TAX-FREE

SAVINGS ACCOUNT Power, Freedom, Security: TFSA Advantage

FOR ADVISOR USE ONLY

The Tax-Free Savings Account (TFSA) Canadian residents 18 years or older who have a Social Insurance Number (SIN) can contribute up to $10,000 a year in 2015 and beyond to a Tax-Free Savings Account (TFSA). With a TFSA, your clients finally have the opportunity to shelter their investment growth from taxes and access their earnings at any time, and for any purpose, tax-free…for life.

Key Features of a TFSA Who

Canadian residents 18 years+ (other than a trust)

Deposits

Not tax deductible

Withdrawals

Tax free. The amount withdrawn will be added back to the contribution room in the following year.

Annual Maximum

$10,000 a year

Growth

No taxes on interest, dividends or capital gains

Eligible Investments (include)

Empire Life Guaranteed Investment Funds, Guaranteed Interest Contracts (GIC’s)

Unused Contribution Room

Carried over for future years

Government Income-Tested Benefits

Deposits and withdrawals do not affect eligibility for Old Age Security (OAS), Guaranteed Income Supplement (GIS), Canada Child Tax Benefit (CCTB), Goods and Services Tax (GST) credit

As the next generation of tax shelters, the TFSA could change the way that Canadians aim to meet their investment goals.

2

THE MOST POWERFUL PERSONAL TAX-FREE SAVINGS INCENTIVE SINCE THE RRSP.

Fast Facts • In 2004, Canadians took $7 billion in early RRSP withdrawals (all taxable income at source withholding tax ranging from 10-30%) 1 • Based on current patterns, seniors may receive 50% of the key TFSA benefits 2 • Baby Boomers are a third of the population and began to retire in 2011 3 • 25% of RRSP holders either maximize their contribution limits or face Registered Pension Plan (RPP) pension adjustments 4 Canadians now have another option to invest their money, tax-free.

3

What does an Empire Life TFSA mean to your potential investors? Whether your clients need more room to shelter their savings, or a tax-free income to enhance their lifestyle, with an Empire Life TFSA they have an added advantage.

üüPower of tax-free investment earnings without impacting eligibility for government income-tested benefits

üüFreedom of flexible features and tax-free withdrawals at any time, for any purpose üüSecurity of certain benefit guarantees that may be reset to take advantage of higher market values when your TFSA is invested in Empire Life Guaranteed Investment Funds Power of tax-free growth • Tax-free capital gains, interest and dividends • Couples can save $20,000 annually • More tax free savings for investors who maximize their RRSPs or are subject to pension adjustments

4

TAX-FREE SAVINGS: WHAT DREAMS ARE MADE OF Carolyn and Jason are saving for the business of their dreams which is an upscale restaurant in the entertainment district. Together they can save $20,000 annually plus any unused contribution can be carried forward to shelter more of their retirement savings as the business grows.

Freedom of flexible features • TFSA’s are accessible and tax-free withdrawals provide an ideal solution for emergency expenses, investing in a business, or even a family vacation • Withdrawals will be added back to the individual’s TFSA contribution room for the following year and can be re-contributed tax free for any purpose (without affecting annual contribution limits) • Unused contribution room is carried forward • Provide a tax free savings alternative where Registered Pension Plan (RPP) pension adjustments reduce the amount of available contribution room in an RRSP Security of a tax sheltered income • Seniors can continue growing their investment portfolios tax-free after the mandatory RRSP conversion age of 71 • Any surplus income from a RRIF/LIF/LRIF or PRIF can be reinvested in a TFSA to the extent they have TFSA contribution room available • Neither the growth earned within, nor withdrawals from, a TFSA affect eligibility for federal income-tested benefits and subsidies (OAS, GIS, and the GST credit) • A TFSA can be transferred to a spouse or common-law partner tax-free upon death without affecting annual contribution limits A TFSA can help any eligible Canadian regardless of their income level or investment goals.

5

Comparison of a TFSA, RRSP and Non-Registered Savings Plan TFSA

Non-Registered Savings Plan

RRSP

2015 Annual Maximum Contribution

$10,000

18% of 2014 Earned Income (up to $24,930)

n/a

Contributions

Not tax deductible

Tax deductible

Not tax deductible

Eligible Empire Life Investments

Guaranteed Investment Funds, GIC’s

Guaranteed Investment Funds, GIC’s

Guaranteed Investment Funds, GIC’s

Withdrawals

Tax–free

Taxable

Earnings taxable

Primary Uses

Any purpose

Retirement

Government Income-Tested Benefits

Eligibility unaffected

Affects eligibility

Eligibility unaffected

Age Restrictions

18 years – no maximum age

No minimum – 71 years (mandatory conversion)

n/a

Unused Contribution Room

Carried forward

Carried forward

n/a

Taxes on Investment Earnings Growth

Tax-free

Deferred

Taxable

6

5

Any purpose

TFSA: A MORE VERSATILE TAX SAVING VEHICLE Andre and his family have always wanted to take a summer vacation touring the Atlantic provinces. Now Andre can access his investment tax-free at any time. Plus, tax-free withdrawals can be reinvested the following year, as his contribution limit would have been adjusted after the withdrawal. Now Andre and his family can take that vacation they always wanted to.

Benefits of Saving in a TFSA versus a Non-Registered Savings Plan A TFSA offers you significant advantages over a non-registered savings plan. The TFSA allows you to grow your investments and draw income from them tax-free. In contrast, non-registered savings plan earnings are taxable. For example, if a Canadian with an average annual income of $45,000 deposited $10,000 into a TFSA annually for ten years, the result would be significant tax savings over making the same deposit in a non-registered savings plan. Tax-Free Savings Account

Non-Registered Savings Plan

Contribution

$10,000

$10,000

Interest Rate

3.5%

3.5%

Term

10 years

10 years

Growth

$121,420

$114,260

Tax Savings

$7,160

0

Source: Empire Life Investments Inc. Assumes a tax rate of 31.15%. All contributions are made at the beginning of the year. For illustration purposes only and not indicative of future returns.

Now your clients can keep more of their hard-earned money with a TFSA.

7

Product Comparison: TFSA versus an RRSP? A TFSA and an RRSP have many similar features (with a few key differences). As you know, RRSP contributions are tax deductible with annual limits based on a percentage of earnings. Early withdrawals are subject to withholding tax and growth is only tax deferred as it must be converted at age 71 into a RRIF or annuity. A TFSA deposit is not tax deductible; however, it has no conversion age restrictions, contributions are not tied to earnings, there are no restrictions on how withdrawals are used, and it has no impact on eligibility for Federal income-tested benefits and credits. Both provide the option to carry unused contribution room forward to future years.

TFSA for Retirement Savings: Complement or Supplement? So, should a TFSA replace the RRSP as the ideal retirement savings vehicle? • If the marginal tax rates at deposit and withdrawal are identical, the TFSA and the RRSP are equally effective • If the marginal tax rate during withdrawal is lower than at contribution: the RRSP wins • If the marginal tax rate during withdrawal is higher than at contribution: the advantage goes to a TFSA Many Canadians may be at identical or higher marginal income tax rates during retirement making the TFSA an ideal tax-free retirement savings and income solution.

8

AN INVESTMENT IN PEACE OF MIND Joanne is in her mid 50’s and plans to contribute the maximum to her TFSA right up until she retires at age 65. At that point she will qualify for Old Age Security (OAS) benefits. She will be able to withdraw as much as she wants from her TFSA with no income tax implications. In addition, her withdrawals are not counted as income and will not trigger the OAS clawback.

TFSA Strategies to use with your clients Strategy

Key Benefits

How Does it Work?

Use a TFSA to help clients achieve short-term goals and cover unforeseen expenses.

Avoid the early RRSP withdrawals TFSA withdrawals are not taxable subject to withholding taxes of and are available at any time. 10-30% or more.

Allow retirees to continue saving, or supplement their income, without affecting Old Age Security.

Especially for retirees who earn $30,000 or less and rely on pensions.

At age 71, RRSP conversion is, mandatory. A TFSA has no age limit on deposits and earnings.

Use a TFSA to protect your client from a loss of income due to illness or accidents.

Pre or post retirees who do not have insurance to protect their assets and their families.

A TFSA can provide tax-free income to cover the premium cost of permanent or term life or critical illness insurance policy.

Optimize your client’s retirement income plan with a combination of RRSPs and TFSA.

Use TFSA withdrawals in the years when income is higher than in the year it was deposited for a higher net savings on taxes.

RRSP withdrawals are taxable while TFSA withdrawals are tax-free.

Substitute RESP contributions after age 17 (when beneficiaries no longer qualify for the grant incentive) with a TFSA.

Continue saving tax-free for a child or grandchild’s TFSA after savings grants have been maximized.

Child can then take out earnings of both the RESP (taxable) and TFSA (non-taxable) to fund their education.

9

Things to remember • Interest on money borrowed to invest in a TFSA is not tax deductible • Excess contributions are taxed at one percent a month (identical to RRSP) • Contributions in kind to a TFSA are considered a taxable disposition of the original investment with capital gains reported and losses denied • Withdrawals cannot be re-contributed to a TFSA in the same year. The withdrawal will be added back to their contribution room in the following year • One investor can hold many TFSAs (if the total deposits are within their annual contribution limit) • Existing TFSAs can grow and be withdrawn tax-free by a non resident, however, additional contributions are not allowed until residency is restored

10

For more information For more information on the Empire Life TFSA, contact your Empire Life Account Executive, or visit the Canadian Revenue Agency website at http://www.budget.gc.ca 1

Stats Can Report: – The Daily: Canada’s retirement income programs Tuesday, February 7, 2006

2

Ministry of Finance: Budget 2008 release on the TFSA

3

2006 Stats Can Census Report: Portrait of the Canadian Population in 2006, by Age and Sex: Highlights

4

Statistics Canada Neighbourhood insights – Your guide to the statistical information packages available from Small Area and Administrative Data Division, May 4, 2006 RRSP withdrawals used for the HBP (Home Buyers Program) must be returned within 15 years and the LLP (Lifelong Learning Program) must be returned within 10 years.

5

11

The Empire Life Insurance Company (Empire Life) offers competitive individual and group life and health insurance, investment and retirement products to help you build wealth and protect your financial security. Empire Life is among the top 10 life insurance companies in Canada1 and is rated A (Excellent) by A.M. Best Company2. Our vision is to be known for simplicity, being easy to do business with and having a personal touch. 1 2

The Globe and Mail Report on Business, June 2014, based on revenue As at May 19, 2015

The Empire Life Insurance Company has been managing money for 50 years; including through its subsidiary Empire Life Investments Inc. since 2012. †

Past performance is no guarantee of future performance. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance made on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decision. A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a Segregated Fund is invested at the risk of the contract owner and may increase or decrease in value. Registered trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company. ®

Investments • Insurance • Group solutions www.empire.ca [email protected] INP-0282-EN-05/15