation and rounded to the nearest $500 in later years. The expected TFSA limit for 2012 will be $5,500.)
• Your contributions to a TFSA are not deductible for income tax purposes but the investment income, including capital gains, earned in your TFSA is not taxed, even when withdrawn.
• Your unused TFSA contribution room is carried forward and accumulates for future years.
• You can withdraw funds available in your TFSA at any time for any purpose — and the full amount of withdrawals can be put back into your TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
• Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits.
• You can provide funds to your spouse or common-law partner to invest in their TFSA.
• TFSA assets can generally be transferred to a spouse or common-law partner upon death.

Smart Advice represents numerous Financial Institutions offering TFSA’s in the form of High Interest Accounts, GIC’s, Investment Funds and more. To start a TFSA, contact Smart Advice today!

Best GIC deposit rates are available to Advisors* and Investors daily.

Guaranteed Investment Certificates (GICs) are low risk investments that earn interest for a specific amount of time. GIC terms vary from one month to 25 years or more. They have low fees if at all, are low risk and financial institutions offer insurance for your investments that guarantees that your money is secure. Financial institutions that offer GICs include insurance companies, trust companies, credit unions, and banks.

Laddering – A GIC Investment Strategy
Laddering is a relatively simple concept where investors purchase GICs with differing maturing dates and thus different rates of return.

If you have $100,000 to invest, for example, divide the investment into equal amounts of $20,000:

• Invest $20,000 for 1 year;
• Invest $20,000 for 2 years;
• Invest $20,000 for 3 years;
• Invest $20,000 for 4 years; and
• Invest $20,000 for 5 years.

Any maturing GICs would be invested for 5yrs

Advantages are:

• Diversification
• Liquidity;
• Eliminates guess work;
• Security;
• Better control of cash flow; and
• Potential increase in returns.

Contact Smart Advice today to receive GIC rates or to discuss your GIC laddering approach.

Segregated Funds are investment funds managed and/or distributed by life insurance companies. They are similar to mutual funds but offer some distinct benefits and advantages, including:

• A 75% to 100% return of original investment guarantee at maturity or death. This can be very important especially as the fund approaches maturity;
• Privacy. To protect your privacy, utilize a segregated fund or life insurance contract. Upon death the proceeds flow to your beneficiary or beneficiaries in a confidential manner, outside your will and bypassing the estate;
• Potential creditor protection. Contributions to a non-registered investment with an insurance company are generally “creditor proof” when a regular pattern of investing is established. When an investment is held in segregation, funds owned by the policy owner cannot be seized by creditors (i.e. if the client owns a business or corporation, their investments in Segregated Funds will be immune to creditors) should financial tragedy strike;
• No probate fees. One can name a beneficiary and have proceeds paid directly to your beneficiary, thus bypassing the will.

Segregated Funds vs. Mutual Funds

Death Benefit:Beneficiaries receive either the guaranteed death benefit or the market value depending on which is greater.The estate or beneficiaries 2 will get the market value only – there are no guaranteed minimums.

Segregated Funds Mutual Funds
Overview: Segregated Funds is money pooled and invested on behalf of unit holders in securities such as stocks, bonds, equities and money market investments, within a life insurance company’s contract. Money is pooled and invested on behalf of unit holders in securities such as stocks, bonds, equities and money market investments.
Regulated By: Provincial and Federal Life Insurance Acts Securities Legislation
Capital Growth Potential: Yes Yes
Unit Value Daily Tracking: Yes Yes
Diversify Investments: Yes Yes
Financial Protection: At death and maturity, premiums minus withdrawals are usually guaranteed, between 75% and 100%. No guarantees on investment performance. Theoretically, you could lose everything.
Probate Protection: At death, proceeds can be paid directly to a named beneficiary, avoiding the estate administration process, and the cost of probate fees. At death, proceeds are an asset of the estate and are subject to the estate, administration process and legal fees. It could be some time before the estate can distribute the mutual funds.
Creditor Protection: Designations in favour of a parent, spouse, child or grandchild may result in the insurance money being exempt from seizure. This is sometimes referred to as “creditor protection”.
The money cannot have been deposited as:
• Part of a fraudulent conveyance (transferring money to keep it out of reach of existing creditors).
• Within a specific time period before bankruptcy No protection against the claims of creditors.
RRSP Eligible: Yes Yes
RESP Eligible: Yes – Only one company though. Yes
Taxation Implications for non-registered investments: You are only taxed on the income you actually receive. Taxation is based on how long you own the Segregated Fund units within the income period.
• E.g. if you buy units one day before the fixed date, you are only assessed for one day’s income. The unit seller is assessed for income made before the end date.
You can use capital losses to offset capital gains from other sources.
For accounting purposes, acquisition fees are excluded from the adjusted cost base and treated separately. You could be taxed on income you never received. Taxation is based on who owns the mutual fund units on a given date at the end of the income period.
• E.g. if you buy units one day before the end date, you are assessed for all income earned in that period, even though you did not benefit from that income.
Capital losses must be carried forward by the fund and are not allocated to you, the unit holders.
Acquisition fees are included in the adjusted cost base.
Under what circumstances might these be more suitable: Non-registered or registered funds.
Investors approaching retirement.
Investors who like the security of guarantees.
Business owners who want creditor protection. Non-registered and registered funds.
Investors who want a wide variety of specialized fund choices in their investments.
Investors willing to give up guarantees for potential increased returns.

Investment Loans and RRSP Loans are also known as Leverage Loans.

This investment strategy is based on Sir John Templeton’s (November 29, 1912 – July 8, 2008) personal experience in 1939 where he borrowed $10,000 from his former boss with the purpose of investing to make a profit. He purchased $100 dollars’ worth of every stock on the stock exchanges that were valued less than a dollar. Within the year, he managed to repay his former boss, and he and his partner had more than $30,000 remaining (1).

Source (1) Sir John Templeton, Supporting Scientific Research for Spiritual Discoveries, Revised Edition, Robert L. Herrmann

Any mortgage holder is familiar with leveraging. In fact, they already have a leveraged investment, their home.
Similarly, if you have $25,000 to invest, with a leverage loan, you can have $100,000 fully invested and working for you. This can be a prudent and wise investment strategy to help create wealth for your retirement.

It is ever more difficult to yield high returns on investments in a short period of time without increasing exposure to risk. Borrowing to invest is a calculated risk that should be considered carefully.

Contact Smart Advice to discuss this strategy.

A Registered Education Savings Plan is a special savings plan in which money grows tax-free until it is withdrawn for post-secondary education. A subscriber, such as a parent, aunt, uncle or grandparent makes contributions on behalf of one or more beneficiaries (a child) named in the plan.

RESP Benefits
Starting an RESP today allows you to save immediately for a child’s future post-secondary education. If you’re wondering how much to save and when to start, the answer is: save as much as you can afford and start today. By starting early, tax-sheltered earnings on your savings can grow surprisingly quickly.

In addition, the Government of Canada will help you with saving incentives that are only available if you have an RESP, including the Canada Education Savings Grant and the Canada Learning Bond. That means free money towards your child’s education savings (in a RESP).

RESP – Getting Started:
The Government of Canada will add money to your child’s savings when you open a Registered Education Savings Plan (RESP) account. The Canada Education Savings Grant could add 20 to 40 cents to every dollar you save. To get the most from your RESP you should start saving early!

Can’t afford to save for your baby or toddler right now? If your family income is less than $36,378, the Canada Learning Bond will get you started by depositing $500 when you open your child’s RESP account.

Growing Your Money
Ask your RESP provider about your investment choices. Some providers offer a variety of investment choices while others have a set investment plan. Remember to take your time before you decide. Ask questions, and learn about the advantages and the risks of every decision.

Types of RESPs
Our carriers offer two types of RESPs: family and individual RESPs

A family plan, which may be right for you if:
• You want more than one child to be able to use the money
• The child is related to you.
An individual plan, which may be a good choice if:
• You want to save for a child who is not related to you
• There is only on child that you wish to be able to use to money

For more information, contact Smart Advice to assist you in developing an educational savings plan to suit your specific needs.

Guaranteed Investment Funds is another term for Segregated Funds.

They are individual variable insurance contracts based on a specific term (a form of a life insurance contract) that can have growth potential similar to mutual funds.

What this means to investors is that they can take control of risk (with principal guarantees of up to 100% at maturity or death), while building strong assets for the future.

The monies deposited into the segregated fund policy by the investor are segregated by the insurer from its general assets. The insurance company invests the monies in mutual funds as directed by the policyholder. In this way the investor can benefit from increases in value of the underlying mutual fund with the principal value protected by a guarantee given by the insurer.

A registered disability savings plan (RDSP) is a savings plan designed to provide for the long-term financial security for a person with a disability.

Savings are on a tax-deferred basis along with Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) allowing the savings, grants and bonds to grow in a tax free environment making this a powerful investment tool.

Contributions to an RDSP are not tax deductible and can be made until the end of the beneficiary turns 59.
Contributions that are withdrawn are not included in income for the beneficiary when they are paid out of an RDSP.
However, the Canada disability savings grant, the Canada disability savings bond, and investment income earned in the plan are included in the beneficiary’s income for tax purposes when they are paid out of the RDSP.

For additional information regarding a RDSP, contact Smart Advice in order for us to connect you.

What is a Structured Settlement?
A Structured Settlement is a payment of money for a personal injury claim where at least part of the settlement calls for a future payment. These payments may be scheduled for any length of time – even for as long as the claimant’s lifetime, and may consist of installment payments and/or future lump sum payments. Payments can be fixed or can vary, and are structured to meet the specific needs of the claimant.

No matter which way the payments are designed, all income received by the claimant is free of income tax, as outlined in CRA Income Tax Act IT-365R2 Section 2 and 3.

Life insurance company annuity contracts are the approved and preferred means of funding because of their pricing and flexibility for settlement designs and security.

Structured Settlements provide money management with no additional fees and expenses. And since the returns of a structured settlement are totally tax free, the amount of interest necessary for the individual investor to earn to outperform the structured settlement becomes rather prohibitive.

The table below demonstrates how much interest the self-investor would have to earn on a taxable basis to equal the tax free payout of a structured settlement:

Tax Bracket

Rate of Return 15% 18% 31% 36%
6% 7.05 7.69 8.69 9.38
7% 8.23 9.72 10.14 10.94
8% 9.41 11.11 11.59 12.5
A Structured Settlement is a proven, effective solution for the needs of personal injury claimants. Claims professionals, plaintiff attorneys, judges and defense attorneys advocate the use of structured settlements because they effectively meet a claimant’s needs for security, as well as provide more benefits over time than a single lump sum.

Additionally, structured settlements avoid premature dissipation of funds. Some studies show that within 3 years, 70% of people receiving lump sums are out of money and within 5 years, that number jumps to an alarming 90%.
A properly designed structured settlement will provide for the long term security of an injured party or surviving spouse, education funds for children’s college or university, payments for future medical expenses, and money for retirement.

The payments are guaranteed by the life insurance company and/or their assignment company. Surety bonds, guarantee agreements, and secured creditor designations make structured settlements a very secure investment.

No other investment will guarantee a tax-free lifetime stream of payments with the security of a life insurance company. All companies utilized by Global Pacific Financial have the highest ratings offered in the industry.

Feel free to contact Smart Advice to obtain additional information concerning structured settlements.