To Clients: Tax changes and free money

It’s that time of year again. Even if you’ve talked about tax savings strategies with your clients throughout the year, send them this letter to review the rules and opportunities they can take advantage of when they file their return this spring.

Dear [Client’s name],

You’ve probably heard all about tax-free savings accounts by now. It’s not at all surprising if you have — experts are calling this “the most exciting thing to happen to our tax laws, ever.”

Starting in January, you can open an account of your own to shelter any investment gains you might earn going forward.

There are other new changes, too, that might be of use to you:

Registered Education Savings Plans (RESPs) are now more flexible, thanks to changes made in the past two federal budgets. The 2007 budget eliminated annual contribution limits — you can now invest as much as you want in any given year — and increased the lifetime contribution limit to $50,000. In 2008, the government also extended the amount of time RESPs can remain open — where the plans originally needed to be wound up within 21 years, contributions can now be made for 31 years from the time the child’s plan is established, and remain open for 35 years.

Beneficiary rules were also relaxed, allowing students more flexibility when the time comes to make withdrawals. If you would like to learn more about this, please let me know.

If you have assets invested in a federally-regulated Life Income Fund (LIF) or a locked-in RRSP, there are now new rules in place that give some people the ability to unlock these assets and access the money.

Note: Unless your locked-in assets come from a federally-regulated pension plan (some federally regulated plans include pension plans for some federal Crown corporations, banks, companies involved in interprovincial and/or international transportation and communications companies), the following changes likely won’t apply to your situation, since more stringent provincial rules will likely apply. If you’d like to explore this option further, though, please feel free to get in touch.

If you are 55 years of age or older and if your assets come from a federally-regulated pension plan, you can legitimately unlock up to 50% of your locked-in assets or convert them to another tax-sheltered registered account. There are also new provisions available for small locked-in account balances for those with significant medical expenses and for those with very low income in any given year. You can also unlock your account balances if you leave Canada or if your life expectancy is reduced. If any of these circumstances are part of your situation and you’d like to explore this opportunity further, please call my office to set up an appointment.

Perhaps one of the best new developments to occur in 2008 were changes to the federal Bankruptcy and Insolvency Act. New legislation extends creditor protection in the event of bankruptcyto all RRSP and RRIF savings accounts. This is especially good news for business owners and anyone else in a position where personal assets could be called on to pay off business creditors. (In the past, only employer-sponsored registered plans and insurance products like segregated funds enjoyed this protection.) There is one caveat to this news: Any RRSP contributions made in the 12 months leading up to bankruptcy will not be exempt from seizure unless provincial laws state otherwise.

Finally, most institutions are still struggling with implementation, but the new Registered Disability Savings Plans (RDSPs), which will hopefully be available soon, allow you to save up to $200,000 on a tax-deferred basis for someone with a disability. Moreover, the government has also introduced a generous series of bonuses (the Canada Disability Savings Grant and the Canada Disability Savings Bond) that can add an additional $90,000 in free money to the beneficiary’s account if you deposit $30,000 in personal contributions.

This is a lot of information to take into consideration and there are more details that won’t fit into a short letter, but if any of these situations apply to you, if you’re close to collecting Old Age Security (we should review your income to avoid clawbacks), or if you’d simply like a review of your portfolio, please don’t hesitate to call. I would be happy to hear from you.

All the best,

[Your signature]

[Your name]

(01/14/09)