Leveraged Supplementary Retirement Account - Standard Life

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Leveraged Supplementary Retirement Account Table of contents Table of contents Sources of retirement income 4 Three ways to access investment accounts in retirement 5 The LSRA concept – Collateralization 6 How much will the financial institution lend against the policy? 7 Who should consider the LSRA strategy? 7 Benefits of the LSRA option 8 Factors and risks to consider 8 Using a corporation to own and leverage the life insurance policy 10 Deductibility for tax purposes 11 General Anti-Avoidance Rule (GAAR) 11 Conclusion 11 Appendix A 12 This guide has been prepared for information purposes only and should not be relied on to replace professional advice. Standard Life 3
Leveraged Supplementary Retirement Account Sources of retirement income Sources of Retirement Income 1. Registered Plans There are a number of retirement savings vehicles that are regulated by tax and pension rules. There are tax-assisted programs to which individuals and/or their employers might contribute to help accumulate a retirement nest egg. These would include: • • Registered Pension Plans (RPPs), Deferred Profit Sharing Plans (DPSPs), and • Registered Retirement Savings Plans (RRSPs) The Income Tax Act (“ITA”) places limits on the “tax assistance” for registered plans. “Tax assistance” means the tax advantages that an employer and/or employee will receive because contributions are tax deductible and the income/growth is not taxed until withdrawal from the plan. 2. Government Programs There are also government-administered programs that provide retirement income based on employment and/or residence in Canada. These programs include: • Old Age Security (OAS) and, on a needs basis, Guaranteed Income Supplement (GIS) • Programs established by the provinces (e.g., Ontario’s Guaranteed Annual Income System (GAINS)) • Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) 4 Standard Life 3. Non-Registered Plans Once contributions to (or benefits received from) tax-assisted plans are maximized, those who want to ensure additional sources of funds are available in retirement must find alternate vehicles. Non tax-assisted programs that an individual or their employer might establish which would be a source of retirement income include: • • Various stock plans Various profit sharing plans • Personal savings vehicles/investment portfolios These non-registered savings mechanisms often produce income that is taxable annually. A tax deferral is available for investment in stocks that are held for the long term rather than being traded from time to time. As long as no gain is realized, no income tax is due. However, since most people use mutual funds (or segregated funds) as their vehicle for investing in stocks, and since the underlying assets are generally actively traded, gains are realized each year, triggering taxation. Regardless of which approach is used, there will come a time when the underlying stocks must be liquidated, either to produce an income or on the death of the owner or spouse, thus realizing the gains and triggering taxation.
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