Let clients know you can help boost their after-tax income

(March 2005) With personal income taxes in the spotlight at this time of the year, some of your clients and prospects may be wondering what they can do to reduce their annual tax burden. Make them aware how you can help by sending them the following letter:

Dear [Client’s name],

As springtime approaches, we have two things we can look forward to with absolute certainty — warmer weather and taxes.

Like many Canadians, you may be wondering what you can do to reduce your annual tax burden. While it may be a little too late to alter the outcome of your 2004 tax year, we can definitely start arranging your finances in such a way that you will have more after-tax income in 2005.

Are you, for example, taking full advantage of the opportunities for tax savings which already exist inside a Registered Retirement Savings Plan (RRSP)? Some younger clients may believe that they can not, or should not, contribute to an RRSP because they are planning to either purchase a new home or go back to school. This isn’t necessarily true.

There are special programs available through the Canada Revenue Agency that allow both first time home buyers and students to withdraw funds from their RRSPs without facing any taxes or penalty charges. Properly timed and planned, it is possible to have your tax cake and eat it, too. You could, for example, make a $10,000 contribution to your RRSP in December, receive a generous tax refund in May, and then withdraw that same $10,000 to use as a down payment on your home or to pay your tuition.

If you’re interested in making a more aggressive, longer-term equity investment, the federal government provides venture capital to smaller, start-up businesses. These labour-sponsored investment funds, or LSIFs for short, allow investors to purchase units of up to $5,000 annually, and they could generate an immediate tax break of as much as 30% or 35% (depending on the fund and your jurisdiction).

Making a prepayment against your mortgage may also yield significant results, eliminating significant amounts of interest that you would otherwise have to pay if you stuck to your basic amortization schedule. A prepayment of $10,000 against a $150,000 mortgage at 5% with 20 years remaining would save you a whopping $15,399 in interest. Not a bad return on your investment! I’d be happy to run different scenarios to help you determine just how much a prepayment would save in your circumstances.

If you would like to sit down and discuss the issues I’ve raised above or any other aspect of your current tax situation, I hope you won’t hesitate to contact me at the number above.

Sincerely,

[Your signature]

[Your name]

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.