Succession Planning Appraisal Institute of Canada Conference Delta Hotel St. John’s, NL

1. Succession Planning Appraisal Institute of Canada Conference Delta Hotel St. John’s, NL June 7th, 2007

3. What to Consider when Planning Your Business Succession Greg London Tax Senior Manager – Deloitte

4. Systematic Approach to Succession Planning Goals • To ensure the orderly transition of your personal and business affairs in the event of your disability, retirement and/or death

5. Systematic Approach to Succession Planning When properly designed, it lets you: Benefit now + Be the architect of your success plan for the future

6. Systematic Approach to Succession Planning You need a plan if you answer “NO” to one or more of the following: • Do you have a contingency plan should you become disabled? • Are you dependent upon your business to meetyour retirement cash flow needs? • Is your successor identified, ready & in place?What degree of family involvement do you seeyour family playing in the leadership/ownershipof your company? Disability Planning Business Strategy Assessment Will Planning and Power of Attorney Retirement Planning Compensation Planning Management Talent Assessment Business Strategy Assessment Family Issues and Communication

7. Systematic Approach to Succession Planning • Are you currently using techniques to reducecurrent income taxes and capital gains taxesarising on death? • Do you have enough liquidity to avoid a forcedsale of the business? • Do you have a buy/sell agreement in place? Tax and Estate Planning Life Insurance Analysis Will Planning and Power of Attorney Tax and Estate Planning Life Insurance Analysis Will Planning and Power of Attorney Shareholder Agreement Current Business Valuation

8. Systematic Approach to Succession Planning • Have you had your business valued recently? • Have you considered alternative corporatestructures or share ownership strategies to help you achieve your succession goals? Shareholder Agreement Tax and Estate Planning Current Business Valuation Share Ownership Strategies Business Strategy Assessment Corporate Structuring If you answered “NO” to one or more of these questions, then you need to review your Succession Planning

9. Exit Strategies • Family Succession • Estate Planning – i.e. Estate Freeze • Holding Companies • Discretionary Family Trusts • Leverage Buy Out • Growing The Right People – Long Term Outlook • Financing • Sale • Team, Planning and Clear Objectives

10. Estate Planning Tools • Current Will – “Living Will” • Trusts • Inter-vivos • Testamentary • Estate freezing • Buy/sell and Shareholder agreements • Power of attorney

11. Your Will • Most flexible estate planning document • Seeks to establish plan whereby death taxes are minimized/deferred • Testator must be mindful of: • Family dynamics • Quantum of estate • Income tax implications • Recommend Will be notarized and be drafted by legal counsel • Particular bequests (e.g. specified amounts left outright to particular beneficiaries including charitable gifts) • Residue left outright or through testamentary trusts

12. Trusts • Benefits • Flexibility • Control • Uses • Income splitting • Estate freeze

13. Estate Freeze • Limits capital gains on death • Reversing the Freeze • Shifts future growth to next generation • Tax Deferral • Provides Income Splitting Opportunities

14. Estate Freeze Objective: • To cap the value of an estate so that any future growth accrues to the next generation Techniques: • Corporate Reorganization • Typically includes Introduction of a Family Trust • Long term income tax deferral of the tax liability on the future growth in value that would otherwise be triggered on death.

15. Estate Freeze Three key questions which should be addressed before undertaking an estate freeze: 1. Will my children succeed me as owners of the business? 2. Will I have enough assets to live on after the estate freeze? 3. Is it reasonable to assume that the value of my shares will appreciate?

16. Estate Freeze / Family Trust How it works • Exchange your common shares of “Opco” for “frozen” preferred shares. • A Family Trust is created that subscribes for new common shares Family Members Trust You Opco

17. Family Succession Tax Issues / Opportunities • Double Taxation • Capital Gains Exemption • 21 Year Disposition / Trust • Reversionary Trust • Income Splitting / Attribution • Financing • Insurance Issues • Corporate Reorganization

18. Family Succession Other Issues / Opportunities • Knowing the value of your business to allow you to plan for succession. For example, a valuation helps determine: • How much do I need to live on? • Insurance – is it adequate • Buy-sell and shareholder agreements – value for buyouts • Plan for value enhancement – to know where you are going, you need to know where you are now!

19. Contact Information Greg London Tax Senior Manager Fort William Building 10 Factory Lane St. John’s, NL A1C 6H5 (709) 758-5210

20. Deloitte, Canada’s leading professional services firm, provides audit, tax, financial advisory services and consulting through more than 6,600 people in more than 46 offices. Deloitte operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. The firm is dedicated to helping its clients and its people excel.  Deloitte is the only professional services firm to be named to the Globe and Mail’s Report on Business magazine annual ranking of Canada’s top employers for two consecutive years: 35 Best Companies to Work for in Canada in 2001 and 50 Best Companies to Work for in Canada in 2002. “Deloitte” refers to Deloitte & Touche LLP and affiliated entities. Deloitte is the Canadian member firm of Deloitte Touche Tohmatsu. Deloitte Touche Tohmatsu is a Swiss Verein (association), and, as such, neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the name "Deloitte”, “Deloitte & Touche”, “Deloitte Touche Tohmatsu” or other related names. The services described herein are provided by the Canadian member firm and not by the Deloitte Touche Tohmatsu Verein.

21. Product Presentation Date: 2008

22. Gordon B. Lang & Assoc. Inc. • Founded in June of 1995 • Gordon B. Lang, President & C.E.O. • Fellow of the Faculty of Actuaries in Scotland (1967) • Fellow of the Canadian Institute of Actuaries (1967) • Associate of the Society of Actuaries (1976) • Fellow of the Conference of Consulting Actuaries (2005)

23. Gordon B. Lang & Assoc. Inc. • Main offices: • Toronto, Calgary, and Vancouver • Branches: • Ottawa, Montreal, Halifax, Edmonton, and Prince George

24. Gordon B. Lang & Assoc. Inc. • Specialty products developed for: • Professionals with professional corporations • Owners of private companies • Senior executives of large private and public companies

25. Strategy • To provide, within a government approved approach, structures to entrepreneurs that will: • Clarify retirement planning • Provide tax relief now and in the future • Reduce risk to capital • Enhance retirement income

26. Specialty Products Developed For: • Individual Pension Plan (IPP) • Retirement Compensation Arrangement (RCA) • Employee Profit Sharing Plan (EPSP) • Health & Welfare Plan (HAWP)

27. Individual Pension Plans(IPP)

28. Features • Registered Pension Plan • Limited to participant, spouse, and adult children • Same contribution limits as Defined Benefit Registered Pension Plans • Designed to maximize contributions permitted by CRA

29. Ideal Candidate • Age 45 to 69 • Maximum T4 Income $116,111 for 2008 • Reasonable business history • Corporation or Professional Corporation in place to sponsor the plan • Employment relationship (T4, T4A, T4PS) • Wish to replace the shareholder bonus strategy

30. Recent Popularity • Canadian business owners are approaching retirement in tremendous numbers • Many retirement plans require greater discipline • Meaningful tax relief is sought • Cost and complexity not an issue with the right actuarial partner

31. Contributions • Contributions by employer (and employee) are tax deductible • Benefits are taxed when received • Investment income is tax exempt • Not subject to payroll tax

32. IPP Maximum Allowable Contributions Amounts certified by actuary to fund defined benefits. Samples of maximum year 2008 tax deductibility:

33. Advantages • Greater tax deductible contributions • Creditor protection • Expenses tax deductible • Plan Surplus belongs to participants • Investment returns balanced by contributions • Not subject to provincial payroll taxes (NF, PQ, ON, MB)

34. IPP vs RRSP Asset Accumulation • Age 52 year old with full past service back to 1.1.1991 and maximum earnings.

35. Advantages, continued • No need to wind up plan on retirement • Spouse and adult children may be participants if employed by sponsoring company • Additional lump sum contributions available immediately before retirement • CPP/OAS bridging benefit to age 65 • Unreduced pension @ 60 with 3%/yr reduction to age 50 (age 55 in N.B.) • Full CPI indexing

36. Advantages, continued • Simplified financial planning due to known income on retirement • Actuarial principles and strict government rules enhance safety of investments • Growing and bona fide tax deductions

37. Concerns • Assets locked-in • Contributions schedule inflexible • Contribution amounts inflexible • PA reduces RRSP room

38. Requirements • Corporate sponsor • An employment relationship with the corporate sponsor • Past corporate relationship, employees who previously received T4 or T4PS • Consistent cash flow to fund annual payments

39. Benefits • Multigenerational Plans • Beneficiary Options • Multiple Retirement Options • Opportunity to terminally fund to offset inflation • Insured Annuities

40. Multigenerational Plans • Ideal for family business • Future generations can join an existing plan • Death benefit after survivor of first generation retires leaves assets in the IPP to fund the children’s pension benefit

41. Beneficiary Options • Spouse is the main beneficiary • Adult children can be named to receive equal benefits • Children under the age of 18 should not be elected as beneficiary of an IPP • When youngest child attains age 18, the beneficiary designation can be changed

42. Multiple Options at Retirement • Pension from the pension plan • Purchase an annuity • Transfer to a LIRA

43. Over and above an RRSP IPP Asset Value Chart Comparison between RRSP and IPP assets for a 52 year old to age 71 • IPP Allows for Additional Funding at Retirement Asset Value RRSP Ages

44. Insured Annuities • Review retirement options when selling an IPP • Review the tax consequences when the client sells the business • More beneficial if the participant is over 50 • Determine if an annuity is an appropriate strategy • Insurance can cover estate and legacy needs associated with annuity

45. Health and Welfare Plan(HAWP)

46. Features • Enable all uninsured medical, dental, and vision expenses to be paid out of pre-tax expenses, as incurred • Fund group critical illness and long term care insurance.

47. Benefits • Coverage for uninsured medical, dental or vision care expenses • Employer pays with pre-tax income • Fully tax deductible to corporation • Very flexible choice of expenses that can be covered – medical, vision, & dental procedures

48. Critical Illness • Critical Illness coverage may be purchased by a HAWP, and the company may expense such coverage as long as: • There are no return of premium benefits or riders contained in the policy purchased by the trustee. • CI coverage should be provided for two or more HAWP members and not solely for an employee who is also a controlling shareholder.

49. HAWP - Purpose • Coverage for uninsured medical, dental or vision care expenses • Employer pays with pre-tax income • Fully tax deductible to corporation • Very flexible choice of expenses that can be covered – medical, vision, & dental procedures

50. HAWP - Coverage Covers: acupuncture, ambulance, artificial limbs, blood tests, braces, chiropractor, contact lenses, crowns, crutches, dental treatments, dentures, dermatologist, drugs, eyeglasses, guide dog, hearing aid & batteries, hospital bills, insulin treatments, naturopath, nursing, neurologist, obstetrician, O.R. costs, ophthalmologist, optician, oral surgery, organ transplant, orthodontics, orthopedic shoes, orthopedist, osteopath, oxygen, pediatrician, physician, physiotherapist, psychiatrist, psychoanalyst, psychologist, psychotherapy, radium therapy, massage therapy, sterilization, health care related transportation, vaccines, vasectomy, viagra, vitamins, wheelchair, X-rays, etc. etc. etc……………