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lacible | Octobre 2020
Step 3 – Projection based on the IQPF and FP
Canada Projection Assumption Guidelines
The next step is to project the account balances
using the Projection Assumption Guidelines and
the same assumptions used for the reference
scenario (management fees, foreign income tax,
dividend component and corporate tax accounts).
Following our example, the net value of the
portfolio after taxes is $309,301 after one year (see
Table 6 below).
Step 4 – Rebalancing the accounts after taxes
At the beginning of the next year, you have to
rebalance the net values of the portfolio to match
the target allocation in the investor profile, since the
assets did not all change in value at the same pace
(see Table 7 below).
Step 5 – Repeat Steps 1 to 4
Finally, you repeat all the steps for the target
projection period. In our case, after 20 years, we will
have a total after-tax portfolio value of $594,557.
Results
Remember that this example was just one of the
2,880 possible combinations, not necessarily the
one that would provide the best outcome. To
identify the optimal combination, you would have
Table 6
Table 7
Table 8
Year 0
NET AMOUNT (END) Allocation after
income taxes
RRSP TFSA NR HOLDING Total
Cash $2,367 $5,070 $5,033 $2,691 $15,161
4.90%
Fixed-income securities $45,198 $61,322 - - $106,521
34.45%
Preferred shares - $15,217 - - $15,217
4.92%
Cdn. equities - $20,902 $25,856 - $46,758
15.12%
US equities - - $72,751 $36,796 $109,547
35.43%
Int. equities - - - $16,046 $16,026
5.18%
Total
$47,565 $102,511 $103,640 $55,584 $309,229 100.00%
Year 1
NET AMOUNT (BEGIN) Allocation after
income taxes
RRSP TFSA NR HOLDING Total
Cash $2,378 $5,126 $5,182 $2,776 $15,461
5%
Fixed-income securities $45,187 $63,043 - - $108,230
35%
Preferred shares - $15,461 - - $15,461
5%
Cdn. equities - $18,881 $27,503 - $46,384
15%
US equities - - $70,955 $37,279 $108,230
35%
Int. equities - - - $15,461 $15,461
5%
Total
$47,565 $102,511 $103,640 $55,513 $309,229 100%
to find the after-tax values for each of the 2,880
possible combinations (see Table 8).
FEATURE ARTICLE
To simplify the presentation of the results, we
illustrated all the possible combinations after 20
years, based on frequency. We get the following data:
- Maximum value after income taxes: $628,837
- Minimum value after income taxes: $572,624
- Average value after income taxes: $600,522
- Standard deviation after income taxes: $14,434
Getting the maximum after-tax value is the goal of
tax optimization. It is possible to create additional
