“We retired well. How can we pay less taxes?”

As a starting point, I like to look at the larger picture and see where you are going. This involves modeling all your current and future financial resources, including your cash flow and the activities of the holding company. This clearly understands what you have today and gives you some insight into the growth of your assets or over time, future annual and final taxes, and real estate value. In this context, you can learn what options and what you want to take in terms of spending, lifestyle, giveaways and legacy.

In the context I call lifestyle planning, financial planning begins, and that’s the essence of your problem. From a tax perspective, you can learn what tax credits and deductions and how to leverage them in a way that matches your personal values, beliefs, and lifestyle.

You also need to know how to tax on unregistered and registered accounts and your holding company. You also need to be aware of the three different dividend options taken from Holdco, and the impact of investment taxes and dividends on tax credits and benefits. Older Safety (OAS) is a great example of how it starts to recover once you earn more than $93,500.

Some little-known retirement tax strategies

I suspect through experience, you know what I’ve discussed so far and some of the program solutions you can use to reduce your arrears, such as pension split, donations to charities, and donations to tax-free savings accounts (TFSA). I’ll briefly cover some other strategies you may not be familiar with, but rather some donor-suggested funds, instant outstanding shares, insurance and investment options.

You are already donating to charities, but have you ever thought about building a donor-advised fund (DAF)? You can add as much money as you wish, and in your case your unregistered capital may reach $200,000. Once there, you can manage the money your way and the investment will be tax-free, so you won’t pay tax on the distribution. When you make a deposit, you can claim a charitable tax credit at one time or postpone it within five years. This is also at your discretion when you donate from DAF to a charity of your choice. One gain is that you can’t change your mind and once you reach the DAF, you get the money back.

Have you heard of stocks outstanding by direct liquidity providers? You buy stocks and immediately sell them to the waiting buyer, less than you pay. This is the tax credit to make this work. Ottawa-based planning company WCPD provides the following simple explanation to illustrate that this can be both working in person, making charitable contributions, and a combination of people with a marginal tax rate of 50%.

You pay $1.50 for shares in outstanding shares and sell them immediately for $1. The circulating tax credit and deduction will save you $0.75 in tax, plus $1 of your share sale, which will increase you $0.25. If you want to make a charitable donation, you can donate $1 you sold and get $0.50 in tax. With a total tax tax of $1.25 ($0.75 + $0.50), your charitable contribution will only cost you $0.25, and if you don’t buy circulating shares, you won’t cost $0.50. WCPD also offers a strategy where you can get two parts in two parts and a charity to donate to the charity at zero cost.

As mentioned earlier, this is a very simple example where you are going to have a conversation with a professional before doing this.

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Insurance and investment strategies for retirees

Secondary permanent life insurance policies held in your holding company are another tax-saving strategy. Funds invested in policies are actually tax-free, and when the payment is paid, a capital dividend account (CDA) is equal to or almost equal to the full value of the death benefit. You can then pay a tax-free dividend equal to the CDA from Holdco. When you have the policy, there may be other ways to use it, such as borrowing tax-free income or investment. Have you discussed with an accountant about the end of your holdco, i.e. your death, i.e. taxes, time and expenses? Insurance can alleviate some of these problems.

Finally, have you considered how your investment approach affects your annual tax? My impression is that you are a successful DIY dividend investor. You charge taxable dividends every quarter and may buy and sell stocks, giving you capital gains and higher corporate accounting fees. For your unregistered and business accounts, consider a long-term buy and hold portfolio consisting of simple low-cost index ETFs that will be more taxable.

Mike, you may do a lot to make things more efficient. You should consider this every year as your spending and income may change yearly.

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About Allan Norman, MSC, CFP, CIM

Allan, a financial planner for more than 30 years, is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians keep their lifestyle without worrying about running out of money.