Paying less income tax is easier than you think!

After working in the banking sector for several years and being co-shareholder of an industrial packaging business located in Montreal, I am starting a new career in financial security with a focus on reducing income taxes, both for individuals and for companies. I joined iA Financial Group, one of the largest groups of insurance and wealth management companies in Canada.

-Individuals

We have a tax strategy using life insurance products that we offer to our canadian clients who contribute the maximum amount allowed in their RRSP (registered retirement savings plan) and TFSA (tax-free savings account). This allows them to grow more of their money tax-free. For example, I recently set up a new life insurance policy for a client who, during her retirement, will save in her specific case over $300,000 in income taxes (provincial and federal). This is an additional $300,000 in income tax that she would have had to pay without the implementation of this strategy. In a nutshell, the strategy involves transferring money from non-registered accounts over the years to a permanent life insurance policy in which contributions and growth are sheltered from the tax man. At retirement, rather than surrendering the policy at its cash surrender value and paying capital gain taxes, the policyholder pledges it to a financial institution to secure a line of credit and withdraw cash advances from this line of credit. These advances are not taxable. At some point in time, withdrawals cease such that the interest that has been capitalized and the principal to be repaid represents 90% of the cash value of the policy.

The effect of this strategy is much the same as using a TFSA. In fact, this strategy creates an additional tax shelter. You grow your assets in a tax- sheltered vehicle rather than in a non-registered account (in which the returns are taxable) and get your funds back tax-free, in this case through a bank line of credit. Upon death, the death benefit, which is tax-free, is paid to the financial institution to repay the line of credit and the balance of the benefit is paid to the estate.

-Companies

Strategies can be put in place to withdraw cash from a company in favor of shareholders or key employees, while reducing tax burdens. The strategy explained above, which uses permanent life insurance, can again be utilized, and adapted to the corporate structure. Other insurance products such as critical illness coverage can also allow funds to be moved from a business to an individual, while minimizing tax burdens. In the case of this type of protection, a company could be paying insurance premiums over a period of 20 years and if no claim is made during this period, all premiums are reimbursed by the insurer, not to the company itself, but to the person who was insured. The latter will have to declare only part of the reimbursed premiums as salary benefits, which will be less than the income tax this person would have had to pay to get these funds out of the company.

Conclusion

The insurance world is a fascinating subject and becomes even more so when you realize that insurance products can be used to reduce income taxes. To discuss the above, I invite you to contact me by phone at 514-249-0714 or by email at yvan.routhier@agc.ia.ca

Looking forward to helping you save taxes, Yvan Routhier.

Yvan Routhier
Intern in personal insurance
Industrielle Alliance, Assurance et services financiers Inc.
7655, Boul. Newman, bureau 207
Lasalle (Québec) H8N 1X7