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Volume 15
Farmland is not just for farmingndash Ceacutedric Paquin BComm CA CFP Regional Vice-President Wealth Planning
Entrepreneurial farmers across Canada have found various methods of earning multiple streams of income from their farmland many of which do not relate to farming This article provides a brief overview of the taxation of a few of these sources of income
Sale of Mineral RightsMineral rights are Canadian Resources Properties (CRPs) for purposes of the Income Tax Act Unlike capital property (where only half the gain is taxable) the gain on a disposition of CRP is fully taxable
Furthermore CRP does not qualify for preferential tax treatments such as the capital gains exemption or the tax free intergenerational transfer of farm property to children Many tax professionals disagree on whether or not CRP can even be transferred to a spouse on a rollover basis
Whether you sell or transfer your mineral rights to family members during your lifetime or on your death you or your estate may be faced with a tax bill If drilling has already commenced and the wells are in production the tax bill may become very large This could leave you or your estate in a dire situation possibly resulting in extreme measures such as being forced to sell the land or the rights to pay the tax
Advanced tax planning is required to help alleviate these punitive results Speak to your Assante Ag Group advisor for tax planning advice before selling or leasing your rights to an oil drilling company
Surface RentalsAn energy company may approach you with an offer to lease a surface area of your land to drill for crude oil or natural gas to erect renewable energy equipment such as wind-turbines or solar panels or to install hydro or power lines
Paid for in part by
Your Farm Your Family Your FutureTax and Succession Expertise for Generations
wwwassantecom
The first yearrsquos payment may include lump sum amounts to cover such items as damage or improvements to the land inconveniences severance and the first yearrsquos rent
The portion that relates to the first yearrsquos rent will be treated as rental income while the remainder may be treated as ldquoproceeds of dispositionrdquo eligible for capital gains treatment
Annual revenues from these sources may be treated as rental or royalty payments which are not very tax efficient
Many of our clients use corporations or family trusts as a means of income splitting with lower income family members This can help reduce the familyrsquos overall tax burden
Sale of Sand Gravel and TopsoilThe sale of sand gravel or topsoil can be treated either as business income or as a capital gain
The sale might be treated as business income when the farmer advertises the sale to the general public establishes an organization for the sale of the substance is involved in the removal of the substance and the sale is recurring and not limited to a single or isolated event
Capital gain treatment is more likely to result when the sale is a one-time non-recurring event requiring little or no effort on behalf of the farmer
Potential TrapRemember that to use the capital gains exemption and the intergenerational transfer of farm property many criteria have to be met The ldquoprincipallyrdquo test must always be taken into consideration when non-farming income is derived from farmland n
Planning with Corporately Held Farm Sale Proceedsndash Sean Rheubottom BA LLB TEP Regional Vice President Wealth Planning
Kevin and Trish are poultry farmers who recently finalized the sale of farm assets mainly consisting of chicken quota The quota was sold by their corporation KevTrish Farms Ltd for approximately $10 million
In volume 5 of this newsletter (winter 2011) we reviewed the taxation of quota sale proceeds Basically to the extent that the quota has increased in value while it was owned that increase in value will produce a ldquogainrdquo on sale that is subject to unique tax rules
CDA ABI GRIP A-OKHalf of the ldquogainrdquo is realized by the corporation tax free The tax free portion of the gain increases the ldquocapital dividend accountrdquo or ldquoCDArdquo of the corporation To the extent there is a CDA balance the corporation can pay tax-free ldquocapital dividendsrdquo to its shareholders
The taxable portion of the gain can be taxed in a couple of different ways depending on circumstances and planning Often the most advantageous way is to treat the taxable portion as ldquoactive business incomerdquo or ldquoABIrdquo of the corporation In a given year the first $500000 of ABI is taxed at the low ldquosmall businessrdquo tax rate which is between 11 and 155 in most provinces In British Columbia this rate is currently 135 ABI above $500000 in a given year referred to as ldquogeneral rate incomerdquo is taxed at between 25 and 27 in most provinces (currently in BC 26)
Active business income taxed at the ldquogeneral raterdquo increases the ldquogeneral rate income poolrdquo or ldquoGRIPrdquo of the corporation To the extent there is a GRIP balance the corporation can pay ldquoeligible dividendsrdquo which are taxed at lower rates than regular ldquonon-eligiblerdquo dividends This creates interesting income splitting opportunities In fact in BC and several other provinces an adult shareholder with no income from other sources can receive over $48000 in eligible dividends without paying any tax at all
As a result of the sale KevTrish Farms has roughly $7 million in cash $4 million in CDA and $3 million in GRIP
Kevin and Trish decided to pay out all of the tax-free CDA to themselves to fund a new venture leaving $3 million in the corporation and $3 million in GRIP
The GRIP creates favorable results when investment income is realized
Normally without GRIP there is a significant ldquointegration failurerdquo on investment income in BC and in several other provinces This means that where investment income (such as interest) is earned
wwwassantecom
The ldquoprincipallyrdquo test must always be taken into consideration when non-farming income is derived from farmland
Your Farm Your Family Your Future
and taxed in a corporation and then paid out to an individual as a dividend the combined or ldquointegratedrdquo tax of the corporation and the individual is higher than the tax an individual would pay if there were no corporation In 2014 this extra tax punishment for having investments in a corporation is about 4 in BC
However GRIP reduces the tax rate on dividends paid out to the individual To the extent GRIP is available it (currently in BC) turns the integration failure into an integration ldquowinrdquo because of the lower tax rate on the dividend paid out to the individual the person earning the investment income through a corporation loses about 35 less to tax than the person with no corporation With the large amount of GRIP in KevTrish Farms Ltd Kevin and Trish are in an advantageous position Furthermore if desired they can create a corporate structure that allows dividends to be paid to their young adult children achieving significant tax savings through income splitting Their daughter Jenny is a university student with no other income In 2014 dividends of about $48000 can be paid to Jenny or used for her benefit without her incurring any personal tax
Cash Flow and Income Splitting with a Corporate Class Portfolio Kevin and Trish and their tax accountant learned about the long-term tax deferral and absolute savings that may be achieved by investing the sale proceeds in a ldquocorporate classrdquo investment portfolio structure A corporate class portfolio helps to reduce the tax drag on investment returns by largely deferring the distribution of taxable income
In fact a corporate class structure is incapable of distributing highly-taxed income such as interest and foreign income and has tended to distribute only a very modest amount of preferentially-taxed eligible dividends Most of the returns in the portfolio take the form of deferred growth (unrealized capital gains) in the value of the corporate class investment units that the investor owns Later when the investor wants to create a stream of cash flow from the account units are liquidated producing capital gains which are subject to preferential rates of tax This works the same whether the investor is a person or a corporation
Kevin and Trishrsquos accountant had a tax-planned corporate structure in mind intended to allow income splitting with daughter Jenny as described above He asked whether the corporate class portfoliorsquos emphasis on tax deferral meant that it would be inappropriate for use in such a structure which requires some cash flow to work properly
Kevin and Trishrsquos Assante Wealth Management team explained that with a conservative assumed return in a balanced portfolio it would be possible to generate sufficient cash flow The modest annual eligible dividend distributions could be flowed out for Jenny tax-free to help cover her university and living expenses Additionally should Kevin Trish and Jenny require additional cash flow for lifestyle expenses it is a simple matter to liquidate a desired number of corporate class units triggering some capital gain in the corporation to produce cash The rest of the growth in the portfolio is left unrealized growing mostly tax-deferred
Fifty percent of the amount of such realized capital gain can be distributed tax free to shareholders as capital dividends
The other fifty percent of such capital gain is taxable like interest income in the corporation Such income can be reduced for income tax reporting purposes by tax deductible corporate expenses After that the corporation pays about 19 tax on just the taxable portion of the remaining gain (assuming 2014 rates) The other 81 can be paid out to shareholders as tax-preferred eligible dividends making use of the GRIP that was created by the farm asset sale
With help from their tax and wealth management team Kevin Trish and Jenny are achieving not only tax-deferred growth but also tax efficient cash flow n
Financial Matters for Farmers ndash An invitation from the Assante Ag Group
Initial Introduction
We provide a free initial consultation to introduce our Wealth Management Program and to review your investment portfolio and financial situation for opportunities and income tax strategies
What Our Clients Can Expect
bull Comprehensive financial planning encompassing tax insurance estate and succession planning based on your long-term goals while still providing for the short-term needs of you and your family
bull A personal investment plan based on your goals tax situation income requirements and risk tolerance
bull Access to tax lawyers accountants and insurance estate and investment specialists
bull Identification explanation and coordination of tax and estate planning strategies to be implemented by your professional advisors
bull Ongoing monitoring of your investments and regular reviews of your financial tax and estate plans
Your Farm Your Family Your Future
wwwassantecom
Call your Assante Ag Group Advisor to learn more about Corporate Class funds that largely defer taxable income well into the future and can also result in future retirement income being taxed at preferential capital gains rates
Your Farm Your Family Your Future
The Assante Ag Group is a national farm advisory group that assists Canadian farm families in the areas of tax planning retirement planning and wealth transfer The Ag Group consists of highly experienced and trusted Wealth Advisors as well as lawyers and accountants with knowledge and experience in the tax and estate planning issues that affect farmers
Taxation represents the single largest expense and loss of capital in the lives of many farm families particularly in the retirement phase Members of the Assante Ag Group work directly with the farm family to help them understand the complex tax and financial issues that need to be addressed in order to minimize loss of farm wealth when important transitions or transactions occur
Tax Financial and Estate PlanningThe Ag Grouprsquos main focus and strengths are tax minimization wealth planning and estate planning including
bull Planning for the tax efficient transfer of the family farm to the next generation
bull Pre-retirement planning for the tax efficient sale of farm equipment inventory and other assets
bull Planning tax efficient business structures for the family farm and other ventures
bull Personal tax and estate planningbull Financial and retirement planning
The Ag Group brings together not only tax estate and financial planning but also tax efficient managed wealth solutions and insurance strategies all personalized to meet the unique needs and values of each client family
Coordinating Professional Advice The busy lives of farm families can seem further complicated by the necessary involvement of professionals from various disciplines such as accountants and lawyers The Ag Group provides a comprehensive plan that coordinates the services of these professionals The Ag Group creates the plan helps coordinate its implementation by the client familyrsquos accountant and lawyer and continues to monitor the client familyrsquos tax and financial affairs thereafter and through the retirement years
Our Commitment to Farm Families The Assante Ag Group is committed to maintaining the high levels of proficiency and expertise required to provide professional advice throughout our long-term relationships with Canadian farm families n
The Assante Ag Group is comprised of Assante Financial Management Ltd (ldquoAFMrdquo) advisors and Assante Capital Management Ltd (ldquoACMrdquo) advisors This material is provided for general information and should not be construed as investment recommendations and is subject to change without notice Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness Commissions trailing commissions management fees and expenses may all be associated with mutual fund investments Mutual funds are not guaranteed their values change frequently and past performance may not be repeated Before acting on any of the above please make sure to read the fund prospectus and see your Assante Advisor for individual financial advice based on your personal circumstances Insurance products and services are provided through Assante Estate and Insurance Services Inc unless otherwise indicated by your advisor Services and products may be provided by your Assante Advisor or through affiliated or non-affiliated third parties The opinions expressed are those of the authors and not necessarily those of ACMAFM Private Client Managed portfolios are managed by United Financial a division of CI Private Counsel LP Assante is an indirect wholly-owned subsidiary of CI Financial Corp (ldquoCIrdquo) Please also see Legal section at our website wwwassantecom indicates AFM advisor indicates ACM advisor
Assante Ag Group
1402-0314_E (0214)
wwwassantecom
Western CanadaBruce McQueen BA (Econ) Brandon Manitoba 204-725-2300
Darrell Nordstrom CLU ChFC CFP RFP Saskatoon Saskatchewan 306-655-3377 1113088 1-877-837-3377
Donavon K Tofin BComm CA CFP Saskatoon Saskatchewan 306-867-8696 1113088 1-877-996-8696
Dustin M Regehr CFP Edmonton Alberta 780-450-3311
Gerrit VandeWalLethbridge Alberta403-320-7777877-416-2237
James Reimer CFP Winnipeg Manitoba 204-982-1906
Mark Driediger CFP Abbotsford British Columbia 604-859-4890
Michele Yergens BAdmin CFP Estevan Saskatchewan 306-634-9008
Shannon Briske BComm CFP Byron T Briske BComm Saskatoon Saskatchewan 306-665-3244
OntarioBrock Martin CFP Guelph Ontario 519-824-8780
Mike Andrews CFP RFP FCSI CIM London Ontario 519-438-0338 1113088 1-800-547-9669
Patrick Gilmour BA (Econ) CFP Kingston Ontario 613-549-8602 1113088 1-800-990-7893
Ted Vanos CFP CAFASarnia Ontario 519-332-4100
Eastern CanadaChris Ball CFP FCSI CIM Halifax Nova Scotia 902-431-3850 1113088 1-888-305-7526
Peter Pomponio CFP RFP CAdm St Laurent Queacutebec 514-832-5210
Suzanne Mignault CA PI Fin FMA Ottawa Ontario (Eastern Ontario and Quebec)613-567-8266 1113088 1-800-567-5504
The first yearrsquos payment may include lump sum amounts to cover such items as damage or improvements to the land inconveniences severance and the first yearrsquos rent
The portion that relates to the first yearrsquos rent will be treated as rental income while the remainder may be treated as ldquoproceeds of dispositionrdquo eligible for capital gains treatment
Annual revenues from these sources may be treated as rental or royalty payments which are not very tax efficient
Many of our clients use corporations or family trusts as a means of income splitting with lower income family members This can help reduce the familyrsquos overall tax burden
Sale of Sand Gravel and TopsoilThe sale of sand gravel or topsoil can be treated either as business income or as a capital gain
The sale might be treated as business income when the farmer advertises the sale to the general public establishes an organization for the sale of the substance is involved in the removal of the substance and the sale is recurring and not limited to a single or isolated event
Capital gain treatment is more likely to result when the sale is a one-time non-recurring event requiring little or no effort on behalf of the farmer
Potential TrapRemember that to use the capital gains exemption and the intergenerational transfer of farm property many criteria have to be met The ldquoprincipallyrdquo test must always be taken into consideration when non-farming income is derived from farmland n
Planning with Corporately Held Farm Sale Proceedsndash Sean Rheubottom BA LLB TEP Regional Vice President Wealth Planning
Kevin and Trish are poultry farmers who recently finalized the sale of farm assets mainly consisting of chicken quota The quota was sold by their corporation KevTrish Farms Ltd for approximately $10 million
In volume 5 of this newsletter (winter 2011) we reviewed the taxation of quota sale proceeds Basically to the extent that the quota has increased in value while it was owned that increase in value will produce a ldquogainrdquo on sale that is subject to unique tax rules
CDA ABI GRIP A-OKHalf of the ldquogainrdquo is realized by the corporation tax free The tax free portion of the gain increases the ldquocapital dividend accountrdquo or ldquoCDArdquo of the corporation To the extent there is a CDA balance the corporation can pay tax-free ldquocapital dividendsrdquo to its shareholders
The taxable portion of the gain can be taxed in a couple of different ways depending on circumstances and planning Often the most advantageous way is to treat the taxable portion as ldquoactive business incomerdquo or ldquoABIrdquo of the corporation In a given year the first $500000 of ABI is taxed at the low ldquosmall businessrdquo tax rate which is between 11 and 155 in most provinces In British Columbia this rate is currently 135 ABI above $500000 in a given year referred to as ldquogeneral rate incomerdquo is taxed at between 25 and 27 in most provinces (currently in BC 26)
Active business income taxed at the ldquogeneral raterdquo increases the ldquogeneral rate income poolrdquo or ldquoGRIPrdquo of the corporation To the extent there is a GRIP balance the corporation can pay ldquoeligible dividendsrdquo which are taxed at lower rates than regular ldquonon-eligiblerdquo dividends This creates interesting income splitting opportunities In fact in BC and several other provinces an adult shareholder with no income from other sources can receive over $48000 in eligible dividends without paying any tax at all
As a result of the sale KevTrish Farms has roughly $7 million in cash $4 million in CDA and $3 million in GRIP
Kevin and Trish decided to pay out all of the tax-free CDA to themselves to fund a new venture leaving $3 million in the corporation and $3 million in GRIP
The GRIP creates favorable results when investment income is realized
Normally without GRIP there is a significant ldquointegration failurerdquo on investment income in BC and in several other provinces This means that where investment income (such as interest) is earned
wwwassantecom
The ldquoprincipallyrdquo test must always be taken into consideration when non-farming income is derived from farmland
Your Farm Your Family Your Future
and taxed in a corporation and then paid out to an individual as a dividend the combined or ldquointegratedrdquo tax of the corporation and the individual is higher than the tax an individual would pay if there were no corporation In 2014 this extra tax punishment for having investments in a corporation is about 4 in BC
However GRIP reduces the tax rate on dividends paid out to the individual To the extent GRIP is available it (currently in BC) turns the integration failure into an integration ldquowinrdquo because of the lower tax rate on the dividend paid out to the individual the person earning the investment income through a corporation loses about 35 less to tax than the person with no corporation With the large amount of GRIP in KevTrish Farms Ltd Kevin and Trish are in an advantageous position Furthermore if desired they can create a corporate structure that allows dividends to be paid to their young adult children achieving significant tax savings through income splitting Their daughter Jenny is a university student with no other income In 2014 dividends of about $48000 can be paid to Jenny or used for her benefit without her incurring any personal tax
Cash Flow and Income Splitting with a Corporate Class Portfolio Kevin and Trish and their tax accountant learned about the long-term tax deferral and absolute savings that may be achieved by investing the sale proceeds in a ldquocorporate classrdquo investment portfolio structure A corporate class portfolio helps to reduce the tax drag on investment returns by largely deferring the distribution of taxable income
In fact a corporate class structure is incapable of distributing highly-taxed income such as interest and foreign income and has tended to distribute only a very modest amount of preferentially-taxed eligible dividends Most of the returns in the portfolio take the form of deferred growth (unrealized capital gains) in the value of the corporate class investment units that the investor owns Later when the investor wants to create a stream of cash flow from the account units are liquidated producing capital gains which are subject to preferential rates of tax This works the same whether the investor is a person or a corporation
Kevin and Trishrsquos accountant had a tax-planned corporate structure in mind intended to allow income splitting with daughter Jenny as described above He asked whether the corporate class portfoliorsquos emphasis on tax deferral meant that it would be inappropriate for use in such a structure which requires some cash flow to work properly
Kevin and Trishrsquos Assante Wealth Management team explained that with a conservative assumed return in a balanced portfolio it would be possible to generate sufficient cash flow The modest annual eligible dividend distributions could be flowed out for Jenny tax-free to help cover her university and living expenses Additionally should Kevin Trish and Jenny require additional cash flow for lifestyle expenses it is a simple matter to liquidate a desired number of corporate class units triggering some capital gain in the corporation to produce cash The rest of the growth in the portfolio is left unrealized growing mostly tax-deferred
Fifty percent of the amount of such realized capital gain can be distributed tax free to shareholders as capital dividends
The other fifty percent of such capital gain is taxable like interest income in the corporation Such income can be reduced for income tax reporting purposes by tax deductible corporate expenses After that the corporation pays about 19 tax on just the taxable portion of the remaining gain (assuming 2014 rates) The other 81 can be paid out to shareholders as tax-preferred eligible dividends making use of the GRIP that was created by the farm asset sale
With help from their tax and wealth management team Kevin Trish and Jenny are achieving not only tax-deferred growth but also tax efficient cash flow n
Financial Matters for Farmers ndash An invitation from the Assante Ag Group
Initial Introduction
We provide a free initial consultation to introduce our Wealth Management Program and to review your investment portfolio and financial situation for opportunities and income tax strategies
What Our Clients Can Expect
bull Comprehensive financial planning encompassing tax insurance estate and succession planning based on your long-term goals while still providing for the short-term needs of you and your family
bull A personal investment plan based on your goals tax situation income requirements and risk tolerance
bull Access to tax lawyers accountants and insurance estate and investment specialists
bull Identification explanation and coordination of tax and estate planning strategies to be implemented by your professional advisors
bull Ongoing monitoring of your investments and regular reviews of your financial tax and estate plans
Your Farm Your Family Your Future
wwwassantecom
Call your Assante Ag Group Advisor to learn more about Corporate Class funds that largely defer taxable income well into the future and can also result in future retirement income being taxed at preferential capital gains rates
Your Farm Your Family Your Future
The Assante Ag Group is a national farm advisory group that assists Canadian farm families in the areas of tax planning retirement planning and wealth transfer The Ag Group consists of highly experienced and trusted Wealth Advisors as well as lawyers and accountants with knowledge and experience in the tax and estate planning issues that affect farmers
Taxation represents the single largest expense and loss of capital in the lives of many farm families particularly in the retirement phase Members of the Assante Ag Group work directly with the farm family to help them understand the complex tax and financial issues that need to be addressed in order to minimize loss of farm wealth when important transitions or transactions occur
Tax Financial and Estate PlanningThe Ag Grouprsquos main focus and strengths are tax minimization wealth planning and estate planning including
bull Planning for the tax efficient transfer of the family farm to the next generation
bull Pre-retirement planning for the tax efficient sale of farm equipment inventory and other assets
bull Planning tax efficient business structures for the family farm and other ventures
bull Personal tax and estate planningbull Financial and retirement planning
The Ag Group brings together not only tax estate and financial planning but also tax efficient managed wealth solutions and insurance strategies all personalized to meet the unique needs and values of each client family
Coordinating Professional Advice The busy lives of farm families can seem further complicated by the necessary involvement of professionals from various disciplines such as accountants and lawyers The Ag Group provides a comprehensive plan that coordinates the services of these professionals The Ag Group creates the plan helps coordinate its implementation by the client familyrsquos accountant and lawyer and continues to monitor the client familyrsquos tax and financial affairs thereafter and through the retirement years
Our Commitment to Farm Families The Assante Ag Group is committed to maintaining the high levels of proficiency and expertise required to provide professional advice throughout our long-term relationships with Canadian farm families n
The Assante Ag Group is comprised of Assante Financial Management Ltd (ldquoAFMrdquo) advisors and Assante Capital Management Ltd (ldquoACMrdquo) advisors This material is provided for general information and should not be construed as investment recommendations and is subject to change without notice Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness Commissions trailing commissions management fees and expenses may all be associated with mutual fund investments Mutual funds are not guaranteed their values change frequently and past performance may not be repeated Before acting on any of the above please make sure to read the fund prospectus and see your Assante Advisor for individual financial advice based on your personal circumstances Insurance products and services are provided through Assante Estate and Insurance Services Inc unless otherwise indicated by your advisor Services and products may be provided by your Assante Advisor or through affiliated or non-affiliated third parties The opinions expressed are those of the authors and not necessarily those of ACMAFM Private Client Managed portfolios are managed by United Financial a division of CI Private Counsel LP Assante is an indirect wholly-owned subsidiary of CI Financial Corp (ldquoCIrdquo) Please also see Legal section at our website wwwassantecom indicates AFM advisor indicates ACM advisor
Assante Ag Group
1402-0314_E (0214)
wwwassantecom
Western CanadaBruce McQueen BA (Econ) Brandon Manitoba 204-725-2300
Darrell Nordstrom CLU ChFC CFP RFP Saskatoon Saskatchewan 306-655-3377 1113088 1-877-837-3377
Donavon K Tofin BComm CA CFP Saskatoon Saskatchewan 306-867-8696 1113088 1-877-996-8696
Dustin M Regehr CFP Edmonton Alberta 780-450-3311
Gerrit VandeWalLethbridge Alberta403-320-7777877-416-2237
James Reimer CFP Winnipeg Manitoba 204-982-1906
Mark Driediger CFP Abbotsford British Columbia 604-859-4890
Michele Yergens BAdmin CFP Estevan Saskatchewan 306-634-9008
Shannon Briske BComm CFP Byron T Briske BComm Saskatoon Saskatchewan 306-665-3244
OntarioBrock Martin CFP Guelph Ontario 519-824-8780
Mike Andrews CFP RFP FCSI CIM London Ontario 519-438-0338 1113088 1-800-547-9669
Patrick Gilmour BA (Econ) CFP Kingston Ontario 613-549-8602 1113088 1-800-990-7893
Ted Vanos CFP CAFASarnia Ontario 519-332-4100
Eastern CanadaChris Ball CFP FCSI CIM Halifax Nova Scotia 902-431-3850 1113088 1-888-305-7526
Peter Pomponio CFP RFP CAdm St Laurent Queacutebec 514-832-5210
Suzanne Mignault CA PI Fin FMA Ottawa Ontario (Eastern Ontario and Quebec)613-567-8266 1113088 1-800-567-5504
and taxed in a corporation and then paid out to an individual as a dividend the combined or ldquointegratedrdquo tax of the corporation and the individual is higher than the tax an individual would pay if there were no corporation In 2014 this extra tax punishment for having investments in a corporation is about 4 in BC
However GRIP reduces the tax rate on dividends paid out to the individual To the extent GRIP is available it (currently in BC) turns the integration failure into an integration ldquowinrdquo because of the lower tax rate on the dividend paid out to the individual the person earning the investment income through a corporation loses about 35 less to tax than the person with no corporation With the large amount of GRIP in KevTrish Farms Ltd Kevin and Trish are in an advantageous position Furthermore if desired they can create a corporate structure that allows dividends to be paid to their young adult children achieving significant tax savings through income splitting Their daughter Jenny is a university student with no other income In 2014 dividends of about $48000 can be paid to Jenny or used for her benefit without her incurring any personal tax
Cash Flow and Income Splitting with a Corporate Class Portfolio Kevin and Trish and their tax accountant learned about the long-term tax deferral and absolute savings that may be achieved by investing the sale proceeds in a ldquocorporate classrdquo investment portfolio structure A corporate class portfolio helps to reduce the tax drag on investment returns by largely deferring the distribution of taxable income
In fact a corporate class structure is incapable of distributing highly-taxed income such as interest and foreign income and has tended to distribute only a very modest amount of preferentially-taxed eligible dividends Most of the returns in the portfolio take the form of deferred growth (unrealized capital gains) in the value of the corporate class investment units that the investor owns Later when the investor wants to create a stream of cash flow from the account units are liquidated producing capital gains which are subject to preferential rates of tax This works the same whether the investor is a person or a corporation
Kevin and Trishrsquos accountant had a tax-planned corporate structure in mind intended to allow income splitting with daughter Jenny as described above He asked whether the corporate class portfoliorsquos emphasis on tax deferral meant that it would be inappropriate for use in such a structure which requires some cash flow to work properly
Kevin and Trishrsquos Assante Wealth Management team explained that with a conservative assumed return in a balanced portfolio it would be possible to generate sufficient cash flow The modest annual eligible dividend distributions could be flowed out for Jenny tax-free to help cover her university and living expenses Additionally should Kevin Trish and Jenny require additional cash flow for lifestyle expenses it is a simple matter to liquidate a desired number of corporate class units triggering some capital gain in the corporation to produce cash The rest of the growth in the portfolio is left unrealized growing mostly tax-deferred
Fifty percent of the amount of such realized capital gain can be distributed tax free to shareholders as capital dividends
The other fifty percent of such capital gain is taxable like interest income in the corporation Such income can be reduced for income tax reporting purposes by tax deductible corporate expenses After that the corporation pays about 19 tax on just the taxable portion of the remaining gain (assuming 2014 rates) The other 81 can be paid out to shareholders as tax-preferred eligible dividends making use of the GRIP that was created by the farm asset sale
With help from their tax and wealth management team Kevin Trish and Jenny are achieving not only tax-deferred growth but also tax efficient cash flow n
Financial Matters for Farmers ndash An invitation from the Assante Ag Group
Initial Introduction
We provide a free initial consultation to introduce our Wealth Management Program and to review your investment portfolio and financial situation for opportunities and income tax strategies
What Our Clients Can Expect
bull Comprehensive financial planning encompassing tax insurance estate and succession planning based on your long-term goals while still providing for the short-term needs of you and your family
bull A personal investment plan based on your goals tax situation income requirements and risk tolerance
bull Access to tax lawyers accountants and insurance estate and investment specialists
bull Identification explanation and coordination of tax and estate planning strategies to be implemented by your professional advisors
bull Ongoing monitoring of your investments and regular reviews of your financial tax and estate plans
Your Farm Your Family Your Future
wwwassantecom
Call your Assante Ag Group Advisor to learn more about Corporate Class funds that largely defer taxable income well into the future and can also result in future retirement income being taxed at preferential capital gains rates
Your Farm Your Family Your Future
The Assante Ag Group is a national farm advisory group that assists Canadian farm families in the areas of tax planning retirement planning and wealth transfer The Ag Group consists of highly experienced and trusted Wealth Advisors as well as lawyers and accountants with knowledge and experience in the tax and estate planning issues that affect farmers
Taxation represents the single largest expense and loss of capital in the lives of many farm families particularly in the retirement phase Members of the Assante Ag Group work directly with the farm family to help them understand the complex tax and financial issues that need to be addressed in order to minimize loss of farm wealth when important transitions or transactions occur
Tax Financial and Estate PlanningThe Ag Grouprsquos main focus and strengths are tax minimization wealth planning and estate planning including
bull Planning for the tax efficient transfer of the family farm to the next generation
bull Pre-retirement planning for the tax efficient sale of farm equipment inventory and other assets
bull Planning tax efficient business structures for the family farm and other ventures
bull Personal tax and estate planningbull Financial and retirement planning
The Ag Group brings together not only tax estate and financial planning but also tax efficient managed wealth solutions and insurance strategies all personalized to meet the unique needs and values of each client family
Coordinating Professional Advice The busy lives of farm families can seem further complicated by the necessary involvement of professionals from various disciplines such as accountants and lawyers The Ag Group provides a comprehensive plan that coordinates the services of these professionals The Ag Group creates the plan helps coordinate its implementation by the client familyrsquos accountant and lawyer and continues to monitor the client familyrsquos tax and financial affairs thereafter and through the retirement years
Our Commitment to Farm Families The Assante Ag Group is committed to maintaining the high levels of proficiency and expertise required to provide professional advice throughout our long-term relationships with Canadian farm families n
The Assante Ag Group is comprised of Assante Financial Management Ltd (ldquoAFMrdquo) advisors and Assante Capital Management Ltd (ldquoACMrdquo) advisors This material is provided for general information and should not be construed as investment recommendations and is subject to change without notice Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness Commissions trailing commissions management fees and expenses may all be associated with mutual fund investments Mutual funds are not guaranteed their values change frequently and past performance may not be repeated Before acting on any of the above please make sure to read the fund prospectus and see your Assante Advisor for individual financial advice based on your personal circumstances Insurance products and services are provided through Assante Estate and Insurance Services Inc unless otherwise indicated by your advisor Services and products may be provided by your Assante Advisor or through affiliated or non-affiliated third parties The opinions expressed are those of the authors and not necessarily those of ACMAFM Private Client Managed portfolios are managed by United Financial a division of CI Private Counsel LP Assante is an indirect wholly-owned subsidiary of CI Financial Corp (ldquoCIrdquo) Please also see Legal section at our website wwwassantecom indicates AFM advisor indicates ACM advisor
Assante Ag Group
1402-0314_E (0214)
wwwassantecom
Western CanadaBruce McQueen BA (Econ) Brandon Manitoba 204-725-2300
Darrell Nordstrom CLU ChFC CFP RFP Saskatoon Saskatchewan 306-655-3377 1113088 1-877-837-3377
Donavon K Tofin BComm CA CFP Saskatoon Saskatchewan 306-867-8696 1113088 1-877-996-8696
Dustin M Regehr CFP Edmonton Alberta 780-450-3311
Gerrit VandeWalLethbridge Alberta403-320-7777877-416-2237
James Reimer CFP Winnipeg Manitoba 204-982-1906
Mark Driediger CFP Abbotsford British Columbia 604-859-4890
Michele Yergens BAdmin CFP Estevan Saskatchewan 306-634-9008
Shannon Briske BComm CFP Byron T Briske BComm Saskatoon Saskatchewan 306-665-3244
OntarioBrock Martin CFP Guelph Ontario 519-824-8780
Mike Andrews CFP RFP FCSI CIM London Ontario 519-438-0338 1113088 1-800-547-9669
Patrick Gilmour BA (Econ) CFP Kingston Ontario 613-549-8602 1113088 1-800-990-7893
Ted Vanos CFP CAFASarnia Ontario 519-332-4100
Eastern CanadaChris Ball CFP FCSI CIM Halifax Nova Scotia 902-431-3850 1113088 1-888-305-7526
Peter Pomponio CFP RFP CAdm St Laurent Queacutebec 514-832-5210
Suzanne Mignault CA PI Fin FMA Ottawa Ontario (Eastern Ontario and Quebec)613-567-8266 1113088 1-800-567-5504
Your Farm Your Family Your Future
The Assante Ag Group is a national farm advisory group that assists Canadian farm families in the areas of tax planning retirement planning and wealth transfer The Ag Group consists of highly experienced and trusted Wealth Advisors as well as lawyers and accountants with knowledge and experience in the tax and estate planning issues that affect farmers
Taxation represents the single largest expense and loss of capital in the lives of many farm families particularly in the retirement phase Members of the Assante Ag Group work directly with the farm family to help them understand the complex tax and financial issues that need to be addressed in order to minimize loss of farm wealth when important transitions or transactions occur
Tax Financial and Estate PlanningThe Ag Grouprsquos main focus and strengths are tax minimization wealth planning and estate planning including
bull Planning for the tax efficient transfer of the family farm to the next generation
bull Pre-retirement planning for the tax efficient sale of farm equipment inventory and other assets
bull Planning tax efficient business structures for the family farm and other ventures
bull Personal tax and estate planningbull Financial and retirement planning
The Ag Group brings together not only tax estate and financial planning but also tax efficient managed wealth solutions and insurance strategies all personalized to meet the unique needs and values of each client family
Coordinating Professional Advice The busy lives of farm families can seem further complicated by the necessary involvement of professionals from various disciplines such as accountants and lawyers The Ag Group provides a comprehensive plan that coordinates the services of these professionals The Ag Group creates the plan helps coordinate its implementation by the client familyrsquos accountant and lawyer and continues to monitor the client familyrsquos tax and financial affairs thereafter and through the retirement years
Our Commitment to Farm Families The Assante Ag Group is committed to maintaining the high levels of proficiency and expertise required to provide professional advice throughout our long-term relationships with Canadian farm families n
The Assante Ag Group is comprised of Assante Financial Management Ltd (ldquoAFMrdquo) advisors and Assante Capital Management Ltd (ldquoACMrdquo) advisors This material is provided for general information and should not be construed as investment recommendations and is subject to change without notice Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness Commissions trailing commissions management fees and expenses may all be associated with mutual fund investments Mutual funds are not guaranteed their values change frequently and past performance may not be repeated Before acting on any of the above please make sure to read the fund prospectus and see your Assante Advisor for individual financial advice based on your personal circumstances Insurance products and services are provided through Assante Estate and Insurance Services Inc unless otherwise indicated by your advisor Services and products may be provided by your Assante Advisor or through affiliated or non-affiliated third parties The opinions expressed are those of the authors and not necessarily those of ACMAFM Private Client Managed portfolios are managed by United Financial a division of CI Private Counsel LP Assante is an indirect wholly-owned subsidiary of CI Financial Corp (ldquoCIrdquo) Please also see Legal section at our website wwwassantecom indicates AFM advisor indicates ACM advisor
Assante Ag Group
1402-0314_E (0214)
wwwassantecom
Western CanadaBruce McQueen BA (Econ) Brandon Manitoba 204-725-2300
Darrell Nordstrom CLU ChFC CFP RFP Saskatoon Saskatchewan 306-655-3377 1113088 1-877-837-3377
Donavon K Tofin BComm CA CFP Saskatoon Saskatchewan 306-867-8696 1113088 1-877-996-8696
Dustin M Regehr CFP Edmonton Alberta 780-450-3311
Gerrit VandeWalLethbridge Alberta403-320-7777877-416-2237
James Reimer CFP Winnipeg Manitoba 204-982-1906
Mark Driediger CFP Abbotsford British Columbia 604-859-4890
Michele Yergens BAdmin CFP Estevan Saskatchewan 306-634-9008
Shannon Briske BComm CFP Byron T Briske BComm Saskatoon Saskatchewan 306-665-3244
OntarioBrock Martin CFP Guelph Ontario 519-824-8780
Mike Andrews CFP RFP FCSI CIM London Ontario 519-438-0338 1113088 1-800-547-9669
Patrick Gilmour BA (Econ) CFP Kingston Ontario 613-549-8602 1113088 1-800-990-7893
Ted Vanos CFP CAFASarnia Ontario 519-332-4100
Eastern CanadaChris Ball CFP FCSI CIM Halifax Nova Scotia 902-431-3850 1113088 1-888-305-7526
Peter Pomponio CFP RFP CAdm St Laurent Queacutebec 514-832-5210
Suzanne Mignault CA PI Fin FMA Ottawa Ontario (Eastern Ontario and Quebec)613-567-8266 1113088 1-800-567-5504
