1. The benefits of Corporate Class investing Paul McVean, CGA, CFP, TEP Regional Vice-President, Wealth Planning

2. Benefits of wealth planning Maximize asset values Minimize tax now and later Minimize risks of untimely death, disability, incapacity Ensure wealth is ultimately transferred efficiently and effectively Avoid family disputes, costly estate litigation

3. Referrals you can make Tax accountants/lawyers for corporate reorganizations, business sale and succession, professional incorporation Corporate lawyers for shareholder agreements Estate planning lawyers for wills, trusts, estate administration and estate litigation Family law lawyers U.S. tax/estate planning experts

4. Ideal clients for Corporate Class Owners of successful operating businesses –sale, succession, surplus income Individuals who pay tax on their investment portfolios Families with significant assets and/or investment holding companies Seniors looking for retirement cash flow

5. Investment return – What’s important Return on investment Less: fees = Subtotal Less: income taxes = WHAT’S IMPORTANT!!! Client focus Media focus Advisor focus My focus

6. 2012 top personal tax rates – Ontario 46.41% 29.54%23.21% 53.59% 70.46% 76.79% 100%

7. Investment structures Investors hold securities directly Interest, foreign income and dividends are taxed each year Capital gains taxed when triggered Rebalancing or reallocating the portfolio is a taxable event Drawing out capital may be a taxable event Investor Segregated holdings Gov’t & Corporate Bonds High Yield Bonds, Pref Shares Domestic & Foreign Equity

8. Investment structures Investors hold units of trusts that hold securities Other income, foreign income and dividends are distributed and taxed each year Capital gains taxed when triggered Rebalancing or reallocating the portfolio is a taxable event Drawing out capital may be a taxable event S.132(6) & (7) of ITA Investor Mutual/pooled fund trusts Gov’t & Corporate Bonds High Yield Bonds, Pref Shares Domestic & Foreign Equity

9. Investment structures Investors hold “tracking” shares of a corporation that holds securities Investor may receive minimal distributions of capital gains and/or Cdn dividends Rebalancing or reallocating the portfolio is a non-taxable event (S.51 of ITA) Drawing out capital may be a non-taxable event Mutual fund corporation S. 131(8) of ITA Investor “Corporate Class” Gov’t & Corporate Bonds High Yield Bonds, Pref Shares Domestic & Foreign Equity

10. How is a mutual fund corporation designed to work?

11. Diversified portfolio Typical 60/40 diversified investment portfolio

12. Eg. Tax on a diversified portfolio

13. Eg. Tax on a Corporate Class portfolio $1,285 of tax versus $15,715 on non-corporate class structure Savings of $14,430!!!

14. Keys to the Corporate Class structure For the structure: Maintain proper balance of equity to fixed income for entire class –Equity = greater expenses than taxable yield, significant unrealized growth –Fixed income = taxable yield exceeds expenses, not as significant unrealized growth –Structure is run to have “taxable yield” = “deductible expenses” on an annual basis For the investor: Elimination of “capital taxes” –July 1, 2008 – federal capital taxes eliminated –July 1, 2010 – Provincial capital taxes eliminated Externally charged tax-deductible fees –Where available

15. Benefit of tax-deductible fees Holding non-registered assets in this version of Corporate Class may actually create annual tax savings instead of an annual tax cost!

16. Corporate Class After-tax benefits

17. Benefits 1.Exposure through portfolio to underlying securities that produce a mixture of interest, foreign income, Cdn dividends and capital gains, but return on investment ultimately taxed preferentially as Cdn dividends and/or capital gains 2.Taxes deferred until funds actually withdrawn from the portfolio –If underlying capital gains are very significant, capital gains could be distributed to shareholders (T5 slip) –Chance to withdraw from portfolio tax-free (see #4) 3.Tax-free rebalancing 4.T-Class = tax-free withdrawal of capital –Structured as a return of capital = Greater spending power without additional risk to the portfolio! Corporate Class structure – four main benefits

18. FMV comparison

19. Spending power

20. Accumulation / spending Age 40 to 60 $25K/yr for 20 years Diversified portfolio averaging 7.75% - 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 Corporate ClassNon-Corporate Class Growth ACB $1,094,300 $1,265,500

21. Accumulation / spending Non Corporate ClassCorporate Class Income$41,350$66,550 Year 25$0 Non Corporate ClassCorporate Class Income$41,350 Year 25 – FMV$0$1,568,000 Year 25 – After-tax$0$1,210,000 Option 1: Equal Cash flow For 25 Years Option 2: Maximize Cash flow For 25 Years Tax efficiency in this model equal to approximately 3.25% better after-tax returns!!!

22. Corporate Class Planning opportunities

23. Corporate Class planning tips 1.Corporate Class may allow investors to use capital losses earlier –Return on investment generally takes the form of realized/unrealized capital gains, which can be fully offset by previous capital losses 2.Corporate Class means that income splitting with investment dollars may no longer make sense –Keep tax deduction with higher income-earning family member 3.Fee deduction may help offset high-tax corporate income –ABI > $500K, other forms of investment income (interest, foreign inc.) 4.Corporate Class allows for even more efficient charitable donation planning –Take advantage of 0% inclusion rate when donating marketable securities –Bonus savings when donating securities through a corporation

24. Investment Holdco Donate $30K Cash: Capital gain of $20K Corp tax = $4,667 CDA = $10K Donate $30K In-Kind: Capital gain of $20K Corp tax = $0 CDA = $20K Charitable donations using Corporate Class

25. Investment Holdco T-Class from Account #1 to Account #2 Donate $30K In-Kind: Capital gain of $30K Corp tax = $0 CDA = $30K Charitable donations using T-Class

26. Corporate Class planning tips Avoid paying refundable tax Pay out CDA annually to Dad as S/H cr. Unwind tax-free = 10% total tax 5.Corporate Class allows for interesting income splitting opportunities with low income family members, possibly using corporations

27. Corporate Class planning tips 6.Retirement funding –Use three pools of assets (reg. non-reg. and corp) –Tax-efficient withdrawals from corp account –Maximize use of low tax brackets to maximize ultimate estate value/retirement spending –Create income if/when required by: Registered account withdrawals Non-registered triggering of capital gains Dividends from corporation –Use Capital Dividend account

28. Client Scenario

29. Client example Peter & Karen Smith Business owners 5 years from retirement Currently drawing $125,000 salary each –Contributing to RRSP’s Spending requirement – $120,000 per year Investible assets: –$300,000 non-registered –$650,000 registered –$1 million corporate

30. Client example Salary versus dividends

31. Client example Assuming 0.5% eligible dividend distribution, 4.5% unrealized growth

32. Client example Salary versus dividends CPP RRSP space EHT Discipline Corporate class advantage

33. Client example Corporate tax on investment income Assuming Ontario 2012 Income Tax Rates (not including new 2% surtax)

34. Client example Retirement funding 5 “buckets” – when and where to dip –When to save tax - now versus later Using marginal tax brackets effectively –Issues with registered funds –Importance of T-Class Break the link between cash flow and tax How to use CDA & RDTOH –Trigger capital gains on purpose? –Importance of discretion

35. Client example Assumes 6.92% gross return, 2% external fee, 0.5% eligible dividend distribution

36. Client example Estate planning Results of retirement funding: –Registered assets lower = less terminal tax –Significant unrealized capital gains on non-registered investments – personal & corporation “Pipeline” strategy to unlock corporate assets –Estate incorporates Newco –Newco purchases existing Holdco from estate –Holdco wound-up into Newco – 88(1)(d) bump –Newco wound-up and assets distributed

37. Summary Focus on wealth planning –Differentiate yourself from “salespeople” –Build COI networks for referrals Corporate class provides better after-tax returns Corporate class provides unique, integrated planning opportunities –Tie the product to client goals and objectives –Hit the Hot Buttons!

38. Questions?

39. Thank you Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ® CI Investments and the CI Investments design are registered trademarks of CI Investments Inc.