Participant's Workbook

©IQPF Participant’s Workbook 3 Introductory Module ............................................................................................................. 24 Activities ........................................................................................................................... 24 Exercises ...................................................................................................................... 24 Personal reflection ............................................................................................................ 26 Case Study 01– Lucie and Samuel ..................................................................................... 29 Preparation for Case Study 01 ......................................................................................... 29 Activities ........................................................................................................................... 30 Personal reflection ....................................................................................................... 30 Case Study 02 – William and Sandra .................................................................................. 32 Preparations for case study 02 ......................................................................................... 32 Activities ........................................................................................................................... 34 Personal Balance Sheet – Personal notes ................................................................... 34 Activity – Cost of living ................................................................................................. 40 Activity – Emergency fund ............................................................................................ 45 Activity – Financial projections for retirement ............................................................... 46 Activity – Drawing up the IPFP report .......................................................................... 50 Personal reflection ....................................................................................................... 93 Case Study 03 – Daniel Jodoin ........................................................................................... 94 Preparation for Case Study 03 ......................................................................................... 94 Activities ........................................................................................................................... 95 Personal reflection ....................................................................................................... 95 Case Study 04 – Marcel and Jeanne ................................................................................... 97 Preparations for Case Study 04 ....................................................................................... 97 Activities ........................................................................................................................... 98 Information to be noted ................................................................................................ 98 Retirement Projections ............................................................................................... 102 Personal Reflection .................................................................................................... 109 Case Study 05 – Marc Champoux ..................................................................................... 110 PREPARATIONS FOR CASE STUDY 05 ...................................................................... 110 Activities ......................................................................................................................... 111 Activity: Writing the IPFP report ................................................................................. 111 Activity – Rate Comparison ........................................................................................ 123 Corporate Taxation in Financial Planning .......................................................................... 126 Activities ......................................................................................................................... 126 Question 1: Principle of integration ............................................................................ 126 Question 2: Dividend refund ...................................................................................... 127

©IQPF Participant’s Workbook 6 A practice exam will help you prepare for the case study part of the exam. The practice exam will be done in class, and you will have three hours to solve a case study. Then three hours will be dedicated to correcting it as a group. In short, everything possible will be done to guide you step-by-step to earning your F.Pl. title. The course is available in French and English, but with the exception of Module 1, The Integrated Personal Financial Planning Process, La Collection de l’IQPF is only available in French. The Student’s Responsibility This workbook will guide you through the course. It contains valuable information about the progression of your training, the activities to be done and the order to do them, as well as information about the final exam. You must absolutely follow the sequence of activities in order to draw the full benefit from each of them, as each part builds in the competencies acquired in the previous sections. The entire program is designed to provide you with the tools you need to pass the final exam. These are your responsibilities:  Read the instructions in this guide.  Complete every activity listed in the course outline.  Do all the appropriate readings to develop your knowledge.  Manage your time so you can complete everything in the time frame required for the in- class sessions, the virtual classes and the final exam. The Course Outline section provides the details about what to expect.

©IQPF Participant’s Workbook 9 Introduction to the web interface When you open a module online, the interface will always be more or less the same. These are the main functions. A document icon framed in blue like this is a direct hyperlink to the document required for that section of the module. The menu is available at any time, and you can use it to navigate through the module as you wish, go back to a section you have already viewed or return to where you were. The library is always available to give you access to the module resources: each document listed can be downloaded from the menu at any time. The library also contains other complementary documents.

©IQPF Participant’s Workbook 12 Web Module: Case Study 05 – Marc Champoux Campus, independent Guide: 2018 Business and Professional Income (Revenu Québec) Income tax folio S3-F6-C1, Interest Deductibility (CRA) Read these documents before you do the Case Study 05 pretest. 2h Campus, independent Pretest: Case Study 05 30 min. Participant’s Workbook Preparations for Case Study 05 Time required Campus, independent Web module: Case Study 05 3h15 Participant’s Workbook Activities 45 min. Virtual Class 3: Mélodie Julien Case Study – Analysis and Recommendations Campus, independent Before the class, download all documents and read the scenario and solution and complete the appendices using the answer booklet 1h30 Campus, in real time Virtual Class 3: Mélodie Julien Case Study – Analysis and Recommendations 6h Corporation taxation in financial planning La Collection de l’IQPF ( SolutionIQPF.org ) Read Module 5, Chapter 10 — Sociétés par actions in La Collection de l’IQPF, before viewing the class 2h Campus, independent Corporate taxation in financial planning 6h Participant’s Workbook Activities 45 min.

©IQPF Participant’s Workbook 15 Web module: Introduction This session provides a detailed introduction to the process recommended by the IQPF to solve all the case studies, as well as an analysis framework and model documents to support you in the application of the process. The best way to start your training is to read the first module of La Collection de l’IQPF: The Integrated Personal Financial Planning Process. There are additional exercises to do in the workbook at the end of the activity. Compare your answers with the solution provided. If you have several wrong answers, we urge you to view this session again. Main purpose of this activity: to master the process and learn about the main tools and models advocated by the IQPF. Estimated duration: 1h + readings Pretest: Case Study 01 A pretest is provided for you to ascertain whether you have the specific knowledge required to solve Case Study 01. Based on your answers, references will be provided for you to read before you access the first case study. Main purpose of this activity: To guide your reading in order to anchor your knowledge in the theory required to solve Case Study 01. Estimated duration: 30 min. + readings

©IQPF Participant’s Workbook 18 Pretest: Case Study 05 Your understanding of the tax concepts essential to solving Case Study 05 can be consolidated by reading the following documents. • Guide: 2018 Business and Professional Income (Revenu Québec) • Income tax folio S3-F6-C1, Interest Deductibility (CRA) The Case Study 05 pretest will cover the content of these two documents, and any aspects you misunderstand will be flagged so you can reread the relevant sections before you start the case. Main purpose of the activity: To present additional sources of written information in a different language that are complementary to the content of La Collection de l’IQPF. Time required: 2h30 + rereading time Web module: Case Study 05 The fifth case is about Marc Champoux. This is a partial engagement covering the financial and tax situations of a young entrepreneur. The level of coaching is reduced, but important points will be raised during the session to help you solve Marc Champoux’s case. Follow the instructions provided during the session to solve this case. Main purpose of this activity: To gain a better understanding of the particularities of a young entrepreneur and develop your independence in case resolution. Get feedback about concepts and concerns specific to entrepreneurs. Time required: 3h15 Pre-recorded lecture: Corporate taxation in financial planning Review of concepts related to corporate taxation which can then be used to analyse the situation of clients who are business owners or entrepreneurs. Time required: 6 h Independent case studies You have to solve the Martine Roy, Michel Tremblay, Latulipe-Lafleur and Louis Hervieux case studies on your own, following the situational integration framework. The information about these cases is available on the Campus. At this stage of the course, you should be able to solve the last two case studies in three hours each. Main purpose of this activity: To solve a case study independently in a time frame similar to that allowed in the exam. Time required: 12 h

©IQPF Participant’s Workbook 21 Hybrid activity: Practice exam A day divided in two is dedicated to helping you prepare for the exam. Individual activity Settle into a quiet place with the references you will use during the exam. Give yourself exactly three hours to solve the case study. The exam is entirely virtual, so you will be using your own personal computer, a camera and a headset/microphone. The conditions and instructions will be explained during the exam session. To learn more about the exam conditions, please read the description below. Please note that there is no practice exam for the multiple-choice questions. Time required: 3h Virtual class 6 Presentation of the solution for the previously completed individual case study. Time required: 3h Final exam Final step of this course: the virtual final exam This 4h45 exam entails two sections: • Multiple-choice questions (30 points) • Case study (70 points) You should not spend more than one hour on the multiple-choice questions. The exam is entirely virtual, so you will be using your own personal computer, a camera and a headset/microphone. You should set yourself up alone in a quiet place. The conditions and instructions will be explained during the exam session. It is an open-book exam. The only technical implement you are permitted to have is non- programmable calculator, preferably the Texas Instrument BAII Plus financial calculator. You are allowed to have with you La Collection de l’IQPF, the Situational Integration Framework, as well as five pages of hand-written or printed notes. The goal of the exam is to assess your competencies and your capacity to apply the situational integration framework to solve a case study scenario. Your knowledge and skills in the seven financial planning areas will have to be applied using the analysis framework taught in order to be deemed sufficient to practise financial planning.

©IQPF Participant’s Workbook 22 The fact that it is an open-book exam does not mean you do not have to do the readings for the course. You will need to have enough knowledge to avoid turning to the resources at every turn. The documentation you have may save you from losing points if you blank on a particular detail, but you will need excellent knowledge of the contents so you do not waste precious time thumbing through them. Duration 4h45

©IQPF Participant’s Workbook 23 PART 2: LEARNING ACTIVITIES This section provides details about the planned activities and the steps of your learning path. A solution can be found in Part 3 of this workbook, Learning Activity Solutions. Naturally, there is no solution for the personal reflection questions. You will be able to submit questions that arise from your independent work during the in-class and online sessions.

©IQPF Participant’s Workbook 24 Introductory Module Activities La Collection de l’IQPF is the financial planner’s resource of choice. Module 1, which is presented in this section of the course, outlines the integrated personal financial planning process. The concepts are explored in detail in the case studies, but it is essential for you to delve into the theory first. Exercises The answers to these exercises are in the M01 Solution in this workbook. 1. What steps of the process should you carry out in the presence of your client? ☐ Explain the role of the financial planner and the value of the financial planning process ☐ Define the terms of the engagement ☐ Identify the client’s goals, needs and priorities ☐ Gather the client’s information ☐ Assess the client’s current situation ☐ Identify and evaluate the appropriate financial planning strategies ☐ Develop the financial planning recommendations ☐ Compile and present the financial planning recommendations and the supporting rationale ☐ Discuss implementation actions, responsibilities and time frames ☐ Implement the financial planning recommendations

©IQPF Participant’s Workbook 25 2. In the second step of the process, you must draw up a professional services contract with the client. Ascertain your understanding of this type of agreement with a client using the following true-or-false questions. A. A client cannot terminate such a contract, at any time, without serious grounds. ☐ True ☐ False B. In the contract, the financial planner must include a clause guaranteeing the results of the recommendations. ☐ True ☐ False C. The financial planner is obliged to keep, in the client’s file, a copy of the financial planning contract given to the client. ☐ True ☐ False D. It is mandatory to include, in the contract, an estimation of the number of hours required to carry out the mandate. ☐ True ☐ False E. The documents contained in the client’s file become the property of the financial planner and cannot be consulted by the client. ☐ True ☐ False 3. Name the five steps of the standard problem-resolution process and indicate which ones are carried out in the analysis step.

©IQPF Participant’s Workbook 26 Personal reflection The following questions are to encourage you to reflect on your training and your professional practice. Space is provided for you to make notes about these reflections. How was the online presentation useful to you? Take note of the information you retained and that you want to remember. If you wish, return to the activity to refresh your memory. What information provided in this session is truly new to you and how can it be useful? Knowing your weaknesses and the financial planning concepts likely to be required to analyse the situations covered, identify the ones that would present the biggest challenge to you in a contract.

©IQPF Participant’s Workbook 27 When you meet with a client, one of your first tasks as a financial planner is to explain the integrated personal financial planning process and the role you play in it. Briefly describe here what you could say to your client about this. Which sections of the contract are likely to be more difficult to understand? What might your clients ask? How could you respond? How can you identify your clients’ goals? For each integrated personal financial planning situation, name one of your own personal goals and write the questions the way you would like them to be asked if you were in the client’s position.

©IQPF Participant’s Workbook 28 How confident do you feel about applying the IPFP process, as presented in this session, in your future professional practice? Take note of your reflections so you can see how they progress over time. What challenges might arise in the use of the IPFP process in your future professional practice? What solutions could you find for these challenges?

©IQPF Participant’s Workbook 29 Case Study 01– Lucie and Samuel Preparation for Case Study 01 In Case Study 01, you will meet Lucie and Samuel and see some of the key concepts required to solve the case. If you haven’t already done so, go to the Campus and complete the Case Study 01 pretest. Use the note area below to keep track of the points you need to study, to begin to build a study plan. We recommend that you start with the least familiar concepts, continue with the concepts that seem easier and then return to the first concepts, with new readings, if possible. Regularly do the readings from La Collection de l’IQPF: consolidate your knowledge to give yourself the best chance of passing your exam. Write down your study plan here.

©IQPF Participant’s Workbook 30 Activities Personal reflection The following activities are to be completed after the online training session. Re-read the synopsis of Case Study 01 and the various documents provided (service contract, questionnaire, list of documents to provide, solution). Take note of anything that: (1) Seems essential to remember (2) Requires input from a specialist because you do not have enough expertise in that area. To help Lucie and Samuel achieve their volunteering plan, what other advice do you have for them? Which work method will you use to monitor your clients’ action plan in the short, medium and long term?

©IQPF Participant’s Workbook 31 How confident do you feel about your capacity to use the process, as presented in this session, in your future professional practice? Based on your academic training and what you know about the profession, are there parts of the process that seem obvious? Take note of what is new for you and what isn’t.

©IQPF Participant’s Workbook 32 Case Study 02 – William and Sandra Preparations for case study 02 In Case Study 02, you will meet William and Sandra and see some of the key concepts required to solve the case. If you haven’t already done so, go to the Campus and complete the Case Study 02 pretest. Use the note area below to keep track of the points you need to study, to begin to build a study plan. We recommend that you start with the least familiar concepts, continue with the concepts that seem easier and then return to the first concepts, with new readings, if possible. Regularly do the readings from La Collection de l’IQPF: consolidate your knowledge to give yourself the best chance of passing your exam. Write down your study plan here.

©IQPF Participant’s Workbook 33 How comfortable do you feel with the personal financial statements that will be covered in this session? Personal Balance Sheet 1 2 3 4 5 Very uncomfortable Completely comfortable Estate Balance Sheet 1 2 3 4 5 Very uncomfortable Completely comfortable Cash Position of the Estate 1 2 3 4 5 Very uncomfortable Completely comfortable Budget 1 2 3 4 5 Very uncomfortable Completely comfortable How comfortable do you feel with the four first steps of the IPFP process? 1 2 3 4 5 Very uncomfortable Completely comfortable

©IQPF Participant’s Workbook 34 Activities Personal Balance Sheet – Personal notes These next questions are related to the online training session. You will find the answers to these questions in the corresponding section of the solution, at the end of this workbook. Section: Assets Question 3, part 2 Sandra has acquired the right to an annual pension payable from age 65 through her contributions to her employer’s defined benefit pension plan. Based on the assumptions provided, if she left her job on the date of the balance sheet, how much would she receive in annual pension at age 65 under the plan? Notes Question 3, part 3 Using these same assumptions, what would Sandra’s QPP retirement pension be at age 65 if she stopped working on the date of the report? Notes

©IQPF Participant’s Workbook 35 Question 3, part 4 Based on the assumptions provided, determine the discount rate that should be used to calculate the value at age 65 of the life annuity from Sandra’s RPP: Inflation 2.00% Rate of return 4.00% MPE growth rate 3.00% Growth rate of Sandra’s salary 3.00% Notes Question 3, part 7 What is the value of Sandra’s RPP to enter in the balance sheet? Notes

©IQPF Participant’s Workbook 36 Question 3, part 8 What values should be entered in Sandra and William’s personal balance sheet for their QPP retirement pensions? For William: Notes For Sandra: Notes

©IQPF Participant’s Workbook 37 Section: Use of the personal balance sheet Question 5, part 1 What is the net value of William’s share of the house? Notes Question 5, part 2 What is the net value of Sandra’s share of the house? Notes Question 6, part 2 Who would be the family patrimony creditor for the deferred tax plans and what would be the amount of the debt? Notes

©IQPF Participant’s Workbook 38 Question 7 Who would be the family patrimony creditor (for all the assets) if the partition were carried out due to the death of one of the spouses and what would be the amount of the debt? Notes

©IQPF Participant’s Workbook 39 Personal work You have the Personal Balance Sheet for Case Study 02, but it is important for you to clearly understand every step taken to arrive at these results. Review each section of the balance sheet and redo the calculations if you need to. Draw up the notes to the balance sheet without looking at the ones provided and anticipate the questions a client might ask and the answers you would give. Take note of the questions and problems that arise as you go along. You will have a chance to ask them in the in-class session.

©IQPF Participant’s Workbook 40 Activity – Cost of living Budget section Personal reflection From your personal and professional experience: • What problems might a person encounter when drawing up a budget? • What advice is useful for a couple making their first budget? Write down the advice you would give to different kinds of clients (young, older, single, couple, family, retired...). Notes

©IQPF Participant’s Workbook 41 Cost of living section 1. How long will it take for William to pay off his credit card? 2. How long will it take for Sandra to pay off her credit card? 3. How much additional money will be available monthly once the credit cards are paid off and the monthly expenditures have been increased by $600?

©IQPF Participant’s Workbook 42 4. a) In three years, what will be the price of a car like the $25,000 car William and Sandra have their eye on now? 4. b) How much will they have to save each month to buy, three years from now, a car that is worth $25,000 today? 5. How much will be available monthly to create an emergency fund and possibly save toward retirement?

©IQPF Participant’s Workbook 43 6. Since saving up to buy a car is a recurring expense, what will William and Sandra’s annual cost of living be once their credit cards have been repaid? 7. a) What is William’s available income (income after income taxes, social charges and savings)? 7. b) What is Sandra’s?

©IQPF Participant’s Workbook 44 8. What are the couple’s debt ratios (GDS and TDS)?

©IQPF Participant’s Workbook 45 Activity – Emergency fund 1. How long will it take for William and Sandra to accumulate their $15,000 emergency fund? 2. What is the borrowing rate required from the insurer XYX to allow William to pay his life insurance premium monthly? 3. What is the borrowing rate required from the insurer Québec vie to allow William to pay his disability insurance premium monthly?

©IQPF Participant’s Workbook 46 Activity – Financial projections for retirement William and Sandra’s goal for the Retirement Situation is to evaluate the lifestyle they will be able to maintain after age 65 if they only save their respective pension plan contributions. That means you have to do the required calculations as part of your analysis of their Retirement Situation. Financial projections require not only a sound knowledge of financial math, but also a good understanding of how the data interact and the potential repercussions of a bad choice of economic and demographic assumptions. These next questions will guide your thought process and support you in your analysis. William and Sandra plan to retire at age 65 and you have to do your retirement income calculations on the assumption that Old Age Security (OAS) and the QPP retirement pension will be paid beginning at age 65. Also, since Sandra will retire one year earlier than William, you have to calculate their combined income for the year William retires, when Sandra will already have retired a year earlier. 1. How many years from now will William and Sandra retire? 2. How much will their respective OAS pensions be the year that William retires?

©IQPF Participant’s Workbook 47 3. How much will their respective QPP retirement pensions be the year that William retires? 4. How much will William have accrued in his RPP by the age of 65? 5. How much annual income should the accrued amount generate in retirement? 6. Is Sandra’s defined benefit RPP coordinated with the QPP?

©IQPF Participant’s Workbook 48 7. In light of the economic assumptions used, the characteristics of Sandra’s RPP and the planned maternity leaves, at what age will Sandra be eligible for her RPP benefits? 8. In light of the economic assumptions used, the characteristics of Sandra’s RPP and the planned maternity leaves, how much will Sandra’s RPP benefits be at age 66 (her age when William retires) if she continues to work for this employer until she turns 65? 9. What will their combined income net of income taxes be for the first year of William’s retirement?

©IQPF Participant’s Workbook 49 10. What amount today would offer the same purchasing power as the net income found in the previous question? 11. If we assume that neither William nor Sandra will save any more for retirement than what they are saving through their respective RPPs, what will their cost of living be at the time of retirement?

©IQPF Participant’s Workbook 50 Activity – Drawing up the IPFP report Now it is time to write your first IPFP report. Blank pages are provided, and you will have to use your Situational Integration Guide to analyse each of the following situations: • Personal and family situation • Financial situation • Tax situation • Protection situation • Retirement situation • Situation at death Make sure you enter the information requested at various points, using all the calculations you did in the online session and making certain that you consider all the clients’ goals. This is your first attempt, so don’t worry too much if your report does not exactly match the solution. The important thing is to start using your guide to get a feel for the IPFP process and develop your sense of analysis. Feel free to add extra pages if required. To help you out, you will find in the following pages the appendices you will need to analyse each of the situations covered by the mandate. Appendix A: Personal Balance Sheet Appendix B: Estate Balance Sheet Appendix C: Cash Position of the Estate Appendix D: Estimation of Family Patrimony Rights Appendix E: Various Calculations (Borrowing Rate Implicit in Paying Insurance Premiums Monthly; Savings Required to Purchase a Car) Appendix F: Debt Ratios Appendix G: Contingency Fund Appendix H: Calculation of Disability Insurance Need Appendix to complete (only the template is provided) Appendix J: Calculation of Life Insurance Need These appendices contain the information you will need to draw up your PFPI report.

©IQPF Participant’s Workbook 51 Personal and family situation Analysis The financial planner draws up a portrait of the client’s situation, taking note of: Tip: The points to cover are just a starting point, but you have to explain to your client all the theoretical concepts required to justify your conclusions in the second section (The financial planner informs the client). Identifying the theoretical concepts involved is a good way to begin.

©IQPF Participant’s Workbook 52 The financial planner informs the client about: Tip: You have to use the information identified in the previous section to determine where the client currently is in terms of the points in the second part of the integration framework for this situation.

©IQPF Participant’s Workbook 53 Emphasizing the advantages and disadvantages, the financial planner presents: Tip: You should use the shortfalls (e.g., unachieved goals) identified in the previous section as a starting point and then try to present options to make up for those shortfalls.

©IQPF Participant’s Workbook 54 Recommendations

©IQPF Participant’s Workbook 55 Financial situation Analysis The financial planner draws up a portrait of the client’s situation, taking note of: Tip: The points to cover are just a starting point, but you have to explain to your client all the theoretical concepts required to justify your conclusions in the second section (The financial planner informs the client). Identifying the theoretical concepts involved is a good way to begin.

©IQPF Participant’s Workbook 56 The financial planner informs the client about: Tip: You have to use the information identified in the previous section to determine where the client currently is in terms of the points in the second part of the integration framework for this situation.

©IQPF Participant’s Workbook 57 Emphasizing the advantages and disadvantages, the financial planner presents: Tip: You should use the shortfalls (e.g., unachieved goals) identified in the previous section as a starting point and then try to present options to make up for those shortfalls. Allow yourself to be guided by the points in the third part of the integration framework for this situation.

©IQPF Participant’s Workbook 58 Recommendations

©IQPF Participant’s Workbook 59 Tax situation Analysis The financial planner draws up a portrait of the client’s situation, taking note of: Tip: The points to cover are just a starting point, but you have to explain to your client all the theoretical concepts required to justify your conclusions in the second section (The financial planner informs the client). Identifying the theoretical concepts involved is a good way to begin.

©IQPF Participant’s Workbook 60 The financial planner informs the client about: Tip: You have to use the information identified in the previous section to determine where the client currently is in terms of the points in the second part of the integration framework for this situation.

©IQPF Participant’s Workbook 61 Emphasizing the advantages and disadvantages, the financial planner presents: Tip: You should use the shortfalls (e.g., unachieved goals) identified in the previous section as a starting point and then try to present options to make up for those shortfalls. Allow yourself to be guided by the points in the third part of the integration framework for this situation.

©IQPF Participant’s Workbook 62 Recommendations

©IQPF Participant’s Workbook 63 Protection situation Analysis The financial planner draws up a portrait of the client’s situation, taking note of: Tip: The points to cover are just a starting point, but you have to explain to your client all the theoretical concepts required to justify your conclusions in the second section (The financial planner informs the client). Identifying the theoretical concepts involved is a good way to begin.

©IQPF Participant’s Workbook 64 The financial planner informs the client about: Tip: You have to use the information identified in the previous section to determine where the client currently is in terms of the points in the second part of the integration framework for this situation.

©IQPF Participant’s Workbook 65 Emphasizing the advantages and disadvantages, the financial planner presents: Tip: You should use the shortfalls (e.g., unachieved goals) identified in the previous section as a starting point and then try to present options to make up for those shortfalls. Allow yourself to be guided by the points in the third part of the integration framework for this situation.

©IQPF Participant’s Workbook 66 Recommendations

©IQPF Participant’s Workbook 67 Retirement situation Analysis The financial planner draws up a portrait of the client’s situation, taking note of: Tip: The points to cover are just a starting point, but you have to explain to your client all the theoretical concepts required to justify your conclusions in the second section (The financial planner informs the client). Identifying the theoretical concepts involved is a good way to begin.

©IQPF Participant’s Workbook 68 The financial planner informs the client about: Tip: You have to use the information identified in the previous section to determine where the client currently is in terms of the points in the second part of the integration framework for this situation.

©IQPF Participant’s Workbook 69 Emphasizing the advantages and disadvantages, the financial planner presents: Tip: You should use the shortfalls (e.g., unachieved goals) identified in the previous section as a starting point and then try to present options to make up for those shortfalls. Allow yourself to be guided by the points in the third part of the integration framework for this situation.

©IQPF Participant’s Workbook 70 Recommendations

©IQPF Participant’s Workbook 71 Situation at death Analysis The financial planner draws up a portrait of the client’s situation, taking note of: Tip: The points to cover are just a starting point, but you have to explain to your client all the theoretical concepts required to justify your conclusions in the second section (The financial planner informs the client). Identifying the theoretical concepts involved is a good way to begin.

©IQPF Participant’s Workbook 72 The financial planner informs the client about: Tip: You have to use the information identified in the previous section to determine where the client currently is in terms of the points in the second part of the integration framework for this situation.

©IQPF Participant’s Workbook 73 Emphasizing the advantages and disadvantages, the financial planner presents: Tip: You should use the shortfalls (e.g., unachieved goals) identified in the previous section as a starting point and then try to present options to make up for those shortfalls. Allow yourself to be guided by the points in the third part of the integration framework for this situation.

©IQPF Participant’s Workbook 74 Recommendations

©IQPF Participant’s Workbook 75 APPENDIX A Personal Balance Sheet as at 31 August 2018 William Francoeur $ Sandra Bigras $ Total $ ASSETS Cash and near-cash assets Bank accounts (note 3) 550 650 1,200 Cash surrender value – life ins. (note 4) TFSA Non-registered investments Subtotal 550 650 1,200 Personal assets Principal residence (note 5) 185,000 185,000 370,000 Furniture (note 6) 800 800 1,600 Car (note 7) 9,000 9,000 Other Subtotal 194,800 185,800 380,600 Income-producing assets Ownership interest in a private corporation Rental property Subtotal Deferred tax plans RRSP, LIRA, RRIF, LIF Registered pension plan (note 8) 28,268 12,103 40,371 RESP/RDSP

©IQPF Participant’s Workbook 76 William Francoeur $ Sandra Bigras $ Total $ QPP pension (note 9) 34,115 33,111 67,226 Subtotal: 62,383 45,214 107,597 TOTAL ASSETS: 257,733 231,664 489,397 LIABILITIES Accounts payable Unpaid credit card balances (note 10) 3,250 5,980 9,230 Credit purchases Income taxes payable Unpaid bills Subtotal: 3,250 5,980 9,230 Mortgage loans Principal residence (note 11) 88,937 88,937 177,874 Secondary residence Income properties Subtotal: 88,937 88,937 177,874 Income taxes payable (note 12) 12,477 9,043 21,520 TOTAL LIABILITIES: 104,664 103,960 208,624 NET WORTH: 153,069 127,704 280,773

©IQPF Participant’s Workbook 77 Notes to the Personal Balance Sheet NOTE 1: Personal and family situation William Francoeur (27) and Sandra Bigras (28) have been married for seven years and have no children. William is a sales representative for a Québec vacuum cleaner manufacturer and Sandra is the assistant to a senior executive at a translation firm. They live in Longueuil, Québec. NOTE 2: Accounting policies Assets and liabilities are shown at their estimated current value. NOTE 3 : Bank accounts Owner Financial institution Account type Balance $ William Francoeur Banque Populaire Chequing 300 Sandra Bigras Banque Populaire Chequing 400 William and Sandra Banque Populaire Joint chequing 500 NOTE 4: Cash surrender value of life insurance contract William Francoeur owns a whole life insurance policy that he purchased from XYZ insurance in February 2017, with a cash surrender value of zero for the first two years. NOTE 5 : Principal residence Address Date of purchase Price paid $ Cost of additions* $ Market value $ % ownership William Francoeur Sandra Bigras House in Longueuil 2012 220,000 – 370,000 50 50 Municipal evaluation 2018: $298,200 The market value was estimated informally by a friend who works in real estate. Renovations were done, but they did not keep receipts for the materials. They have an invoice of $15,000 for the renovation work, but the type of expenses was not determined for tax purposes.

©IQPF Participant’s Workbook 78 NOTE 6: Furniture The furnishings for the house were acquired second-hand and are of negligible value. The only exception is a washer-dryer set acquired last May for $2,000. The market value was established by William and Sandra, who have extensive knowledge of the second-hand furniture market. NOTE 7 : Car Owner Model Acquisition cost Market value $ William Francoeur 2010 Toyota Corolla Gift from William’s father 9,000 The market value is the average sale price according to canadianblackbook.com. NOTE 8: Registered pension plan (RPA) Contribution rate % William Francoeur Type of plan Value $ Employee Employer Defined contribution 28,268 4 4 The employer’s contributions are equal to 50% of the value of the account and are locked-in. The assets are invested in the MV ultimate growth fund, which uses the following asset allocation: Cash (5%), fixed-income securities (15%), growth securities (80%). The administrative fees that apply to the entire plan are 0.96% of the assets. Additional management fees of 0.66% are taken from the fund, for total annual fees of 1.62% of the value of the investment. Type of plan Value $ Contribution rate % Accrued pension at age 65 $ Age of retirement Sandra Bigras Defined benefits 12,106 6 1,170 Age 65 60, if 35 years of service Defined benefit pension plan with benefits equal to 1.8% of average last five years’ salary. Annuity indexed to inflation before and after retirement, to a ceiling of 3% per year.

©IQPF Participant’s Workbook 79 The present value of the annuity was estimated using the return assumption for long-term investments net of fees for the investor profile (4%), an inflation assumption of 2% and a life expectancy of 92 years. 1,170 0 2 37 (65 – 28) –$2,434.40 BGN 0 2,434.40 1.96 27 (92 – 65) –$51,655.94 51,655.94 0 4 37 (65 – 28) –$12,103 NOTE 9: QPP pension William Francoeur –2,138 0 3 38 (65 – 27) $6,573.89 BGN 0 6,573.89 1.67 25 (90 – 65) –$135,687.95 135,687.95 0 3.70 38 (65 – 27) –$34,115 The present value of the annuity was estimated using the return assumption for long-term investments net of fees for the investor profile (3.7%), a salary growth assumption of 3%, an MPE growth assumption of 3%, an inflation assumption of 2% and a life expectancy of 90 years.

©IQPF Participant’s Workbook 80 Sandra Bigras –2,231 0 3 37 (65 – 28) $6,660.04 BGN 0 6,660.04 1.96 27 (92 – 65) –$141,320.41 141,320.41 0 4 37 (65 – 28) –$33,111 The present value of the annuity was estimated using the return assumption for long-term investments net of fees for the investor profile (4%), a salary growth assumption of 3%, an MPE growth assumption of 3%, an inflation assumption of 2% and a life expectancy of 92 years. NOTE 10: Unpaid credit card balances Owner Issuer Authorized credit $ Interest rate % Balance $ William Francoeur Vista 15,000 19.9 3,250 Sandra Bigras Vista 20,000 19.9 5,980 W. Francoeur and S. Bigras MisterCard 2,000 19.9 0 William pays $700 each month and Sandra pays $1,200. NOTE 11: Mortgage loan on principal residence Creditor Date of loan Renewal date Original loan Banque Populaire June 19, 2012 June 19, 2022 217,360 Interest rate Monthly payments Remaining amortization Balance 3.09% 1,038.71 18 years, 10 months 177,874

©IQPF Participant’s Workbook 81 NOTE 12: Future income taxes William Francoeur Description Taxable value $ Estimated tax rate % Future income taxes $ RPP 28,268 20 5,654 QPP 34,115 20 6,823 Total: 12,477 Sandra Bigras Description Taxable value $ Estimated tax rate % Future income taxes $ RPP 12,106 20 2,421 QPP 33,111 20 6,622 Total: 9,043 The tax rates used correspond to the assumption for the average income tax rate in retirement. NOTE 13: Insurance contracts Life insurance Issuing company Subscription date Type Owner Insured Beneficiary XYZ February 1, 2017 Whole life William Francoeur William Francoeur Sandra Bigras (revocable) Annual premium Surrender charge Adjusted cost base Capitalization fund Death benefit Payer $1,032 $0 $0 $0 $200,000 William Francoeur The premium is paid in monthly instalments of $92.88.

©IQPF Participant’s Workbook 82 Issuing company Subscription date Type Participant Insured Beneficiary CGQ n/a Group life Sandra Bigras Sandra Bigras William Francoeur (revocable) Annual premium (Sandra’s portion) Surrender charge Adjusted cost base Capitalization fund Death benefit Payer $102 n/a n/a n/a $130,000 Sandra Bigras + Employer Issuing company Subscription date Type Participant Insured Beneficiary BP insurance 2012 Group life William and Sandra William and Sandra Banque Populaire Annual premium Surrender charge Adjusted cost base Capitalization fund Death benefit Payer $390 n/a n/a n/a $177,886 William and Sandra Disability insurance William Francoeur Issuing company Elimination period (days) Type of contract Annual premium $ Monthly income $ Indexed Duration of benefits Protected occupation Québec Life 90 Individual 1,782.56 960 Yes Age 65 Usual occupation to age 65, if not working 120 1,800 Total disability and partial disability. The premiums are paid in monthly instalments of $160.43.

©IQPF Participant’s Workbook 83 Sandra Bigras Issuing company Elimination period Type of contract Annual premium (Sandra) $ Annual income Indexed Duration of benefits Protected occupation CGQ 30 days Group 220 55,250 Yes Age 65 Usual occupation 2 years Total disability only. After two years, the definition becomes any paying job based on experience and education. William Francoeur and Sandra Bigras Issuing company Elimination periods Type of contract Annual premium $ Monthly income Duration of benefits Protected occupation BP insurance 60 days Group 334 Mortgage payments 24 months No Total disability only. NOTE 14: Tax information (2018) William Sandra Effective tax rate 17.46% 21.22% Marginal tax rate 37.12% 37.12% Maximum deductible for RRSP/PRPP $31,164 $43,730 TFSA contribution rights $57,500 $57,500 Balance of net capital losses $0 $0 Net capital gains in last three years $0 $0 NOTE 15: Legal documents William and Sandra have no marriage contract, no wills and no protection mandates.

©IQPF Participant’s Workbook 84 APPENDIX B Estate Balance Sheet as at 31 August 2018 Death of William $ Death of Sandra $ Net worth according to personal balance sheet 153,069 127,704 Plus: Life insurance – Group life insurance death benefit – Individual life insurance death benefit Insured liability 88,937 88,937 Future income taxes 12,477 9,043 Other: Estimation of the family patrimony debt 6,410 Subtotal: 101,414 104,390 Less: Accrued value of life insurance contract 0 0 Value of QPP retirement pension 34,115 33,111 Death-related expenses 20,000 20,000 Taxes payable on death 0 0 RPP 28,268 12,103 Other: Family patrimony debt 6,410 Subtotal: 88,793 65,214 ESTATE ASSETS 165,690 166,880 Parents’ portion (1/3) 55,230 55,627 Spouse’s portion (2/3) 110,460 111,253 Plus:

©IQPF Participant’s Workbook 85 Death of William $ Death of Sandra $ Amounts received by heirs as beneficiaries (spouse) – Life insurance 200,000 130,000 – RPP 28,268 12,103 – Repayment of mortgage debt 88,937 88,937 – Estimation of the family patrimony debt 6,410 0 Subtotal: 323,615 231,040 Less: Income taxes paid by heirs 0 0 Estimation of the family patrimony debt 0 6,410 Subtotal: 0 6,410 VALUE TRANSFERRED TO UNIVERSAL HEIRS 489,305 391,510 Parents 55,230 55,627 Spouse 434,075 335,883

©IQPF Participant’s Workbook 86 APPENDIX C Cash position of the estate as at 31 August 2018 Death of William Francoeur $ Death of Sandra Bigras $ Cash and near-cash assets, according to personal balance sheet 550 650 Plus: Life insurance Group life insurance death benefit Individual life insurance death benefit Deferred tax plans Other Subtotal: Less: Accrued value of life insurance contract Loans against life insurance contract Liabilities 3,250 5,980 Death-related expenses 20,000 20,000 Taxes payable on death Other Subtotal: 23,250 25,980 CASH DEFICIT (22,700) (25,330) Plus: Amounts received by spouse as a beneficiary 200,000 130,000 Less: Income taxes paid by spouse Purchase of parents’ portion 55,230 55,627 CASH AVAILABLE TO THE SPOUSE 122,070 49,043

©IQPF Participant’s Workbook 87 APPENDIX D Estimation of family patrimony rights as at 31 August 2018 N ON - REGISTERED INVESTMENTS Family residence Total William Sandra Market value $370,000 $185,000 $185,000 Less: Mortgage $177,874 $88,937 $88,937 Credit cards $3,250 $5,980 Net value $92,813 $90,083 Deduction for contribution with an asset received by gift Gift $6,000 Increase in value: ($370,000 – $220,000) ÷ $220,000 = 68.18% $4,091 Deduction $10,091 Partitionable value of the residence $92,813 $79,992 Other assets included Furniture $1,600 $800 $800 Car (excluded because of gift) $0 $0 Partitionable value – non-registered assets $93,613 $80,792 $174,405 William Sandra Value to attain ($174,405 ÷ 2) $87,203 $87,202 Less: Partitionable value $93,613 $80,792 Creditor (debtor) amount ($6,410) $6,410 D EFERRED TAX PLANS William Sandra Partitionable value – RPP $28,268 $12,103 Total partitionable value $40,371 Value to attain $20,185 $20,185 Less: Partitionable value $28,268 $12,103 Creditor (debtor) amount ($8,082) $8,082 Note: The QPP earnings will be divided directly by Retraite Québec.

©IQPF Participant’s Workbook 88 APPENDIX E Various calculations B ORROWING RATE IMPLICIT IN PAYING INSURANCE PREMIUMS MONTHLY Life insurance 1,032 -92.88 0 12 [P/Y] \P/Y\ 12 \C/Y\ 1 [QUIT] An effective rate is capitalized (\C/Y\) once a year. Monthly payments (\P/Y\). 18.59% Disability insurance 1,782.56 -160.43 0 12 [P/Y] \P/Y\ 12 \C/Y\ 1 [QUIT] An effective rate is capitalized (\C/Y\) once a year. Monthly payments (\P/Y\). 18.59% Note: An insurance premium is payable at the beginning of the period (BGN). SAVINGS REQUIRED TO PURCHASE A CAR Cost of the car today –25,000 0 2 3 Cost of an equivalent car in three years $26,530 M ONTHLY SAVINGS REQUIRED 26,530 0 1 \P/Y\ 12 \C/Y\ 12 31 (3 × 12) – 5 1 -$845.16 1 Monthly savings can begin in five months.

©IQPF Participant’s Workbook 89 APPENDIX F Debt ratios G ROSS D EBT S ERVICE RATIO (GDS) 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑝𝑝 + 𝑝𝑝𝑀𝑀𝑀𝑀𝑝𝑝𝑀𝑀𝑀𝑀𝑀𝑀𝑝𝑝 𝑀𝑀𝑀𝑀𝑡𝑡𝑀𝑀𝑝𝑝 + 𝑀𝑀𝑒𝑒𝑀𝑀𝑒𝑒𝑀𝑀𝑀𝑀𝑒𝑒𝑒𝑒𝑒𝑒𝑀𝑀𝑝𝑝 + ℎ𝑀𝑀𝑀𝑀𝑀𝑀 + 50% 𝑀𝑀𝑜𝑜 𝑒𝑒𝑀𝑀 − 𝑀𝑀𝑜𝑜𝑝𝑝𝑀𝑀𝑀𝑀𝑝𝑝ℎ𝑒𝑒𝑝𝑝 𝑜𝑜𝑀𝑀𝑀𝑀𝑝𝑝 𝐺𝐺𝑀𝑀𝑀𝑀𝑝𝑝𝑝𝑝 𝑒𝑒𝑝𝑝𝑒𝑒𝑀𝑀𝑝𝑝𝑀𝑀 $12,460 + $3,488 + $1,220 $48,550 + $65,000 = 15% T OTAL D EBT S ERVICE RATIO (TDS) 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑝𝑝 + 𝑝𝑝𝑀𝑀𝑀𝑀𝑝𝑝𝑀𝑀𝑀𝑀𝑀𝑀𝑝𝑝 𝑀𝑀𝑀𝑀𝑡𝑡𝑀𝑀𝑝𝑝 + 𝑀𝑀𝑒𝑒𝑀𝑀𝑒𝑒𝑀𝑀𝑀𝑀𝑒𝑒𝑒𝑒𝑒𝑒𝑀𝑀𝑝𝑝 + ℎ𝑀𝑀𝑀𝑀𝑀𝑀 + 50% 𝑀𝑀𝑜𝑜 𝑒𝑒𝑀𝑀 − 𝑀𝑀𝑜𝑜𝑝𝑝𝑀𝑀𝑀𝑀𝑝𝑝ℎ𝑒𝑒𝑝𝑝 𝑜𝑜𝑀𝑀𝑀𝑀𝑝𝑝 + 𝑀𝑀𝑀𝑀ℎ𝑀𝑀𝑀𝑀 𝑑𝑑𝑀𝑀𝑑𝑑𝑀𝑀𝑝𝑝 𝐺𝐺𝑀𝑀𝑀𝑀𝑝𝑝𝑝𝑝 𝑒𝑒𝑝𝑝𝑒𝑒𝑀𝑀𝑝𝑝𝑀𝑀 $12,460 + $3,488 + $1,220 + $13,320 $48,550 + $65,000 = 27%

©IQPF Participant’s Workbook 90 APPENDIX G Emergency fund A VAILABLE INCOME ( INCOME AFTER TAXES , SOCIAL CHARGES AND RETIREMENT SAVINGS ) William Sandra Salary $48,550 $50,550 Salary $65,000 Kilometrage allowance $2,000 2 Less: Less: Income taxes $8,478 $13,750 Income taxes $13,791 $21,549 Social contributions $3,330 Social contributions $3,858 RRP contributions $1,942 RRP contributions $3,900 Available income $36,800 Available income $43,451 A SSESSMENT OF SUFFICIENCY OF $15,000 EMERGENCY FUND Essential monthly expenses $57,451 ÷ 12 $4,787.58 William’s available monthly income $36,800 ÷ 12 $3,066.67 Monthly shortfall $4,787.58 + $3,066.67 $1,720.91 Number of months without Sandra’s salary $15,000 ÷ $1,720.91 8.72 months Essential monthly expenses (with car) ($57,451 ÷ 12) + $845.16 $5,632.74 William’s available monthly income $36,800 ÷ 12 $3,066.67 Monthly shortfall $5,632.74 – $3,066.67 $2,566.07 Number of months without Sandra’s salary $15,000 ÷ $2,566.07 5.85 months 2 Allowance for the use of his personal vehicle for work purposes (4,000 km per year at a rate of $0.50/km).

©IQPF Participant’s Workbook 91 APPENDIX H Calculation of disability insurance need William Sandra Monthly income (salary ÷ 12) $4,045.83 $5,416.67 Less: Income taxes and social charges monthly) $1,044.07 3 – Income to protect $3,001.76 $5,416.67 Less: Current insurance $2,760.00 4,604.17 Shortfall $241.76 $812.50 Marginal tax rate 37.12% After-tax income $510.90 4 Less: Social contributions $321.50 5 Shortfall $189.40 3 (Income taxes + social charges shown on provisional budget + income taxes on RPP contribution that is not made) ÷ 12; [$8,478 + $3,330 + ($1,942 x 37.12%)] ÷ 12 = $1,044.07 4 $812.50 × (1 – 37.12%) 5 $3,858 ÷ 12 The social charges are shown in the provisional budget.

©IQPF Participant’s Workbook 92 APPENDIX J calculation of life insurance need CAPITAL REQUIRED AT DEATH Death of the Client 1 $ Death of the Client 2 $ Family cost of living Less: Expenses of the deceased Payments for mortgages repaid at death Cost of living after the death Income available after the death Survivor’s income after taxes and savings QPP survivor’s pension after taxes Other income Total income available after the death Annual surplus or shortfall (Income available – cost of living after the death) Capital required 6 Less: - Cash available for universal heirs - Current value of QPP orphan’s pension - Current after-tax value of assets to be sold Additional life insurance required 6 Capital required to achieve net indexed annual income BGN (the income must be available at the beginning of the period) FV = $0; PMT = Annual shortfall I/Y = After-tax rate of return on investments corrected for inflation: { ( 1 + after-tax return) / (1 + expected inflation rate) } – 1 N = Number of years when survivors will need the income. PV = Capital required

©IQPF Participant’s Workbook 93 Personal reflection After this lesson dedicated to William and Sandra: How confident do you feel about your capacity to use the process, as presented in this case study, in your professional practice? 1 2 3 4 5 Very uncomfortable Completely comfortable Compare your answer with your response in the Module 01 reflection questions. How comfortable do you feel now with the personal financial statements covered in this activity? 1 2 3 4 5 Very uncomfortable Completely comfortable Have you grown more comfortable? Take note of the points that seemed problematic that are now resolved?

©IQPF Participant’s Workbook 94 Case Study 03 – Daniel Jodoin Preparation for Case Study 03 In Case Study 03, you will meet Daniel Jodoin and you will need some key concepts to solve his situation. If you have not already done so, go to the Campus and complete the Case Study 03 pretest. Use the note area below to keep track of the points you need to study, to begin to build a study plan. We recommend that you start with the least familiar concepts, continue with the concepts that seem easier and then return to the first concepts, with new readings, if possible. Regularly do the readings from La Collection de l’IQPF: consolidate your knowledge to give yourself the best chance of passing your exam. Write down your study plan here.

©IQPF Participant’s Workbook 95 Activities Please do the following activities after the online session. Personal reflection Mr. Jodoin’s case deals exclusively with the situation at death. As you have discovered, this does not mean that you will not need all the knowledge from all the financial planning areas to meet his needs. For a similar engagement that covers only the situation at death, list your strengths and weaknesses, in terms of competencies and knowledge. To improve your knowledge based on the identified weaknesses, identify the readings you should do in La Collection de l’IQPF or other reliable sources and the resource people you should consult.

©IQPF Participant’s Workbook 96 In your future practice, when you have a partial engagement that covers only a few situations, what means can you put in place (whether or not they were mentioned in the course) to ensure you do not forget to take into consideration issues that are normally covered in another situation?

©IQPF Participant’s Workbook 97 Case Study 04 – Marcel and Jeanne Preparations for Case Study 04 In Case Study 04, you will meet Marcel and Jeanne and you will need some key concepts to solve his situation. If you have not already done so, go to the Campus and complete the Case Study 04 pretest. Use the note area below to keep track of the points you need to study, to begin to build a study plan. We recommend that you start with the least familiar concepts, continue with the concepts that seem easier and then return to the first concepts, with new readings, if possible. Regularly do the readings from La Collection de l’IQPF: consolidate your knowledge to give yourself the best chance of passing your exam. Write down your study plan here.

©IQPF Participant’s Workbook 98 Activities Information to be noted Section: Assess the situation at a given date - Identify and organize the relevant information Question 1 What liquid assets have been accrued for retirement? Section: Annual retirement savings Question 1 What is Jeanne’s RRSP deduction limit this year? Question 2 What is Jeanne’s contribution to the RREGOP for this year?

©IQPF Participant’s Workbook 99 Question 3 What would Jeanne’s RRSP deduction limit be for this year if, last year, she started working three days a week after concluding phased departure agreement with her employer? Question 4 If Jeanne worked three days a week this year after concluding a phased departure agreement with her employer, what would her RREGOP contribution be? Question 5 If Marcel decides to take the $80,000 retiring allowance next December, how much of it can be contributed to his RRSP this year and the next year?

©IQPF Participant’s Workbook 100 Section: Different sources of retirement income Question 1 Until what age will Jeanne have to work in order to be eligible for an immediate, unreduced pension from her pension plan: If she works full-time? If she works three days a week starting next year? Question 2 What is the amount of the pension Jeanne would receive if she retired next January? Question 3 What is the amount of the reduction applicable as of age 65?

©IQPF Participant’s Workbook 101 Question 4 What would be Jeanne’s pension benefit if she retired at age 61 after working three days a week under a phased departure agreement for five years? Question 5 What would be the amount of the reduction at age 65 for QPP coordination? Question 6 Based on the data provided for this year, what other pension benefits will they be eligible for at age 65?

©IQPF Participant’s Workbook 102 Retirement Projections The next pages provide three copies of the “Data to enter in your retirement projection software” grid. If you need to print more copies, you can download the document from the “ Model documents” session on the Campus. Scenario 1: Jeanne continues to work full-time to the age of 65. Scenario 2: Jeanne stops working at the same time as Marcel. Scenario 3: Under a phased departure agreement with her employer, Jeanne starts working three days a week when Marcel retires. She retires at age 61, that is, when she is eligible for unreduced pension benefits from her pension plan. Remember that in all these scenarios, Marcel retires next December and chooses the retiring allowance.

©IQPF Participant’s Workbook 103 Data to enter in your retirement projection software Type of income Owner Annual income $ Indexation before start % Start Subsequent indexation % End Salary Client 1 Salary Client 2 Business income Client 1 Business income Client 2 QPP Client 1 QPP Client 2 OAS Client 1 OAS Client 2 RPP Client 1 RPP Client 2 RPP Client 1 RPP Client 2 Rental Client 1 Rental Client 2 Dividend Client 1 Dividend Client 2 Non-taxable Client 1 Non-taxable Client 2 Retiring allowance Client 1 Retiring allowance Client 2 Client 1 Client 2 Type of expense Amount $ Frequency Indexation before start % Start Subsequent indexation % End Cost of living Mortgage

©IQPF Participant’s Workbook 104 Account type Holder Contribution rights $ Locked-in amount $ Market value $ Return % RRSP Client 1 RRSP Client 2 TFSA Client 1 TFSA Client 2 DC RPP, VRSP, LIRA Client 1 DC RPP, VRSP, LIRA Client 2 Account type Holder Net capital losses $ ACB $ Market value $ Return % Non-registered Client 1 Non-registered Client 2 Annual savings Owner Payer $ Annual amount $ Start Indexation % End RRSP Client 1 RRSP Client 2 DC RPP or VRSP Client 1 Employee  Employer  DC RPP or VRSP Client 2 Employee  Employer  DB RPP Client 1 Employee  DB RPP Client 2 Employee  TFSA Client 1 TFSA Client 2 Non-registered Client 1 Non-registered Client 2  Locked-in

©IQPF Participant’s Workbook 105 Data to enter in your retirement projection software Type of income Owner Annual income $ Indexation before start % Start Subsequent indexation % End Salary Client 1 Salary Client 2 Business income Client 1 Business income Client 2 QPP Client 1 QPP Client 2 OAS Client 1 OAS Client 2 RPP Client 1 RPP Client 2 RPP Client 1 RPP Client 2 Rental Client 1 Rental Client 2 Dividend Client 1 Dividend Client 2 Non-taxable Client 1 Non-taxable Client 2 Retiring allowance Client 1 Retiring allowance Client 2 Client 1 Client 2 Type of expense Amount $ Frequency Indexation before start % Start Subsequent indexation % End Cost of living Mortgage

©IQPF Participant’s Workbook 106 Account type Holder Contribution rights $ Locked-in amount $ Market value $ Return % RRSP Client 1 RRSP Client 2 TFSA Client 1 TFSA Client 2 DC RPP, VRSP, LIRA Client 1 DC RPP, VRSP, LIRA Client 2 Account type Holder Net capital losses $ ACB $ Market value $ Return % Non-registered Client 1 Non-registered Client 2 Annual savings Owner Payer $ Annual amount $ Start Indexation % End RRSP Client 1 RRSP Client 2 DC RPP or VRSP Client 1 Employee  Employer  DC RPP or VRSP Client 2 Employee  Employer  DB RPP Client 1 Employee  DB RPP Client 2 Employee  TFSA Client 1 TFSA Client 2 Non-registered Client 1 Non-registered Client 2  Locked-in

©IQPF Participant’s Workbook 107 Data to enter in your retirement projection software Type of income Owner Annual income $ Indexation before start % Start Subsequent indexation % End Salary Client 1 Salary Client 2 Business income Client 1 Business income Client 2 QPP Client 1 QPP Client 2 OAS Client 1 OAS Client 2 RPP Client 1 RPP Client 2 RPP Client 1 RPP Client 2 Rental Client 1 Rental Client 2 Dividend Client 1 Dividend Client 2 Non-taxable Client 1 Non-taxable Client 2 Retiring allowance Client 1 Retiring allowance Client 2 Client 1 Client 2 Type of expense Amount $ Frequency Indexation before start % Start Subsequent indexation % End Cost of living Mortgage

©IQPF Participant’s Workbook 108 Account type Holder Contribution rights $ Locked-in amount $ Market value $ Return % RRSP Client 1 RRSP Client 2 TFSA Client 1 TFSA Client 2 DC RPP, VRSP, LIRA Client 1 DC RPP, VRSP, LIRA Client 2 Account type Holder Net capital losses $ ACB $ Market value $ Return % Non-registered Client 1 Non-registered Client 2 Annual savings Owner Payer $ Annual amount $ Start Indexation % End RRSP Client 1 RRSP Client 2 DC RPP or VRSP Client 1 Employee  Employer  DC RPP or VRSP Client 2 Employee  Employer  DB RPP Client 1 Employee  DB RPP Client 2 Employee  TFSA Client 1 TFSA Client 2 Non-registered Client 1 Non-registered Client 2  Locked-in

©IQPF Participant’s Workbook 109 Personal Reflection Marcel and Jane’s case focuses exclusively on the retirement situation. This is one of the most popular situations for financial planning clients. It is undoubtedly one that requires you to call on extensive knowledge of all the financial planning areas. Faced with a similar case but dealing with the retirement situation only, identify your strengths and weaknesses, both in terms of skills and knowledge. To improve your knowledge based on the identified weaknesses, identify the readings you should do in La Collection de l’IQPF or other reliable sources and the resource people you should consult.

©IQPF Participant’s Workbook 110 Case Study 05 – Marc Champoux PREPARATIONS FOR CASE STUDY 05 In Case Study 05, you will meet Marc Champoux and you will need some key concepts to solve his situation. If you have not already done so, go to the Campus and read the documents on which the questions of the pretest will focus. Then, complete the Case Study 05 pretest. Use the note area below to keep track of the points you need to study, to begin to build a study plan. We recommend that you start with the least familiar concepts, continue with the concepts that seem easier and then return to the first concepts, with new readings, if possible. Regularly do the readings from La Collection de l’IQPF: consolidate your knowledge to give yourself the best chance of passing your exam. Write down your study plan here.

©IQPF Participant’s Workbook 111 Activities Activity: Writing the IPFP report The next pages provide the beginning of the analysis of the financial situation, that is, the information about the client’s net worth and the characteristics of the items that make up his balance sheet. After that, you will find the appendices that will accompany your report: Appendix A: Personal Balance Sheet Appendix B: Estimated budget for the year Appendix C: Allocation of assets invested for the long term Appendix D: Estimated capital cost allowance

©IQPF Participant’s Workbook 112 Financial situation Analysis 1. Based on the personal balance sheet presented in Appendix A, your net worth is $45,907. 1.1. You have a chequing account at Banque Populaire with a balance of $31,125, thanks to a recent lottery win of $30,000. It bears interest at 0.1% and entails a monthly banking fee of $5.05. The account is used for personal and business purposes. 1.2. You own a 2014 Kia Rivière, acquired new on March 31, 2014, for $17,500. The purchase was financed with a $500 cash deposit and financing over six years. The loan bears interest at 1.89%, your monthly payment is $257.29 and the balance of the loan, which matures on March 31, 2020, is $1,535. The market value of the car is estimated at $2,500, which is the trade-in value according to the dealer you asked. 1.2.1. In 2018, the car was used for business purposes 33% of the time. 33% of the interest was therefore deducted. 7 1.2.2. The debt on the car is registered in the Register of Personal and Movable Real Rights (RPMRR) and will have to be repaid if you sell before April 2020. 1.3. You have an RRSP with Banque Populaire Funds, totalling $10,246. The entire amount is invested in the BP conservative balance fund, which has a management expense ratio of 2%. 1.3.1. Your RRSP contribution rights are $31,208. 1.4. You have definitely accumulated pension rights under the Québec Pension Plan (QPP), but as your statement of participation is not available, their value could not be estimated. 1.5. You operate a small pet toy manufacturing business registered under the name “Tout pour votre meilleur ami.” It is a small business that does not yet have real value beyond its capital property. With no reliable evaluation method, the value of the capital property net of cumulative tax depreciation ($9,310) was used as a market value. No bank account or credit has been set up in the business’s name. 1.6. You have a Vista credit card with authorized credit of $10,000, and the balance, which is currently $300, is paid off every month by the due date. The interest rate is 19.9%. The expenses paid with this card are mainly personal. 7 Deductible interest for a motor vehicle is subject to a limit of $10 per day ($3,650 for a full year) before being prorated for business use. Since the total payments for a year are lower than this amount, you do not need to do the calculation to know that the limit does not apply.

©IQPF Participant’s Workbook 113 1.7. You have a personal line of credit with authorized credit of $10,000 and a balance of $3,800. The interest rate is currently 7%. The credit was used to deal with veterinary emergencies not planned in your budget. 1.8. A future tax liability estimated at $1,639 is calculated to account for the fact that the value of your RRSP is a before-tax value.

©IQPF Participant’s Workbook 114 APPENDIX A P ERSONAL B ALANCE S HEET D ATE : S EPTEMBER 30, 2019 Marc Champoux $ ASSETS Cash and near-cash assets Bank accounts (Note 3) 31,125 Personal assets Cars (Note 4) 2,500 Income-producing assets Tout pour votre meilleur ami enr. (Note 5) 9,310 Deferred tax plans RRSP (note 6) 10,246 Québec pension plan (QPP) (Note 7) – Subtotal: 10,246 TOTAL ASSETS: 53,181 LIABILITIES Accounts payable Unpaid credit card balance (note 8) 300 Personal loans Car loans (note 9) 1,535 Line of credit (note 10) 3,800 Subtotal: 5,335 Future income taxes (Note 11) 1,639 TOTAL LIABILITIES: 7,274 NET WORTH: 45,907

©IQPF Participant’s Workbook 115 Notes to the Personal Balance Sheet NOTE 1: Personal, professional and family situation Marc Champoux, 34, is both an employee and an entrepreneur, since he runs a pet toy and accessory manufacturing business. He is single, lives alone, has no children and has been living in the same apartment in Trois-Rivières for 12 years. NOTE 2: Accounting policies Assets and liabilities are presented at their estimated current value. NOTE 3: Bank accounts Financial institution Account type Rate % Balance $ Banque Populaire Chequing 0.1 31,125 Account used for personal and business purposes. The monthly fee is $5.05 includes an unlimited number of transactions. NOTE 4 : Cars Model Date of acquisition Acquisition cost $ Market value $ 2014 Kia Rivière March 31, 2014 18,000 2,500 The market value is equal to the exchange value proposed by the dealer Mr. Champoux spoke to. NOTE 5: Tout pour votre meilleur ami enr. Pet toy and accessory manufacturing business. The business has not been assessed, and its value is equal to the cost of the capital property, net of the accumulated tax depreciation and the cost of the inventory. Description Cost $ Category Rate % Cumulative depreciation $ UCC $ Value $ Machinery 4,000 53 50 3,250 750 750 Patent 3,200 44 25 0 3,200 3,200 Inventory 5,360 n/a n/a n/a n/a 5,360 Total: 9,310

©IQPF Participant’s Workbook 116 NOTE 6: Registered Retirement Savings Plans (RRSPs) Account no. 124526 at Les fonds Banque Populaire Mutual funds Description MER % Liquid securities % Liquid securities $ Fixed income % Fixed income $ Growth % Growth $ Total $ BP balance conservative 2 5 512 55 5,635 40 4,099 10,246 NOTE 7: QPP retirement pension Statement of participation not available NOTE 8: Unpaid credit card balance Issuer Authorized credit $ Interest rate % Balance $ Vista 10,000 19.9 300 NOTE 9: Car loan Creditor Loan date/ Maturity date Loan $ Interest rate % Monthly payment $ Balance $ Kia credit 2014-03-31/ 2020-03-31 17,500 1.89 257.29 1,535 NOTE 10: Line of credit Creditor Authorized credit $ Interest rate % Balance $ Banque Populaire 10,000 7 3,800

©IQPF Participant’s Workbook 117 NOTE 11: Future income taxes Description Taxable value $ Estimated tax rate % Future income taxes $ RRSP 10,246 16 1,639 The tax rates used correspond to the assumption for the average tax rate in retirement. NOTE 12: Insurance contracts Life insurance Issuing company Subscription date Type Adherent Insured Beneficiary ABC Insurance n/a Group M. Champoux M. Champoux S. Charbonneau (mother) Annual premium Cash surrender value Adjusted cost base Capitalization fund Death benefit Payer $190 n/a n/a n/a 1 x salary ($40,000) M. Champoux Disability insurance Issuing company Elimination period Type of contract Annual premium $ Monthly income $ Indexed Duration of benefits Own profession ABC Insurance 1 week Group 608 (employer) 2,333.33 IPC 65 2 years Complementary health insurance Group insurance plan through employer with ABC Insurance. Includes dental care. Annual premium is $1,647, of which $625 is paid by Mr. Champoux.

©IQPF Participant’s Workbook 118 NOTE 13: Tax information Effective tax rate 16% Marginal tax rate 28% RRSP deduction limit 31,208 TFSA contribution rights 63,680 Balance of net capital losses 0 Net capital gains in the last three years None NOTE 14: Legal documents Mr. Champoux does not have a will or a protection mandate.

©IQPF Participant’s Workbook 119 APPENDIX B ESTIMATED BUDGET FOR 2019 Expenses Month $ Year $ Incompressible expenses $ Rent 585.00 7,020 7,020 Hydro 75.00 900 900 Videotron 145.00 1,740 1,740 Cell phone 82.50 990 990 Home insurance 48.00 576 576 Groceries 450.00 5,400 5,400 Car payment 257.29 3,087 3,087 Car insurance 54.17 650 650 Gas 125.00 1,500 Mechanic 1,000 1,000 Permit and licensing 368 368 Clothing 1,200 Veterinarian 400 400 Group life insurance 190 190 Medical expenses 700 700 Barber 29.00 348 Camping 1,500 Entertainment 125.00 1,500 Restaurants 100.00 1,200 Gifts 300 Miscellaneous (including lottery) 60.00 720 Bank fees 5.05 61 61 Annual expenses 31,350 23,082 Portion of budget comprised of incompressible expenses 74%

©IQPF Participant’s Workbook 120 APPENDIX C A LLOCATION OF ASSETS INVESTED FOR THE LONG TERM AS AT 30 S EPTEMBER 2019

©IQPF Participant’s Workbook 121 APPENDIX D ESTIMATED CAPITAL COST ALLOWANCE FOR 2019 Including planned purchases Class 53 – 50% declining balance Manufacturing machines UCC on December 31, 2018 $750 x 50% $375 Purchase of sewing machine $6,000 x 100% $6,000 Capital cost allowance $6,375 UCC on December 31, 2019 $750 – $375 + $6,000 – $6,000 $375 Note: A temporary tax measure allows depreciable capital property used in manufacturing or processing operations acquired or put into use after November 20, 2018, to be depreciated at a rate of 100% of the capital cost. This measure applies to 2027, inclusive. The enhanced rate will be gradually reduced as of 2024. Class 44 – 25% declining balance Patent Basic amount for CCA UCC on December 31, 2018 $0 Federal Québec Capital cost of the patent $3,200 × 1.5 $4,800 $3,200 × 25% x 100% Capital cost allowance $1,200 $3,200 UCC on December 31, 2019 $3,200 – $1,200 $2,000 $3,200 – $3,200 $0 Note: A temporary tax measure applicable to depreciable capital property acquired or put into service after November 20, 2018, allows for a higher CCA in the first year. The CCA is higher in Québec for qualified intellectual property, because the full capital cost can be deducted. This calculation assumes that the patent qualifies for this. Class 10 – 30% declining balance Passenger vehicle UCC on December 31, 2018 $3,780 × 1 $3,780 Purchase, net of provisions $16,000 × 1.5 $24,000 $19,380 Basic amount for CCA $27,780 Capital cost allowance $27,780 x 30% $8,334 $8,334 x 33% $2,750 UCC on December 31, 2019 $19,380 – $8,334 $11,046 Note: A temporary tax measure applicable to depreciable capital property acquired or put into service after November 20, 2018, allows for a higher CCA in the first year. General note: The half-year rule is suspended until 2027 inclusive.

©IQPF Participant’s Workbook 122 Estimated capital cost allowance Including planned purchases Federal $6,375 + $1,200 + $2,750 $10,325 Québec $6,375 + $3,200 + $2,750 $12,325 Estimated capital cost allowance Without additional purchase Federal $375 + $1,200 + $374 $1,949 Québec $375 + $3,200 + $374 $3,949 According to the 2018–9 Information Bulletin called “Fiscal Measures Announced in the Update on Québec’s Economic and Financial Situation and Other Measure,” published by the Ministère des Finances du Québec on December 3, 2018: Qualified intellectual property o Qualified intellectual property will mean property acquired after the day of publication of this information bulletin, that is a patent or a right to use patented information, a licence, a permit, know-how, a commercial secret or other similar property constituting knowledge, and that: o is property included in Class 14 of Schedule B to the Regulation respecting the Taxation Act, property included in Class 44 of that schedule or property that is incorporeal capital property; o is acquired by a taxpayer in the course of a technology transfer or is developed by or on behalf of the taxpayer with a view to enabling the taxpayer to implement an innovation or invention concerning the taxpayer’s business; o begins to be used within a reasonable time after being acquired or after its development is completed; o is used, for the period covering the process of implementing the innovation or invention (hereinafter, “implementation period”), only in Québec and primarily in the course of carrying on a business by the taxpayer or, where applicable, by a person with whom the taxpayer does not deal at arm’s length and who acquired the property in circumstances in which a transfer, amalgamation or winding-up occurred; o is not, for the implementation period, property used for earning or producing gross revenue consisting of rent or royalty; o is not property acquired from a person or partnership with which the taxpayer does not deal at arm’s length.

©IQPF Participant’s Workbook 123 Activity – Rate Comparison Question 1 Josée has saved up $5,000 that she wants to use in the best possible way. These are her three options: a. Pay down her car loan, which bears interest at 2.15%. She uses the car only for personal reasons. b. Buy a non-registered guaranteed investment certificate (GIC) bearing interest at 3.04%. c. Pay down her student loan (received through the Québec government loan and bursary program), which bears interest at 3.25%. Since Josée’s marginal tax rate is 46%, which of these three options would be the most benefit for her?

©IQPF Participant’s Workbook 124 Question 2 Antoine inherited $10,000 and he asks you to advise him about the best way to use this capital. He tells you his annual income and you determine that his marginal tax rate is 37% but would be 18% if he earned eligible dividends. Which of the following three options would be the most beneficial for Antoine? a. Contribute to a TFSA and invest it all in a diversified portfolio with an expected return of 4.35%, divided as follows: 1/3 in eligible dividends, 1/3 in capital gains, 1/3 in interest from Canadian sources. b. Repay a personal debt bearing interest at 5%. c. Lend the money to his sister at a rate of 6%.

©IQPF Participant’s Workbook 125 Question 3 Annick is a notary and she is self-employed. She contributes the maximum to her TFSA and RRSP and is wondering what would be the best way to use the $200 she has left over each month. She tells you her annual income, and you determine that her marginal tax rate is 47% but would be 32% if she earned eligible dividends. Which of the following three options would be the most beneficial for Annick? a. Invest in a non-registered account: invest the entire amount in a diversified portfolio with an expected return of 4.35%, divided as follows: 1/3 in eligible dividends, 1/3 in capital gains, 1/3 in interest from Canadian sources. b. Repay a loan used to pay the salary of her legal assistant during the start-up period for her professional firm. The loan bears interest at 6%. c. Repay a loan used to catch up on her unused RRSP contribution room. The loan bears interest at 4%.

©IQPF Participant’s Workbook 126 Corporate Taxation in Financial Planning Activities Question 1: Principle of integration Calculate the income available to the shareholder as active business income (ABI) eligible for the small business deduction (SBD) federally if the net amount is paid to him as a taxable dividend. Personally earned income $ ABI SBD federal only $ Profit $1,000.00 $1,000.00 Corporate tax (fed.) Total income tax n/a Corporate tax (Qc) n/a Dividend to shareholder n/a Gross-up n/a Net and taxable income $1,000.00 Basic federal tax (33%) $330.00 Federal dividend credit n/a Abatement (16.5%) ($54.45) Basic Qc tax (25.75%) $257.50 Qc dividend tax credit n/a Total personal income tax $533.05 Available income $466.95 Difference from personally earned income

©IQPF Participant’s Workbook 127 Question 2: Dividend refund At the end of 20X1, PFPI Inc. had a non-eligible (common) RDTOH balance of $400. In 20X2, it received a dividend refund of $400 on non-eligible dividends of $10,000 paid to its shareholder in 20X1. In 20X2, the corporate earned interest income amounting to $10,000, realized a taxable capital gain of $5,000 and received a non-eligible dividend of $5,000 from a connected corporation. The connected corporation did not receive a dividend refund. In 20X2, PFPI Inc. paid its shareholder $10,000 in non-eligible (common) dividends and no eligible dividends. Since PFPI Inc.’s eligible RDTOH balance is zero, what is the amount of the dividend refund for the dividends paid in 20X2?

©IQPF Participant’s Workbook 128 Question 3: Énergie Vidéo Inc. Énergie Vidéo Inc. has been operating a video rental business for more than 10 years. Élliott, the sole shareholder, originally invested $100 for the 100 common shares he holds. Here is a list of the company’s assets and liabilities, presented at their FMV last December 31. $ ASSETS Cash 3,200 Videotape inventory 150,000 Building (40% occupied by the corporation, 60% rented to a third party) 200,000 Equipment (cash register, shelves, televisions...) 40,000 Goodwill 150,000 TOTAL ASSETS 543,200 LIABILITIES Accounts payable 73,200 Mortgage on building 150,000 TOTAL LIABILITIES 223,200 These data are representative of the last two years. Élliott has come to see you because he wants to know the tax impact of selling his 100 common shares of Énergie Vidéo Inc. He has just received a purchase offer of $320,000: $120,000 in cash and the balance spread equally over five years. Elliott’s marginal tax rate is 50%. He has never claimed a business investment loss and his cumulative net loss on investments is nil to date.

©IQPF Participant’s Workbook 129

©IQPF Participant’s Workbook 130 Question 4: 3J Inc. Jean, Jeanne and Joseph are related persons. They each hold 33 1/3% of 3J Inc., a corporation that operates a wholesaler business. The corporation’s year-end is July 31. As at July 31, 2018, the corporation freed up significant liquidity to allow the corporation and its shareholders to conduct various transactions. Part 1 What would the tax implications be if the transactions were the following? Date Description July 30, 2018 Jean sold a land to 3J Inc. for $225,000. The tax attributes of this land for Jean were: • ACB = $110,000 • FMV = $180,000 July 30, 2018 3J Inc. paid for a cruise for its three shareholders and their spouses to congratulate them on their results in 2018. This two-week cruise cost $15,000, $5,000 per shareholder. For the years in question, the prescribed interest rate is 4%.

©IQPF Participant’s Workbook 131 Part 2 What would the tax implications be if the transactions were the following? Date Description July 30, 2018 $300,000 loan from 3J Inc. to Jeanne, interest-free, as a shareholder, to allow her to acquire a principal residence. Planned repayments: • July 30, 2019: $30,000 • July 30, 2020: $30,000 July 30, 2018 $50,000 loan from 3J Inc. to Joseph, interest-free, to enable him to acquire a car to use in the course of his employment. Similar loans have been made by 3J Inc. to other employees. Planned repayments: • July 30, 2019: $16,666 • July 30, 2020: $16,666 For the years in question, the prescribed interest rate is 4%.

©IQPF Participant’s Workbook 132 PART 3: Learning activity solutions Introduction Module 1. The following steps should be carried out in the presence of your client: • Explain the role of the financial planner and the value of the financial planning process • Define the terms of the engagement • Determine the client’s goals, needs and priorities • Compile and present recommendations and the supporting rationale • Discuss implementation actions, responsibilities and time frames • Implement the recommendations 2. Please see Module 1, The Integrated Personal Financial Planning Process, for information about the professional service contract. A. False. A client can break a contract at any time and does not need a serious reason. It is the financial planner who cannot terminate a contract with a client except for a serious reason. B. False. The financial planner cannot include a clause in the contract guaranteeing the results of their recommendations. Furthermore, they should even disclaim responsibility in this regard. C. True. Section 17 of the Regulation respecting Firms, Independent Representatives and Independent Partnerships, CQLR, c D-9.2, r. 2, identifies the documents that must be in a client file and subsection 10 is of particular interest for financial planners, since it stipulates that the client’s file must include a copy of the financial planning contract signed by the client and a copy of the written report that the financial planner is obliged to give the client. D. True. An estimate of the number of hours to carry out the contract is one of the things that must be included in the professional service contract, according to section 8 of the Regulation respecting the Pursuit of Activities as a Representative. E. False. The documents in the client’s file can be viewed by the client . 3. Name the five steps of a standard problem-resolution process and state those carried out in the analysis step. 1) Review of the goals expressed by the client 2) Assessment of the current situation based on the documentation provided 3) Quantification of the differences 4) Evaluation of the feasibility and potential achievement of the target goal 5) Identification of solutions . Points 2 to 5 lead to three orders of findings to be included in the “Analysis” section for each situation in the integrated personal financial planning report. Six situations must be analysed for a full portrait of a person’s or family’s financial situation.

©IQPF Participant’s Workbook 133 Case Study 02 – William and Sandra Bilan personnel – Notes personnelles Section: Assets Question 3 (Part 7) What is the value of Sandra’s RPP to enter in the balance sheet? BGN 2,434.40 Accrued pension indexed (inflation) to age 65 already calculated 1.96 [(1 + 0.04) ÷ (1 + 0.02)] – 1 27 92–65 (life expectancy – age of retirement) 0 –$51,655.94 51,655.94 0 4 Rate of return on long-term portfolio 37 65–28 (age of retirement – current age) –$12,103 It is also possible to not calculate the amount of the pension benefits at 65 and instead use a corrected discount rate to determine the value of the pension benefits at age 65 on the date of the balance sheet. BGN 1,170 Accrued pension 1.96 [(1 + 0.04) ÷ (1 + 0.02)] – 1 27 92–65 (life expectancy – age of retirement) 0 –$24,826.41 24,826.41 0 1.96 [(1 + 0.04) ÷ (1 + 0.02)] – 1 37 65–28 (age of retirement – current age) –$12,106 Note: The difference between the two results is because the corrected rate is rounded to two decimal places.

©IQPF Participant’s Workbook 134 Question 3 (Part 8) What values should be entered in Sandra and William’s personal balance sheet for their QPP pensions? Sandra BGN 6,660.40 Accrued pension indexed (MPE) to age 65 already calculated 1.96 [(1 + 0.04) ÷ (1 + 0.02)] – 1 27 92–65 (life expectancy – age of retirement) 0 –$141,320.41 141,320.41 0 4 Rate of return on long-term portfolio 37 65–28 (age of retirement – current age) –$33,111 It is also possible to not calculate the amount of the pension benefits at 65 and instead use a corrected discount rate to determine the value of the pension benefits at age 65 on the date of the balance sheet. BGN 2.231 Accrued pension 1.96 [(1 + 0.04) ÷ (1 + 0.02)] – 1 27 92–65 (life expectancy – age of retirement) 0 –$47,339.93 47,339.93 0 0.97 1, 1, +0.03, 1 37 65–28 (age of retirement – current age) –$33,122 Note: The difference between the two results is because the corrected rate is rounded to two decimal places.

©IQPF Participant’s Workbook 135 William –2.138 Accrued pension 3 Assumption for MPE rate of increase. 38 65–27 (age of retirement – current age) 0 $6,573.89 BGN 6,573.89 Accrued pension indexed (MPE) to age 65. 1.67 [(1 + +0.037) ÷ (1 + 0.02)] – 1 25 90–65 (life expectancy – age of retirement) 0 –$135,687.95 135,687.95 0 3.7 Rate of return on long-term portfolio 38 65-27 (age of retirement – current age) –$34,115 It is also possible to not calculate the amount of the pension benefits at 65 and instead use a corrected discount rate to determine the value of the pension benefits at age 65 on the date of the balance sheet. BGN 2.138 Accrued pension. 1.67 [(1 + 0.037) ÷ (1 + 0.02)] – 1 25 90–65 (life expectancy – age of retirement) 0 –$44,129.27 44,129.27 0 0.68 [(1 + 0.037) ÷ (1 + 0.03)] – 1 38 65–27 (age of retirement – current age) –$34,110 Note: The difference between the two results is because the corrected rate is rounded to two decimal places.

©IQPF Participant’s Workbook 136 Question 5 (Parts 1 and 2) Net value of family residence. Total William Sandra Market value $370,000 $185,000 $185,000 Less: Mortgage $177,874 $88,937 $88,937 Credit cards $3,250 $5,980 Net worth $92,813 $90,083 Question 6 (part 1) Partition of family patrimony for non-registered assets Family residence Total William Sandra Market value $370,000 $185,000 $185,000 Less: Mortgage $177,874 $88,937 $88,937 Credit cards $3,250 $5,980 Net worth $92,813 $90,083 Deduction for contribution with an asset received by gift Gift $6,000 Increase in value: [$370,000 – $220,000] ÷ $220,000 = 68.18% $4,091 Deduction $10,091 Partitionable value of the residence $92,813 $79,992 Other assets included Furniture $1,600 $800 $800 Car (exclude gift car) $0 $0 Partitionable value – Non-registered assets $93,613 $80,792 $174,405 Calculation of the family patrimony debt for the non-registered assets William Sandra Value to attain ($174,405 ÷ 2) $87,203 $87,202 Less: Partitionable value $93,613 $80,792 Creditor (debtor) amount ($6,410) $6,410

©IQPF Participant’s Workbook 137 Question 6 (part 2) Partition of the family patrimony for deferred tax plans William Sandra Partitionable value – RPP $28,268 $12,103 Total partitionable value $40,371 Value to attain $20,185 $20,185 Less: Partitionable value $28,268 $12,103 Creditor (debtor) amount ($8,082) $8,082 Note: QPP earnings will be partitioned directly by Retraite Québec. Question 7 Who would be the family patrimony creditor (for all the assets) if the partition were carried out due to the death of one of the spouses and what would be the amount of the debt? Family residence Total William Sandra Market value $370,000 $185,000 $185,000 Less: Credit cards $3,250 $5,980 Net worth $181,750 $179,020 Deduction for contribution with an asset received by gift Gift $6,000 Increase in value: [$370,000 – $220,000] ÷ $220,000 = 68.18% $4,091 Deduction $10,091 Partitionable value of the residence $181,750 $168,929 Other assets included Furniture $1,600 $800 $800 Car (exclude gift car) $0 $0 Partitionable value – Non-registered assets $182,550 $169,729 $352,279 William Sandra Value to attain ($352,279 ÷ 2) $176,140 $176,140 Less: Partitionable value $182,550 $169,729 Creditor (debtor) amount ($6,410) $6,410

©IQPF Participant’s Workbook 138 Activity – Cost of Living Question 1 How long will it take for William to pay off his credit card? Answer: 4.87 months 3,250 0 19.9 [P/Y] \P/Y\ 12 \C/Y\ 12 [QUIT] –700 4.87 months William is making monthly payments (\P/Y\ = 12) and credit card interest is capitalized monthly (\C/Y\ = 12). The solutions shown use the calculator’s secondary function [P/Y], which allows you to avoid manipulating the interest rate (I/Y) to match the frequency of the payments (\P/Y\) and the frequency of interest capitalization (\C/Y\). Question 2 How long will it take for Sandra to pay off her credit card? Answer: 5.24 months 5,980 0 19.9 [P/Y] \P/Y\ 12 \C/Y\ 12 [QUIT] –1,200 5.24 months

©IQPF Participant’s Workbook 139 Question 3 How much additional money will be available monthly once the credit cards are paid off and the monthly expenditures have been increased by $600? Answer: $1,300 The couple is spending $1,900 each month to pay off their credit cards, which will then be available each month for other purposes, including the planned spending of an additional $600 each month. This will leave them $1,300 each month. Conclusion In five months, William and Sandra will be able to save $1,300 per month. Question 4.1 In three years, what will be the price of a car like the $25,000 car William and Sandra have their eye on now? How much will they have to save each month to buy, three years from now, a car that is worth $25,000 today? Answer: $26,530 –25,000 0 This is not an annuity. 2 The inflation assumption is 2%. 3 Number of periods (years). $26,530 Question 4.2 How much will they have to save each month to buy, three years from now, a car that is worth $25,000 today? Answer: $845.16 0 26,530 31 (3 × 12) – 5 → Beginning in five months 1 [P/Y] \P/Y\ 12 \C/Y\ 12 [QUIT] Short-term return, net of fees: 1%, capitalized (\C/Y\) 12 times a year. Monthly payments (\P/Y\). $–845.16

©IQPF Participant’s Workbook 140 Question 5 How much will be available monthly to create an emergency fund and possibly save toward retirement? Answer: $454.84 $1,300 – $845.16 Question 6 Since saving up to buy a car is a recurring expense, what will William and Sandra’s annual cost of living be once their credit cards have been repaid? Answer: $74,793 Their current cost of living is $57,451 and we have to add $7,200 ($600 a month) for the increase in discretionary spending and $10,142 ($845.16 a month) to save for the car. Question 7 What is William’s available income (income after income taxes, social charges and savings)? What is Sandra’s? Answers: William: $36,800; Sandra: $43,451 William Sandra Salary $48,550 $50,550 Salary $65,000 Kilometrage allowance $2,000* Less: Less: Income taxes $8,478 $13,750 Income taxes $13,791 $21,549 Social contributions $3,330 Social contributions $3,858 RRP contributions $1,942 RRP contributions $3,900 Available income $36,800 Available income $43,451 * $4,000 km per year at a rate of $0.50/km.

©IQPF Participant’s Workbook 141 Question 8 What are the couple’s debt ratios (GDS and TDS)? Answer: GDS = 15%; TDS = 27% The gross debt service ratio (GDS) is mainly used for residential mortgages, since it represents the ratio between expenses related to housing and the borrowers’ gross income. It is calculated as follows: 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑝𝑝 + 𝑝𝑝𝑀𝑀𝑀𝑀𝑝𝑝𝑀𝑀𝑀𝑀𝑀𝑀𝑝𝑝 𝑀𝑀𝑀𝑀𝑡𝑡𝑀𝑀𝑝𝑝 + 𝑀𝑀𝑒𝑒𝑀𝑀𝑒𝑒𝑀𝑀𝑀𝑀𝑒𝑒𝑒𝑒𝑒𝑒𝑀𝑀𝑝𝑝 + ℎ𝑀𝑀𝑀𝑀𝑀𝑀𝑒𝑒𝑝𝑝𝑀𝑀 + 50% 𝑀𝑀𝑜𝑜 𝑒𝑒𝑀𝑀𝑝𝑝𝑑𝑑𝑀𝑀𝑝𝑝𝑒𝑒𝑝𝑝𝑒𝑒𝑐𝑐𝑝𝑝 𝑜𝑜𝑀𝑀𝑀𝑀𝑝𝑝 𝐺𝐺𝑀𝑀𝑀𝑀𝑝𝑝𝑝𝑝 𝑒𝑒𝑝𝑝𝑒𝑒𝑀𝑀𝑝𝑝𝑀𝑀 $12,460 + $3,488 + $1,220 $48,550 + $65,000 = 15% The total debt service ratio (TDS) considers not only expenses related to housing but also the repayment of the borrower’s other debts. Since this ratio is generally calculated by financial institutions before granting a new loan, the calculation considers the minimum repayment on all authorized credit and not just the credit in use at the time of the loan. Authorized credit: $15,000 + $20,000 + $2,000 = $37,000 Minimum repayment: $37,000 × 3% = $1,110 per month or $13,320 per year 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑝𝑝 + 𝑝𝑝𝑀𝑀𝑀𝑀𝑝𝑝𝑀𝑀𝑀𝑀𝑀𝑀𝑝𝑝 𝑀𝑀𝑀𝑀𝑡𝑡𝑀𝑀𝑝𝑝 + 𝑀𝑀𝑒𝑒𝑀𝑀𝑒𝑒𝑀𝑀𝑀𝑀𝑒𝑒𝑒𝑒𝑒𝑒𝑀𝑀𝑝𝑝 + ℎ𝑀𝑀𝑀𝑀𝑀𝑀𝑒𝑒𝑝𝑝𝑀𝑀 + 50% 𝑀𝑀𝑜𝑜 𝑒𝑒𝑀𝑀𝑝𝑝𝑑𝑑𝑀𝑀𝑝𝑝𝑒𝑒𝑝𝑝𝑒𝑒𝑐𝑐𝑝𝑝 𝑜𝑜𝑀𝑀𝑀𝑀𝑝𝑝 + 𝑀𝑀𝑀𝑀ℎ𝑀𝑀𝑀𝑀 𝑑𝑑𝑀𝑀𝑑𝑑𝑀𝑀𝑝𝑝 𝐺𝐺𝑀𝑀𝑀𝑀𝑝𝑝𝑝𝑝 𝑒𝑒𝑝𝑝𝑒𝑒𝑀𝑀𝑝𝑝𝑀𝑀 $12,460 + $3,488 + $1,220 + $13,320 $48,550 + $65,000 = 27%

©IQPF Participant’s Workbook 142 Activity – Emergency Fund Question 1 How long will it take for William and Sandra to accumulate their $15,000 emergency fund? Answer: 38 months or 3 years and 2 months We now know that in five months William and Sandra will be able to start saving $1,300 a month. We also know that the monthly savings required for the purchase of the car will be $845.16. The monthly savings available to put toward their emergency fund will therefore be $454.84 ($1,300 – $845.16). Since they have to earn the income before they can save it, we have to do the calculations for the end of the period. 0 –454.84 15,000 1 [P/Y] \P/Y\ 12 \C/Y\ 12 [QUI T] Short-term return, net of fees: 1%, capitalized (\C/Y\) 12 times a year. Monthly payments (\P/Y\). 32.55 months 32.55 months + 5 months = 37.55 months or 3 years and 1.5 months Question 2 What is the borrowing rate required from the insurer XYX to allow William to pay his life insurance premium monthly? Note: We are trying to figure out the rate that matches William’s real annual borrowing rate, so we need to calculate the effective rate. Answer: 18.59% A life insurance premium is payable at the beginning of the period (BGN). 1,032 –92.88 0 12 [P/Y] \P/Y\ 12 \C/Y\ 1 [QUIT] An effective rate is capitalized (\C/Y\) once a year. Monthly payments (\P/Y\). 18.59%

©IQPF Participant’s Workbook 143 Question 3 What is the borrowing rate required from the insurer Québec vie to allow William to pay his disability insurance premium monthly? Note: We are trying to figure out the rate that matches William’s real annual borrowing rate, so we need to calculate the effective rate. Answer: 18.59% A disability insurance premium is payable at the beginning of the period (BGN). 1,782.56 – 160.43 0 12 [P/Y] \P/Y\ 12 \C/Y\ 1 [QUIT] An effective rate is capitalized (\C/Y\) once a year. Monthly payments (\P/Y\). 18.59%

©IQPF Participant’s Workbook 144 Activity – Financial Projections for Retirement Question 1 How many years from now will William and Sandra retire? Answer: William: 38 years; Sandra: 37 years William is 27 and will retire at age 65, or 38 years from now (65 – 27). Sandra is 28 and will retire at age 65, or 37 years from now (65 – 28). Question 2 How much will their respective OAS pensions be the year that William retires? Answer: $14,940.98 The OAS is indexed annually to inflation. You therefore have to index for 38 years the amount payable in 2018 based on the inflation assumption. –7,040 0 38 2 $14,940.98

©IQPF Participant’s Workbook 145 Question 3 How much will their respective QPP retirement pensions be the year that William retires? Answer: William: $36,260.92; Sandra: $41,127.89 The assumption concerning the growth rate of MPE is the same as the assumption concerning William and Sandra’s salary increases. This is the rate that must be used to index the amount of the retirement benefits projected to age 65. But Sandra’s benefit will already have been in service for a year when William retires, and QPP benefits in service 8 increase based on inflation. William –11,793 0 38 3 $36,260.92 Sandra –13,507 0 37 3 $40,321.46 –40,321.46 0 1 2 $41,127.89 8 Benefits are in service once the payments have started to be paid.

©IQPF Participant’s Workbook 146 Question 4 How much will William have accrued in his RPP by the age of 65? Answer: $613,187.33 This is an annuity that increases at the end of the period (END) and you have to find the future value (FV) at age 65. William and his employer are each contributing 4% of William’s salary (total of 8%), and we assume his salary will increase at a rate of 3% per year. Furthermore, the contributions are only made when the salary is paid, at the end of the period. The problem is that it is impossible to calculate the accrued value (FV) of a growth annuity in a single operation, as we would with the present value (PV), simply by correcting the discount rate (I/Y) to take the increase in payments (PMT) into account. We actually have to find the corrected rate 9 and then used it to find the present value (PV), which can then be used to find the future value (FV) using the uncorrected rate of return. Unfortunately, that is not all. It is also not possible to directly find the present value (PV) of an annuity that increases at the end of the period (END), only one that increases at the beginning of the period (BGN). Since it would be hard to ask William and his employer to save on an as- yet-unearned salary, we have to find the present value (PV) of the growth annuity at the beginning of the period (BGN) and discount that value (PV) one additional year, using the uncorrected rate of return. BGN –3,884 $1,942 (contribution on provisional budget) × 2 0 0.68 [(1.037 ÷ 1.03) – 1] × 100 38 Number of periods (years) $130,560.58 –130,560.58 $1,942 (contribution on provisional budget) × 2 0 This calculation is not an annuity. 3.7 Long-term rate of return, net of fees. 1 $125,902.20 –154,170.20 $125,902.20 + $28,268 (value on date of report) 0 This calculation is not an annuity. 3.7 Long-term rate of return, net of fees. 38 65 – 27 $613,187.34 9 [((1 + rate of return) ÷ (1 + rate of increase)) – 1] × 100

©IQPF Participant’s Workbook 147 Question 5 How much annual income should the accrued amount generate in retirement? Answer: $23,920.89 When planning long-term income, such as retirement income, we have to take inflation into account, so the client’s lifestyle can be maintained. For this reason, you must always plan for an increase in the cost of living based on inflation, along with the use of the retirement capital. In short, you have to calculate an annuity that is indexed to inflation. This is an annuity that increases at the beginning of the period (BGN) for which we want to find the annual payment (PMT). To do this, we have to find the rate of return William can be expected to earn on his investments and correct it to take the increase in payments into account (I/Y). We also have to determine how many years (N) the income will have to be paid, that is, how many payments there will be before the capital is depleted (FV = 0). –$613,187.34 Value of RPP at retirement (age 65) 0 Capital completely depleted 1.67 [(1.037 ÷ 1.02) – 1] × 100 33 98 – 65 $23,920.89 Amount of first payment Question 6 Is Sandra’s defined benefit RPP coordinated with the QPP? Answer: No To answer this question, you have to examine the characteristics of the RPP. The salary contribution rate is uniform for the entire salary and the retirement annuity is calculated based on a uniform rate, regardless of MPE. Also, no additional annuity is planned for people who retire before the age of 65. Question 7 In light of the economic assumptions used, the characteristics of Sandra’s RPP and the planned maternity leaves, at what age will Sandra be eligible for her RPP benefits? Answer: Age 62 28 + 34 = 62 Sandra, who is 28, has one year of service. Her RPP states that she will be eligible for pension benefits beginning at age 65 or 60 if she has 35 years of service. Although she is planning to take three years of maternity leave, these years are taken into consideration for pension eligibility. If she retires at that age, however, her pension will be based on 32 years of service.

©IQPF Participant’s Workbook 148 Question 8 In light of the economic assumptions used, the characteristics of Sandra’s RPP and the planned maternity leaves, how much will Sandra’s RPP benefits be at age 66 (her age when William retires) if she continues to work for this employer until she turns 65? Answer: $124,689.93 Her defined benefit RPP is based on “final salary,” since it is calculated as follows: 1.8% × 𝑝𝑝𝑐𝑐𝑝𝑝𝑑𝑑𝑀𝑀𝑀𝑀 𝑀𝑀𝑜𝑜 𝑝𝑝𝑀𝑀𝑀𝑀𝑀𝑀𝑝𝑝 𝑀𝑀𝑜𝑜 𝑝𝑝𝑀𝑀𝑀𝑀𝑠𝑠𝑒𝑒𝑒𝑒𝑀𝑀 × 𝑀𝑀𝑠𝑠𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 5 𝑝𝑝𝑀𝑀𝑀𝑀𝑀𝑀𝑝𝑝 ′ 𝑝𝑝𝑀𝑀𝑒𝑒𝑀𝑀𝑀𝑀𝑝𝑝 Since Sandra has only one year of service, it is reasonable to use her annual salary for her average five-year salary and to index it based on the assumption used for her increases in salary. –65,000 0 37 3 $194,039.73 As concerns the years of service, we have to calculate the total years of service (38) and subtract the planned maternity leaves (3 years). The retirement benefits will be based on 35 years of service. 1.8% × 35 × $194,039.73 = $ 𝟏𝟏𝟏𝟏𝟏𝟏 , 𝟏𝟏𝟐𝟐𝟐𝟐 . 𝟎𝟎𝟎𝟎 We want the amount of the benefits at age 66 because that is how old Sandra will be when William retires. Since the benefits payable by the plan are indexed annually to inflation, we have to index this amount to inflation for one year. –122,245.03 0 1 2 $124,689.93 Question 9 What will their combined income net of income taxes be for the first year of William’s retirement? Answer: $204,705.27 William Sandra OAS $14,940.98 $14,940.98 QPP $36,260.92 $41,127.89 RPP $23,920.89 $124,689.93 Total: $75,122.79 $180,758.80 Income taxes (20%) $15,024.56 $36,151.76 Net income after taxes $60,098.23 $144,607.04 $204,705.27

©IQPF Participant’s Workbook 149 Question 10 What amount today would offer the same purchasing power as the net income found in the previous question? Answer: $96,454.50 –204,705.27 0 38 2 $96,454.50 We can see that William and Sandra should be able to spend the equivalent of $21,661.58 more in retirement ($96,454.50 – $74,792.92) than they will spend once they have paid off their credit cards. Question 11 If we assume that neither William nor Sandra will save any more for retirement than what they are saving through their respective RPPs, what will their cost of living be at the time of retirement? Answer: $246,754.45 First, if William and Sandra do not save any more than they are currently saving as a proportion of their salaries, that would mean they spend everything else once the emergency fund has been established. 10 Also, since we have made the assumption that their salaries will increase faster than inflation, the same would go for their lifestyle. –80,251 0 38 3 $246,754.45 The income available in retirement is therefore equal to 83% of their pre-retirement cost of living, which is an absolutely acceptable result when the clients are so far from retirement. Of course, a lot of this result depends on Sandra’s continuing to belong to her RPP, which will not necessarily be the case. 10 $74,792.92 + ($454.84 × 12) = $80,251

©IQPF Participant’s Workbook 150 Case Study 05 – Marc Champoux Activity solutions Activity – Rate Comparison Question 1 You have to choose the option that gives Josée the highest rate of return. The returns on the various options do not all enjoy the same tax treatment, however, so you have to put them all on the same basis. The after-tax rate is the most representative of reality, since the ultimate goal is to use the money earned for personal purposes. a. Since the car is for personal use, the interest on the loan to acquire it is not deductible. The borrowing rate (2.15%) is therefore already after tax. Equivalent after-tax rate: 2.15% b. With the exception of the registered accounts, the interest income is 100% taxable. You have to use Josée’s marginal tax rate to find the rate net of taxes that corresponds to a taxable interest rate of 3.04%. 3.04% × (1 – 0.46) = 1.64% Equivalent after-tax rate: 1.64% c. The interest paid on a loan obtained through the Québec loans and bursaries program is not deductible from income, but it does trigger a personal tax credit at the basic rates. The combined federal-Québec tax credit is 32.53% including the 16.5% abatement for Québec residents. This is the rate to use to find the after-tax equivalent of the 3.25% borrowing rate. 3.25% × (1 – 0.2753) = 2.19% Equivalent after-tax rate: 2.19% Answer: The option that gives Josée the highest return is to refund her student loan.

©IQPF Participant’s Workbook 151 Question 2 You have to choose the option that gives Antoine the highest rate of return. The returns on the various options do not all enjoy the same tax treatment, however, so you have to put them all on the same basis. The after-tax rate is the most representative of reality, since the ultimate goal is to use the money earned for personal purposes. a. Since the return will be tax sheltered (TFSA), it will not be taxable, regardless of the nature of the investment income. The expected rate of return (4.35%) is therefore already after tax. Equivalent after-tax rate: 4.35% b. Interest on a personal debt is not deductible. The rate (5%) is therefore already after tax. Equivalent after-tax rate: 5% c. With the exception of registered accounts, the interest income is 100% taxable. Making a loan to someone directly rather than buying a bond does not change the nature of the interest received in exchange. You have to use Antoine’s marginal tax rate to find the rate net of taxes that corresponds to a taxable interest rate of 6%. 6% × (1 – 0.37) = 3.78% Equivalent after-tax rate: 3.78% Answer: The option that gives Antoine the highest return is to repay his personal debt.

©IQPF Participant’s Workbook 152 Question 3 You have to choose the option that gives Annick the highest rate of return. The returns on the various options do not all enjoy the same tax treatment, however, so you have to put them all on the same basis. The after-tax rate is the most representative of reality, since the ultimate goal is to use the money earned for personal purposes. a. Eligible dividends, capital gains and interest are not all taxed in the same way for the person who receives them. One-third of the return of 4.35% comes from eligible dividends (taxed at 32%), one-third comes from the capital gain (taxable at 23.5%) and one-third comes from interest income (taxable at 47%). 4.35% ÷ 3 = 1.45% Eligible dividends Capital gain Interest Total 1.45% × (1 – 0.32) 1.45% × (1 – 0.235) 1.45% × (1 – 0.47) 2.87% 0.99% 1.11% 0.77% Equivalent after-tax rate: 2.87% b. The interest on a sum borrowed to earn business income is deductible. The 6% rate therefore has to be converted to an after-tax rate using Annick’s marginal tax rate, which is 47%. 6% × (1 – 0.47) = 3.18% Equivalent after-tax rate: 3.18% c. Interest on a loan contracted to contribute to an RRSP is not tax deductible. The borrowing rate (4%) is therefore already after tax. Equivalent after-tax rate: 4% Answer: The option that gives Annick the highest return is to repay her RRSP loan.