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Financial Planning for Retirees

The following client story is real, but certain details have been changed to protect their privacy.

At 68 years old, Deirdre is a retired business owner client of ours who recently sold her successful company and has finally decided to enjoy retirement.

While she continues to do a bit of consulting on the side, she and her husband Don (also retired) are looking to simplify their life, do a bit of travelling and spend more time with their grandchildren. They keep in great shape, stay active and live a healthy lifestyle.

After a lifetime of saving, Deirdre has maximized her corporate investments and has a substantial nest egg that will provide her with the necessary cash flow as mapped out in her retirement projection.

Without fear of outliving their savings, Deirdre and Don are focused on being able to give to their grandchildren and supporting the charities they love, both of which we are able to help them do tax efficiently and cost effectively.

The only other splurge Deirdre and Don allowed themselves was the purchase of a $140,000 Aston Martin convertible for the road trips they planned on taking.  What Deirdre wanted to know, was how best to pay for the car without incurring too much tax.

After speaking with her accountant, he informed her that she would declare a $140,000 taxable dividend (on top of her $50,000 of consulting income) to pay for the car.  She would have to pay approximately $30,000 in tax for this $140,000 dividend.

Deirdre called us to talk about it and ask our opinion on whether there was a better way to pay for their new car.

Upon reviewing their corporate tax returns, we identified that they had a CDA (corporate dividend account) balance of $200,000.  We informed them that their accountant or lawyer could declare a capital dividend in the amount of $200,000 ($140,000 to pay for the car the other $60,000 could be a credit to their shareholder loan account) which would not attract any tax.

They met with their accountant to see if this was possible and he confirmed that it was.  A capital dividend in the amount of $200,000 was declared, our client received the funds tax-free and they were able to purchase the car of their dreams.

They continue to tell this story to their friends.  They still can’t believe their accountant didn’t know the information.