RRSP/RRIF: The Quiet Tax Machine

Government rules for your retirement income plan will have you pay unnecessary tax and we want to make sure that doesn’t happen.

If all goes well, you will build up savings, expand your assets, be able to enjoy a comfortable retirement, and pass on assets such as business shares and property to the next generation. But, tax can rip those to shreds. The good news is that there are things you can do to address it.

As you know, we help business families make the most of their wealth, and in this touchpoint, we’d like to share an example of how you reduce tax in retirement.

Recently, we were introduced to Mary and Joe, aged 56 and 60, whose overall capital plan was at the centre of the retirement conversation. They had enough personal capital to deliver a comfortable lifestyle, as well as capital in a holding company that would likely be left for their estate. Their plan was to retire and sell the business sometime in their 60s, continue to invest in RRSPs, build up their hold co., and begin drawing retirement income from their RRIF minimums at age 71. It was looking good—except for the tax implications.

When we analyzed their income needs from all sources, it was clear that the government rules and tax obligations would force them into unnecessary high-income tax brackets, and would create higher tax on their corporate wealth, ultimately then creating unnecessary estate taxes.

So, what did we do? We worked with them to rebuild their plan, and, in the process, saved them significant money that would otherwise have been lost to taxes.

Here’s What We Did:

1. We provided an accurate measurement of their current and future wealth, integrating personal and corporate wealth together.

2. We analyzed their income need and the impact of their RRIF capital. We built an income strategy using this money as their base, starting at age 63 instead of 71.

3. We showed them how to defer more capital in their corporation instead of taking out salary, allowing for annual tax savings.

4. We showed them how to plan for tax-free dividends and tax efficient transfer of their shares to the next generation which included corporate life insurance strategy.

5. We reduced both their annual income and corporate tax obligations.

6. We created a new way of looking at their personal and corporate wealth together which they had never seen before and which created more overall flexibility for the family.

Here’s What’s Important:

As you think about how you’ll be paid during retirement, pay attention to RRSP/RRIF capital and have your corporate wealth carefully examined. The key in having a solid retirement income plan is properly integrating personal and corporate assets to ensure more capital is available while you are alive and for your estate.