George is a senior executive at a mid-sized but growing company, earning a six-figure salary. George’s wife Meaghan is taking a few years off work to raise their children. As is common with most executives, he is being paid a salary by his employer.
When working with clients like George, we will review their total compensation package to determine if there are opportunities to reduce the amount of income tax they pay. In George’s case we identified his car lease. Currently he is paying for the car lease personally. We recommended that the lease should be paid by the employer.
This resulted in a taxable benefit of 2/3 of the lease. Another benefit we recognized was initiating a discussion for his employer to cover the membership fees to his health club since George used the facilities to meet customers and prospective customers.
Part of our early planning with executives involves setting up an Individual Pension Plan (IPP) which is a registered defined benefit pension plan established by an employer for an executive or owner of a company. In addition to providing many years of tax savings over one’s career, the IPP allows George to take advantage of something called “IPP Terminal Funding” when he receives his retirement bonus.
We also spoke to George of the benefits of receiving stock options. Unlike his salary and bonus, the appreciation on stock options is eligible for a stock option deduction. If the stock option is structured properly, the deduction will be equal to half the amount of the benefit. George discussed this with his employer and his employer was looking at ways to restructure the company’s incentive program to include stock options. George was able to convince his employer by suggesting that the granting of options would help align the employees’ objectives with those of the shareholders’.
After years of saving, senior executives such as George would have sufficient terminal funding room in their IPP at retirement to allow him to contribute the entire retirement bonus to the IPP and thereby defer tax on the full amount.
When couples like George and Meaghan are comfortably enjoying their retirement, we’re proud to know that our guidance, advice, and tax planning helped make it possible.
This situation is hypothetical, does not represent any actual clients, and is not to be viewed as a guarantee of investment performance.