FOR IMMEDIATE RELEASE Contact: William (Bill) Shaw Chief Executive Officer, Treegrove Investment Management Inc. 416-532-2882 Bill@Treegrove.ca Treegrove Investment Management Inc. Acquires Sprung Investment Management Inc., Strengthening Its Position as a Leading Asset Manager
Toronto, Ontario — May 1, 2026 — Treegrove Investment Management Inc. (“Treegrove”) today announced the successful completion of its acquisition of Sprung Investment Management Inc. (“Sprung”), a move that significantly expands Treegrove’s assets under management, deepens its investment expertise, and broadens its client base. Both firms are headquartered in Toronto, Ontario.
Transaction Overview Under the terms of the agreement, Treegrove has acquired 100% of the outstanding shares of Sprung Investment Management Inc. Financial terms of the transaction were not disclosed. The acquisition received all required regulatory approvals and has been completed effective April 30, 2026.
Strategic Rationale The combination of Treegrove and Sprung brings together two respected Toronto-based boutique investment management firms with complementary philosophies, capabilities, and client relationships. The acquisition is expected to create immediate value for clients of both firms through access to an expanded suite of investment strategies, enhanced research capabilities, and a broader range of portfolio management solutions. “This acquisition represents a defining milestone in Treegrove’s growth strategy,” said William (Bill) Shaw, Chief Executive Officer of Treegrove Investment Management Inc. “Sprung has built an outstanding reputation for delivering consistent, long-term investment results for its clients. We are proud to welcome the Sprung team into the Treegrove family and look forward to the value this partnership will create.” Michael Sprung, Chief Executive Officer of Sprung Investment Management Inc., added: “We are confident that Treegrove is the right partner to continue delivering the high-calibre investment management services our clients have come to expect. This combination positions both firms’ clients to benefit from greater resources, broader expertise, and the stability of a larger, well-established organization.”
Client and Employee Continuity Treegrove is committed to a seamless transition for all existing Sprung clients. Client accounts will continue to be managed with the same dedication and value-driven investment discipline that Sprung has provided since its founding in 2005. Sprung’s investment and client service teams will be fully integrated into Treegrove’s operations, and clients should expect no disruption to their current investment mandates or service relationships.
About Treegrove Investment Management Inc. Founded in 2018 and based in Toronto, Ontario, Treegrove Investment Management Inc. is a boutique wealth management firm dedicated to delivering superior, risk-adjusted returns for high net worth individuals, charities, and foundations. With a disciplined, research-driven investment approach and a commitment to transparency, Treegrove offers discretionary investment management, financial planning, individual pension plans, and portfolio reviews. As a fully independent, fee-based firm, Treegrove places clients’ interests first — always. For more information, visit www.treegrove.ca
About Sprung Investment Management Inc. Founded in 2005 and based in Toronto, Ontario, Sprung Investment Management Inc. is an independent, partner-owned boutique investment management firm known for its disciplined value investing approach. The firm builds and manages custom investment portfolios tailored to the unique circumstances and long-term goals of high net worth individuals, foundations, endowments, and not-for-profit organizations. All research and investment decision-making is conducted in-house, with clients dealing directly with the firm’s principals. For more information, visit www.sprunginvestment.com
December presents Canadian taxpayers with critical opportunities to implement strategic legacy planning measures before year-end deadlines. Professional advisors consistently observe that proactive estate planning decisions made during the final weeks of the calendar year can result in substantial tax savings and enhanced wealth preservation for future generations.
The following three strategic initiatives require immediate attention from Canadian professionals and business owners seeking to optimize their estate planning outcomes and minimize tax liabilities.
1. Update Will and Estate Documentation
Estate planning documentation requires regular review and updating to ensure alignment with current legislation, family circumstances, and financial objectives. Canadian tax law imposes deemed disposition rules at death, whereby all capital property is considered sold at fair market value, potentially triggering significant capital gains taxation.
Recent legislative changes and evolving family structures necessitate comprehensive review of existing wills, powers of attorney, and trust arrangements. The deemed disposition rule can result in substantial tax liabilities for estates containing appreciated assets, including investment portfolios, real estate holdings, and business interests.
Professional estate planning review should encompass several critical components. Primary residence ownership structures may benefit from evaluation, particularly for married couples where strategic joint ownership can provide tax advantages. Business owners holding corporate assets must consider succession planning implications and potential capital gains exposure upon death.
Trust structures offer sophisticated wealth transfer mechanisms for high-net-worth individuals. Alter ego trusts and joint partner trusts provide opportunities to defer capital gains realization while maintaining control over assets during lifetime. These instruments require careful structuring to comply with federal and provincial regulations.
Documentation updates should reflect current beneficiary intentions and family circumstances. Marriage, divorce, birth of children or grandchildren, and changes in provincial residence all warrant comprehensive estate plan review. Failure to update documentation can result in unintended beneficiaries receiving assets or inappropriate tax treatment of estate distributions.
2. Review Beneficiary Designations and Asset Titles
Registered account beneficiary designations and asset titling arrangements form the foundation of effective estate planning strategies. These designations supersede will provisions and directly control asset distribution upon death, making accuracy and currency essential.
Registered Retirement Savings Plans, Registered Retirement Income Funds, Tax-Free Savings Accounts, and corporate pension plans all require designated beneficiaries. Improper beneficiary designations can result in assets flowing through the estate rather than directly to intended recipients, potentially triggering unnecessary probate fees and administrative delays.
Spousal designations on registered accounts provide valuable tax deferral opportunities through spousal rollover provisions. Non-spousal beneficiaries may face immediate tax inclusion of registered account values, making strategic beneficiary selection crucial for tax minimization.
Life insurance policies represent significant estate planning tools requiring current beneficiary designations. Corporate-owned life insurance presents particular complexity, as business succession planning considerations must align with personal estate objectives. Professional review ensures policy ownership structures optimize both corporate and personal tax outcomes.
Real estate holdings benefit from strategic titling arrangements. Joint tenancy with right of survivorship provides automatic asset transfer outside probate proceedings, while tenancy in common arrangements allow for more flexible estate planning strategies. Professional evaluation determines optimal ownership structures based on individual circumstances and objectives.
Investment account titling requires coordination with overall estate planning strategies. Individual, joint, and trust account registrations each provide distinct advantages depending on investment objectives, tax considerations, and succession planning requirements.
3. Tax-Efficient Gifting and Charitable Giving
Year-end charitable giving and strategic gifting present valuable opportunities for tax optimization while supporting philanthropic objectives and family wealth transfer goals.
Charitable donation strategies extend beyond simple cash contributions. Donation of publicly traded securities eliminates capital gains taxation on appreciated positions while providing full fair market value donation receipts. This approach effectively doubles the tax benefit compared to selling securities and donating proceeds.
Charitable giving accounts offer flexibility for taxpayers seeking immediate tax benefits while maintaining discretion over ultimate charitable recipients. These arrangements provide current-year donation receipts while allowing future charitable allocation decisions.
Private foundation establishment represents sophisticated charitable planning for high-net-worth individuals with significant philanthropic objectives. Foundations provide perpetual charitable vehicles while offering family involvement opportunities and enhanced tax benefits.
Strategic lifetime gifting to adult children reduces estate values and associated probate fees while minimizing capital gains exposure at death. Gift timing considerations must account for potential future appreciation of transferred assets and overall family tax planning objectives.
Corporate surplus stripping through dividend distributions to family members in lower tax brackets can achieve significant tax savings. Professional structuring ensures compliance with attribution rules and optimization of family unit tax efficiency.
Income splitting opportunities through family trusts or corporate structures provide ongoing tax benefits while facilitating wealth transfer objectives. These arrangements require careful implementation to satisfy Canada Revenue Agency requirements and achieve desired outcomes.
Implementation Considerations
Professional guidance proves essential for implementing comprehensive legacy planning strategies. Tax legislation complexity, provincial variations, and individual circumstances require specialized expertise to ensure optimal outcomes.
Estate planning implementation timelines must accommodate year-end deadlines for maximum tax benefit realization. Charitable donation timing, gift completion, and documentation updates all require coordination to achieve intended results within current taxation years.
Professional collaboration between legal counsel, tax advisors, and investment managers ensures comprehensive strategy development and implementation. Each professional discipline contributes specialized expertise essential for sophisticated estate planning success.
Ongoing monitoring and periodic review maintain estate plan effectiveness as circumstances evolve. Annual review cycles ensure continued alignment between estate planning strategies and changing legislation, family needs, and financial objectives.
Strategic Portfolio Integration
Legacy planning strategies require integration with comprehensive investment management approaches to achieve optimal long-term outcomes. Professional portfolio management services provide essential coordination between estate planning objectives and investment strategies.
Portfolio construction must accommodate estate planning considerations including liquidity requirements, tax optimization, and beneficiary objectives. Investment management professionals ensure asset allocation strategies support both current income needs and legacy planning goals.
Treegrove Investment Management Inc. provides comprehensive portfolio strategy reviews integrating estate planning considerations with investment management objectives. Professional consultation ensures alignment between legacy planning strategies and overall wealth management goals.
Penny Stayropoulos, CFA CIM TEP CFP FMA, is a Partner and Portfolio Manager at Treegrove Investment Management Inc. Professional estate planning consultation is available through comprehensive portfolio strategy reviews designed to integrate legacy planning objectives with investment management strategies.
Investment fees represent a critical factor in portfolio performance that many investors systematically misunderstand or ignore. The implementation of Client Relationship Model 3 (CRM3) regulation will fundamentally alter fee transparency in the Canadian investment landscape. This regulatory framework will expose common fee-related mistakes that have historically remained hidden from investor scrutiny.
The Seven Critical Fee Mistakes
Mistake 1: Complete Fee Ignorance
Many investors focus exclusively on gross returns while treating fees as an afterthought. This approach neglects the mathematical reality that fees directly reduce net portfolio value. A portfolio valued at $500,000 with annual fees of 2% experiences a $10,000 reduction in value each year. The compounding effect of this reduction significantly impacts long-term wealth accumulation.
Investment decisions require comprehensive cost analysis before execution. Funds with high expenses must demonstrate superior performance that justifies the additional cost burden. The absence of such analysis constitutes a fundamental error in portfolio management.
Mistake 2: Inadequate Fee Structure Comprehension
Investment fees encompass multiple components that many investors fail to distinguish. Management Expense Ratios (MERs) cover fund administration and management costs. Trading Expense Ratios (TERs) reflect the cost of portfolio transactions within the fund structure.
Additional fee categories include front-end loads, back-end loads, and low-load arrangements. Currency conversion fees apply to international holdings. Margin interest charges accrue on leveraged positions. Each fee category impacts net returns through different mechanisms and timing structures.
Mistake 3: Gross Return Focus Without Net Return Analysis
Investors frequently evaluate fund performance based on gross returns without subtracting associated costs. A fund generating 8% gross returns with 1.7% in total fees delivers only 6.3% net returns to the investor. This 1.7% differential compounds annually, creating substantial long-term performance gaps.
Proper investment analysis requires net return evaluation across all time periods. The mathematical impact of fees accelerates through compounding, making fee consideration essential for accurate performance assessment.
Mistake 4: Acceptance of Unnecessary Sales Charges
Sales charges represent pure cost extraction from portfolios without corresponding performance benefits. Front-end loads reduce initial investment capital. Back-end loads penalize early redemptions. These charges serve distribution purposes rather than investment management functions.
Fee-based account structures eliminate sales charges through consolidated advisory fee arrangements. No-load fund alternatives provide similar investment exposure without sales charge burdens. Recent regulatory changes have eliminated deferred sales charge structures, yet many investors continue paying avoidable fees.
Emotional investment decisions frequently trigger excessive portfolio turnover. Each transaction generates brokerage fees, commissions, and market impact costs. These trading expenses accumulate rapidly and directly reduce net returns.
Frequent trading behavior often correlates with poor timing decisions and increased tax consequences. The combination of emotional decision-making and fee generation creates a dual negative impact on portfolio performance. Systematic approaches to portfolio management reduce both emotional errors and associated transaction costs.
Mistake 6: Inadequate Fee Structure Comparison
Actively managed funds typically charge higher expense ratios than passive alternatives. Index funds and Exchange-Traded Funds (ETFs) provide broad market exposure with minimal fee structures. Many investors pay premium charges without recognizing lower-cost alternatives.
Financial advisor compensation structures may create incentives to recommend higher-fee proprietary products. Bank-affiliated advisors often promote institutional products with higher fee structures rather than low-cost alternatives. Independent fee verification ensures optimal cost structures for specific investment objectives.
Mistake 7: Failure to Validate Fee Calculations
Fee calculation errors occur with sufficient frequency to warrant independent verification. Management companies may misapply fee bases by continuing charges on committed capital beyond step-down thresholds. Compounding methodologies can be incorrectly implemented. Hurdle rate calculations may contain mathematical errors.
Investors typically rely exclusively on manager-provided fee calculations without independent validation. This creates governance blind spots that can materially affect long-term returns. Small calculation deviations compound over time, making accuracy verification essential for proper portfolio management.
CRM3: The Transparency Revolution
Client Relationship Model 3 regulation represents a fundamental shift in fee disclosure requirements. Implementation begins January 1, 2026, with first reports covering the 2026 calendar year. This regulatory framework will eliminate fee opacity that has historically enabled investor mistakes.
Dollar-Based Fee Disclosure
Current fee reporting embeds costs within performance figures, rendering them effectively invisible to most investors. CRM3 mandates dollar-based fee disclosure alongside percentage figures. Investment statements will display the exact dollar amount extracted from portfolios through fees.
This transparency eliminates ambiguity regarding fee impact. Instead of abstract percentage figures, investors will observe concrete dollar amounts removed from their accounts. The psychological impact of dollar-based disclosure typically generates increased fee sensitivity and more rigorous cost evaluation.
Comprehensive Cost Breakdown
Annual statements under CRM3 will separately display Management Expense Ratios and Trading Expense Ratios as a combined Fund Expense Ratio (FER). This breakdown eliminates vague cost references and provides specific dollar amounts for each fee category.
The detailed breakdown enables investors to evaluate whether active management fees generate corresponding value. Trading expense disclosure reveals the cost of portfolio turnover within fund structures. This granular information supports more informed investment decision-making.
Enhanced Comparative Analysis
Consistent dollar and percentage disclosure across entire portfolios facilitates direct fee comparison between investment alternatives. Investors will immediately recognize fee differentials between similar funds. A fund charging 0.75% annually versus a comparable option at 0.25% will be clearly visible in dollar terms.
This comparative clarity drives evidence-based investment selection rather than marketing-influenced decisions. The ability to compare true costs across investment alternatives will likely shift capital flows toward more cost-efficient options.
Calculation Accuracy Incentives
Transparent client statement disclosure creates strong incentives for accurate fee calculation. Client scrutiny increases substantially when fees appear prominently on statements. Management companies face greater accountability for calculation accuracy and methodology application.
The regulatory requirement for clear disclosure reduces opportunities for calculation errors to persist unnoticed. Independent verification becomes more practical when fee information is transparently presented to clients.
Implementation Scope and Timeline
CRM3 applies to most investment funds held in registered and non-registered accounts. Coverage includes mutual funds, ETFs, and segregated funds. Exclusions encompass individual stocks, Guaranteed Investment Certificates, labour-sponsored funds, and prospectus-exempt funds.
The implementation timeline requires advisors and firms to gather fund-level expense data and match it with client holdings. Accurate reporting begins January 1, 2026, representing a compressed preparation period for industry participants.
Conclusion
Investment fee mistakes have historically remained hidden through complex disclosure practices and investor inattention. CRM3 regulation will eliminate this opacity and force direct confrontation with fee-related decisions. The transparency requirements will likely drive significant changes in investor behavior and industry practices.
The seven mistakes outlined above represent systematic errors that have persisted due to inadequate disclosure and investor education. CRM3 implementation will make these mistakes visible and costly, creating powerful incentives for improved investment decision-making.
Investment fee transparency represents a fundamental shift in the Canadian investment landscape. The elimination of fee opacity will benefit investors who engage seriously with cost analysis while exposing those who continue to ignore these critical factors.
Incorporated professionals face unique tax optimization opportunities that remain underutilized across Canadian wealth management practices. The implementation of structured, evidence-based investment frameworks generates substantial tax savings while maintaining disciplined portfolio construction principles.
The Corporate Investment Advantage
Canadian corporations accessing the small business deduction benefit from preferential tax treatment on the first $500,000 of active business income. This differential creates investment opportunities through retained earnings strategies that significantly outperform traditional salary-based compensation structures.
Retained corporate earnings invested in capital gains-producing assets generate superior after-tax returns compared to personal investment accounts. The corporate tax rate differential, combined with capital gains treatment and Capital Dividend Account credits, establishes a foundation for systematic wealth accumulation.
The framework prioritizes investments generating capital appreciation over income-producing assets within corporate structures. Equity investments, exchange-traded funds, and growth-oriented securities receive preferential treatment under this methodology, as capital gains realize at substantially reduced tax rates compared to dividend distributions or interest income.
Strategic Asset Location Framework
Asset location strategy represents a critical component of tax-efficient portfolio construction for incorporated professionals. The systematic placement of investments across registered accounts, corporate investment accounts, and personal taxable accounts maximizes the after-tax value of investment returns.
Income-generating assets, including bonds, dividend-paying securities, and real estate investment trusts, receive optimal placement within registered retirement savings plans and tax-free savings accounts. These vehicles eliminate immediate taxation on distributions while preserving compound growth opportunities.
Corporate investment portfolios accommodate capital gains-focused investments that benefit from preferential corporate tax rates and subsequent Capital Dividend Account credits. This structure enables tax-free distribution of accumulated investment gains to shareholders, creating substantial long-term tax savings.
Capital Dividend Account Optimization
The Capital Dividend Account mechanism provides incorporated professionals with tax-free access to accumulated investment gains. Fifty percent of realized capital gains within corporate investment accounts generate CDA credits, enabling distributions to shareholders without personal income tax consequences.
Strategic realization of capital gains within corporate portfolios builds CDA balances while maintaining portfolio growth objectives. The timing of CDA distributions requires coordination with business cash flow requirements and personal income tax planning considerations.
Business capital losses reduce CDA balances, necessitating careful consideration of loss realization timing. Professional coordination between investment management and tax planning services ensures optimal CDA utilization throughout varying business cycles.
Tax-Loss Harvesting Implementation
Systematic tax-loss harvesting within corporate investment portfolios generates immediate tax benefits while maintaining strategic asset allocation targets. The realization of investment losses offsets capital gains within the corporate structure, reducing current year tax obligations.
The implementation of tax-loss harvesting requires adherence to superficial loss rules and careful consideration of business investment objectives. Professional portfolio management ensures compliance with regulatory requirements while maximizing tax optimization opportunities.
Separately managed account structures enable customized tax-loss harvesting at individual security levels. This approach captures loss realization opportunities within rising markets while maintaining overall portfolio exposure to targeted asset classes.
Small Business Deduction Considerations
The small business deduction phases out when passive investment income exceeds $50,000 annually, requiring careful monitoring of corporate investment income levels. Passive income between $50,000 and $150,000 triggers proportional reductions in small business deduction eligibility.
Investment strategies must balance growth objectives with small business deduction preservation requirements. The strategic timing of investment income realization and capital gains distribution maintains optimal corporate tax treatment while achieving long-term wealth accumulation objectives.
Professional coordination between investment management and corporate tax planning ensures compliance with evolving tax regulations while maximizing available deduction benefits throughout varying income levels.
Risk Management Within Corporate Structures
Corporate investment assets remain subject to business creditor claims and operational risks inherent in professional practice structures. The concentration of investment assets within operating companies requires careful risk assessment and potential segregation strategies.
Holding company structures provide enhanced asset protection while maintaining tax optimization benefits. The establishment of separate investment entities reduces operational risk exposure while preserving access to small business deduction benefits and capital dividend account mechanisms.
Professional insurance coverage and corporate structure optimization work in conjunction with investment strategies to protect accumulated wealth from business-related liabilities and operational disruptions.
Evidence-Based Investment Selection
The framework emphasizes low-cost, broadly diversified investment vehicles that minimize unnecessary trading activity and associated tax consequences. Index-based exchange-traded funds provide optimal tax efficiency through reduced portfolio turnover and structured distribution policies.
Many exchange-traded funds avoid distributing realized capital gains to unitholders, creating superior tax efficiency compared to actively managed mutual fund structures. This characteristic proves particularly beneficial within corporate investment portfolios subject to passive income limitations.
The selection of tax-efficient investment vehicles requires ongoing monitoring of fund distribution policies and portfolio turnover characteristics. Professional investment management ensures optimal vehicle selection while maintaining adherence to evidence-based investment principles.
Integration with Personal Financial Planning
Corporate investment strategies require coordination with personal financial planning objectives and registered account contributions. The optimal balance between corporate retained earnings and personal registered account contributions varies based on individual circumstances and long-term financial objectives.
The strategic withdrawal of corporate dividends coordinates with personal income requirements and tax bracket management. This approach minimizes overall family tax obligations while ensuring adequate personal cash flow for living expenses and registered account contributions.
Professional financial planning integration ensures corporate investment strategies support comprehensive wealth accumulation and estate planning objectives while maintaining optimal tax efficiency throughout varying life stages.
Implementation Through Professional Management
The complexity of corporate investment taxation and regulatory compliance requirements necessitates professional investment management and ongoing tax planning coordination. The implementation of systematic frameworks requires expertise in corporate taxation, investment management, and financial planning integration.
Treegrove Investment Management provides comprehensive corporate investment solutions designed specifically for incorporated professionals seeking tax-efficient wealth accumulation strategies. Our value-based approach combines low-cost investment vehicles with sophisticated tax optimization techniques to maximize after-tax returns while maintaining disciplined portfolio construction principles.
The value-based framework generates substantial tax savings through systematic implementation of corporate investment strategies, asset location optimization, and coordinated financial planning. Professional management ensures ongoing compliance with evolving tax regulations while maintaining focus on long-term wealth accumulation objectives.
For additional information regarding our approach to value-based investment management, please connect with uswww.treegrove.ca
Kathy Chow brings over 20 years of expertise in Canada’s wealth management industry, serving high-net-worth individuals, families, and businesses. Her career spans multiple leading bank-owned and co-operative wealth management firms, providing her with diverse institutional insights and access to comprehensive financial solutions.
Kathy specializes in financial and retirement planning, portfolio optimization, and personalized investment strategies. Her client-first approach focuses on understanding each client’s unique circumstances, risk tolerance, and long-term objectives rather than offering standardized solutions.
Her expertise encompasses navigating Canada’s complex tax and regulatory environment, optimizing retirement income strategies, implementing estate planning solutions, and developing tax-efficient investment approaches. She serves entrepreneurs, corporate executives, retirees, and multi-generational families, providing business succession planning and comprehensive wealth management services.
Known for her transparency and fee-conscious investment strategies, Kathy has established a reputation as a trusted fiduciary who consistently prioritizes her clients’ interests. She provides integrated wealth management solutions that evolve with changing life circumstances and financial goals, making her a valuable partner for building, preserving, and transferring wealth across generations.
Hello, financial friends! Welcome to the exciting world of finance. We explore the various financial topics of interest in an insightful way. Let’s put the fun back into “finance.” What? It was never fun? Well, let’s change that!
Do you have questions about your finances? Listen to the different episodes as we explore subjects such as financial planning and different sectors, like venture capital, how to calculate your net-worth and other financial wonders of the world.
The changes to tax rules on split income and passive income have accountants and advisors inquiring about individual pension plans (IPP).
Since 1991, owner-managers who are “connected persons” (in general terms, someone with at least a 10% ownership interest in the employer corporation, or related to the employer) have again been able to establish IPPs. The plans recognize up to 28 years of past service, and contributions are tax deductible for the employer. Where this is the case, the employer contributions for this past service could be significant.
IPPs have a 2% rate of accrual, with a defined benefit limit for 2019 of $3,025.56. Someone with compensation of $151,278 (of which 2% is $3,025.56) will have accrued the maximum pension for 2019.
If the earnings for the prior 28 years allowed for the maximum, the accrued annual pension as of Jan. 1, 2019 would be $84,715.68. CPP (and possibly OAS) bridge benefits could be provided as well. Adding to the IPP’s attractiveness, all pension benefits can be indexed to CPI.
The defined benefit versus the defined contribution provision
Virtually all IPPs established in 1991 had only a defined benefit (DB) provision, while most implemented in recent years have a defined contribution (DC) provision to accommodate younger family members (typically below age 40) where the DC provision will provide for a larger annual contribution than the DB provision. If not, the plan text can easily be amended.
The question that is increasingly being asked is whether having a hybrid plan with both DB and DC provisions can be used in other ways to provide value.
Our answer: perhaps.
The DC provision’s value
The DC provision can be comprised of two accounts. For years when a member participates in the DC provision, total employer and employee contributions are capped at 18% of compensation, up to the money purchase limit ($27,230 for 2019). CRA will require minimum employer contributions of 1% of compensation (unless the DB provision has excess surplus). The IPP provisions dictate the amount of required employer/employee contributions.
All registered pension plans are regulated by CRA and, in some jurisdictions, a provincial pension supervisory authority. CRA does not require minimum contributions for a DB provision, though the provincial authority may. Thus, some employers who face financial cash flow constraints may wish to limit their contributions to the DC provision’s 1% of earnings for jurisdictions requiring contributions. (There are other approaches for employers facing funding constraints. Ontario, for instance, allows for “adverse amendments” to the plan.)
The DC provision can also have an additional voluntary contribution (AVC) account. Imagine Joe, whose pensionable earnings are $100,000. If, in the year in which he participated in the DC provision, the employer was required to contribute the minimum of $1,000 (1% of $100,000), Joe could choose to contribute up to $17,000 (17% of $100,000) to the AVC. However, this strategy would generally deliver less than a DB provision for members aged 38 and older.
Implementing an IPP would generally not be appropriate if the employer doesn’t want to provide a significant DB pension to the eligible owner-manager, or anticipates being unable to do so.
If the employer later wishes to provide a DB pension for the years in which the owner-manager was a member of the DC provision, a past-service pension adjustment will be needed, as well as an actuarial valuation report.
Most IPPs include an AVC account, which allows investment management fees to be charged directly to the employer, rather than against the IPP’s assets. These investment management fees are tax-deductible to the employer, allowing for greater accumulation within the AVC account compared to an RRSP. The member could transfer RRSP assets—other than those that form part of the “qualifying transfer” required to fund past service under the DB provision—into the AVC account when implementing the IPP.
Optimal IPP contributions
In Table 1 we illustrate two case studies taking into account the significant deduction for terminal funding. The maximum funding valuation, which must be employed for designated plans, artificially caps contributions to the IPP. Terminal funding can occur once all plan members have started collecting a pension and the IPP has been de-designated.
Table 1
Janelle, age 64 on Jan. 1, 2019
Lionel, age 60 on Jan. 1, 2019
Retirement pension
Years of service
28
28
Lifetime benefit assuming a maximum accrual (unreduced)
$84,700
$84,700
Bridge pension (to age 65)
$13,750
$13,750
Total payment until age 65
$98,450
$98,450
Funding
Past service contribution by employer
$529,000
$441,500
Qualifying transfer from RRSP
$679,320
$679,320
Terminal funding
$985,000
$1,436,000
Total value of IPP on Jan. 1
$2,193,320
$2,557,220
What if the individual had been in the RRSP system?
Let’s see what rate of return (ROR) Janelle and Lionel would have had to achieve in their RRSP (net of fees) to arrive at the same Jan. 1, 2019 balance as their IPPs.
The maximum RRSP room for someone contributing from Jan. 1, 1991 to Jan. 1, 2019 is $528,050, taking into account the maximum RRSP room of $27,230 for 2019.
We looked at two scenarios. In the first, Janelle and Lionel made the maximum contribution to their RRSP every Jan. 1. In the second, they didn’t contribute in the earlier years and put in a flat amount of $52,805 every Jan. 1 from 2010 through 2019.
If we look at the numbers in Table 2, we see that if Janelle had the means (and the discipline) to contribute the maximum to her RRSP every Jan. 1, she would have had to earn returns of 9.9% per annum (compared to 10.8% for Lionel) to match her IPP total.
Table 2
Required ROR for Janelle
Required ROR for Lionel
Annual RRSP contributions from 1991 to 2019
9.9%
10.8%
Maximum annual RRSP contributions from 2010 to 2019
29.5%
32.6%
Contributions to RRSPs are often deferred. The good news since 1991 has been that RRSP contributions can be carried forward. Unfortunately, the amounts are not indexed. If Janelle and Lionel spent their earlier years investing in their businesses and only started contributing to RRSPs in their later years, the required rate of returns jump to 29.5% and 32.6%, respectively.
In our current investment environment of low inflation and low bond yields, none of the annual returns in Table 2 are achievable over longer periods. This means there is real value in the DB provision. There could be some value in the DC provision, where provincial rules require minimum contributions, but these circumstances should be analyzed carefully. The DB provision will always provide a larger benefit than the DC provision.
Clearly, the IPP is a powerful tax-planning and retirement tool.
What Should You Be Doing in This Current Market Correction
Markets do not always go straight up and for the past few months we have had some significant daily market moves. In the last three days, we saw the Dow Jones Index fall over a thousand points.
It is important not to panic during these times but to remember why you are investing in the ancial markets
The key to successful investing in your portfolio is to have a pre-determined investment process and not to get emotional about the markets. When markets have large swings in daily valuations, it is tough not to act on emotions and to remember your investment process.
One day or week does not make a market
Having discipline in volatile markets is critical to making the right investment decision.
The consistent use of an investment process will maximize your investment returns and help achieve your long term goals.
In my 40 plus years of being a student of the market, the one thing that I know that works is being disciplined and sticking to your process, the only way to weather the storm, is to stay the course.
Don’t deviate from the plan
It it the foundation for success.
Know and understand the securities you are invested in. Major sell-offs often provide opportunities for buying companies on the cheap and/or to average down you existing holdings
Regular rebalancing of portfolios will help mitigate the impact of volatile markets
Bill Shaw, president at Treegrove Investment Management, explains a long-term savings plan that many people may not be aware of: the Registered Disability Savings Plan that helps Canadians with disabilities save for the future. Shaw says the program includes government contributions and possible tax credits to help boost savings.
Disability and Special Need Financial Planning
The Registered Disability Savings Plan (RDSP) is a long-term savings plan to help Canadians with disabilities and their families save for the future. If you have an RDSP, you may also be eligible for grants and bonds to help with your long-term savings.
You should consider opening an RDSP if you have a long-term disability and are:
eligible for the Disability Tax Credit;
under the age of 60 (if you are 59, you must apply before the end of the calendar year in which you turned 59);
a Canadian resident with a Social Insurance Number; and
looking for a long-term savings plan.
You may contribute any amount to your RDSP each year, up to the lifetime contribution limit of $200,000. With written permission from the RDSP holder, anyone may contribute to the RDSP.
Many Canadians are not aware that that they can qualify for the Disability Tax Credit (DTC). If you qualify for the DTC, many additional financial planning opportunities are available to you.
First and foremost, you can open up a Registered Disability Savings Account. By doing so, the federal government encourages saving with generous contributions to RDSPs, even when people don’t contribute themselves.
The RDSPcan be invested and will grow on a tax deferred basis. When money is withdrawn, part of it (the government contributions and investment income) is considered taxable income to the RDSP beneficiary.
Currently, the number of RDSP accounts opened to date is estimated to be about 15% of the people who qualify for the RDSP. Approximately 643,000 Canadians between the ages of of zero and 59 who are eligible to open an RDSP, showing that the plans are still underused by disabled individuals and their families.
The major benefit of opening an RDSP is to obtain free government grants. These grants are called Canada Disability Savings Grants. An RDSP can receive a maximum of $3,500 in matching CDSGs in any one year and a total maximum of $70,000 over the lifetime of the RDSP’s beneficiary. The amount a beneficiary can receive will depend on the individual’s or family’s income For RDSP beneficiaries under age 18, it’s the net income of the child’s parents or guardians that is used to qualify. For those 18 or over, it’s their own family income that is used to qualify, even if they still live with their parents.
For those just opening a plan, Ottawa allows a 10-year carry forward of unused grant and bond entitlements. Since RDSPs have been around since 2008, people can claim unused grant and bond money going back to that year.
For more information, please email Bill@Treegrove.ca
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