A Strategy for Tax Deferral and Investment Diversifying
Investment ObjectivesAccumulating capital for:
Investment Considerations
Current Alternatives for Capital AccumulationThere are numerous non RRSP investment products available to today’s investor, such as:
The significance of taxationThe true test of an investment is its’ after tax performance. Different investments have different tax costs. In Canada, at a top tax rate of 50% (which will vary slightly province to province), interest is taxed at 50%, dividends at 33% and Capital Gains at 37.5%. The typical investor will have a diversified mix of investments (stocks, bonds, GICs, mutual funds) and each investor will have their own individual average investment tax cost, usually around 40%. In the case of a Mutual Fund, when a Fund Manager sells stock internally, or an investor switches from one fund to another, a disposition occurs. Tax must be paid on any gains, which lessens the overall growth. The same is true for a G.I.C. A G.I.C. at 5% and 40% tax would net 3%. If inflation is running at even 1%, the overall Real Return could be as low as 2%!! Diversifying Your Investment Portfolio with Tax Exempt Life InsuranceAn alternative to the taxation issue is an exempt life insurance policy. They are exempt from accrual taxation and therefore generate significant returns. In addition to the tax advantages, the newer plans offer innovative investment features that allow you to diversify your portfolio. (S&P 500, EuroTop 100, TSE 100, GIC @ 5,10 and 20 year rates.) Indexed FundsMost of the indices above credit the Total Return Index Value, less an M.E.R. (spread) and have been quite competitive both short term and long term. "Exempt" InsuranceWhat the Experts Say. . ."Investment in a savings feature life insurance policy should be treated as an investment; the specific returns on the policy after-tax, and the accessibility of capital after-tax, should compare to other contemplated investments. In present investment and tax shelter environments, the comparison may be more favorable to insurance than anticipated." (Arthur Andersen & Company, Chartered Accountants) "The returns from virtually tax-free accumulation after the deduction of the insurance costs, compared to taxable accumulations, can over a long period, be quite remarkable. While professional advice is usually required, those with capital to invest would be well advised not to overlook this investment vehicle (and eventual source of capital)." (Coopers and Lybrand Tax Planning Checklist 1997 - 1998)
The Ideal Vehicle for Tax Deferral and Investment Diversification |
