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User Notes - English

1. TAX DEDUCTIBILITY The Tax Deductibility tab allows the nam user to specify the tax deductibility Of ree rebns se investment expenses including leverage pm interest federally and provincially V p CIA d incidi etsy Fine C nieto table rvestuen come Annual tax deductibility can be limited to either a fixed percentage of the total expenses or limited to taxable investment C TTT a income If deductibility is limited el se Fa additional inputs appear as shown in the Wer bottom of screen shot shown For more information please see the Fe section on Limited Deductibilitv LANGUAGE SELECTION To select a different language open the Language panel in the Setup window Here vou will see a drop down box allowing vou to select the language vou prefer When a new language is selected the software will minimize during the changeover and restore itself when the new language is in place Leverage Software User Manual 9 TYPES OF LOANS There are 3 types of leveraging analyzed by Talbot s Leverage Professional Software Interest Only loans Term loans and RRSP Catch Up loans INTEREST ONLY LOANS INVESTOR INFO Inputs specific to the individual investor are shown on the first input tab After any input is changed and you move off of the input using the mouse or pressing TAB the Table or Chart results
2. kK We the undersigned have reviewed and confirmed that these assumptions reflect the client s situation We understand that these projections are NOT GUARANTEED and that borrowing to invest can help or hurt investors depending on the actual returns interest costs time invested client behaviour during the down markets etc Client s signature Spouse s signature Date Advisor s signature Manager s signature Date Projections prepared using Talbot s Leverage Professional 2004 RRSP Catch Up Loan Analysis Summary Prepared for John and Mary Smith June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions Have atleast 4 325 of after tax annual cashflow to invest over 10 years 35 096 average marginal tax rate and sufficient RRSP contribution room to deduct RRSP contribution produced by strategy All returns and interest expenses are effective compounded annual before tax rates RRSP Catch Up Loan Can borrow and invest 50 000 in RRSP now Deep in 35 tax bracket producing 17 500 refund that immediately reduces loan to 32 500 which is paid off over 10 years with annual payments of 4 325 assuming 7 096 non deductible loan interest Annual RRSP Spend Refund Strategy e Invest 4 325 at the start of each year into RRSPs and spend the refunds Annual RRSP Reinvest Refund Strategy Invest 4 325 and the 35 096 refunds into RRSPs at the start of each year for a total annual contribution of 5 838 Annu
3. Eum A gt sm c E Loan Payment Leverage Software User Manual 10 TYPES OF LOANS INTEREST ONLY LOANS PROJECTED RETURNS Projections are calculated D REF for four Before Tax Returns The fifth Better Than return is oo Sao Waters Tax Vale Alter 10 IPSE Let Len automatically calculated third input is the reference mm return used on the Projection 44 Ur im zm an us ES Table and Chart and for the 100s sien 87832 _ dps sample gains losses shown in Fesistaiysa the Notes section of the 777 muntati th Summarv Table Tester ra arn sw sir droi ter Pitt as UTER ARAA TEED kampi The user can specify one of cose six pre defined investment se asnasa 7 types Regular equity funds is the default and represents _ 21 w 25 EIE equity investment that is mostly SM 70 deferred capital gains Projected Returns Better than return rate where with 30 of the gross returns leveraging starts to be better distributed and taxable annually than not leveraging Advanced Details For Interest Only and Term Loans analysis users E ES can click on the Advanced Details button to explicitly TTIE specifv the breakdown of gross before tax returns strateqy Non registered returns
4. File Print or clicking the Print button This will bring up a dialog box which allows you to select the printer number of copies and multiple printing options One Page Summaries and or Projection Tables can be printed NOTE that charts cannot be printed The bottom section of One Page Summaries can print either a legal disclaimer space for client and advisor signatures or Talbot s Conservative Leverage Checklist Additionally the Company Name and or Prepared for name can be included These are automatically included and cannot be changed in an unlicensed version Talbot s Leverage Professional Printer Printer Auto HP LaserJet Cos 14 p Options v One Page Summary Print Conservative Leverage Checklist Print space for Advisor and Client signatures C Print Legal Disclaimer Projection Table Prepared For Company Name JABC Financial Group Cancel Hep The following pages show sample printouts for each type of analysis Leverage Software User Manual 14 Leverage Analysis Summary Interest Only Loan Prepared for John and Mary Smith June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 interest only loan interest rate of 7 096 2 275 after tax annual investment 3 500 before tax annual payments 35 0 average marginal tax rate 15 9 dividend tax rate 50 0 of capital gains are taxable when realized 10
5. are automatically updated if AutoCalc is turned on Leverage Profesional Licensed To A Trusted Advisor Fle Interest Oniy Loans Specify loan amount or l co Sumo Suma har ra Posten thar the after tax annual Not Before Tex Value Alter 10 Years r eee investment V P Specify the loan s interest 5r 7 pese rate and the tax rate that x applies to distributions and zr ipe Notes tax deductions RCM e iu blot rer or leri tobe batar han nat inso cr deser amour ato paina of brant tares on tagme captal oane 19 lume DE merest sipose eoa increases sout y 97 780 Length of leveraging Praesto se T GUARANTEED Atul enuke vil van ree silent period before loan is paid off E nat Pess F Hap 572872004 1003AM LOAN AMOUNT OR AFTER TAX ANNUAL INVESTMENT This feature allows the user to input the total amount borrowed or the annual investment Note that for Term Loans the annual investment is a before tax Annual Loan Payment while for Interest Only analysis the After Tax Annual Investment is specified Also note that in cases of limited deductibility the after tax annual investment applies to the first year only after which it changes 50 000 Loan Amount 50 000 per in OR 9 x i ew
6. the leverage projections are displayed When the AutoCalc feature is enabled the charts and tables automatically update when a change is made to the inputs For convenience and ease of interpretation four views are available for the user to select from The four views are available for all types of analysis Summary Table Summary Chart Projection Table Projection Chart Leverage Software User Manual 7 BASICS LICENSE INFORMATION To view licensing information from the menus click Setup then License To update eii Language Liersed T unc rc license details click on sce ERIE the Change Info button EeksNGEE Cange es e TAX INFORMATION Universal tax parameters that are not specific to an individual are set in the Setup A Tao denm Taxes dialog box The EG NES t b k ts ar for Isi Tea Bracket 3 000 220 a ax racket 2nd Tax Bracket 35 000 300 155 2 reference only The Capital gains inclusion rate refers to the portion of capital Mie Planet woe mes ae gains that are taxable Bj SUR Canaan notion Rate al The Portion of SEED yore marginal tax rate that is federal tax is needed OK cant oen where the federal and or provincial tax deductibility of investment expenses is limited Leverage Software User Manual BASICS
7. your desk top to begin the software and activate your license Leverage Software User Manual 3 GUIDE OVERVIEW In order to successfully use the Leverage Professional Software there are a few things that need to be first understood before using the software Leverage Professional Software has been developed with the assumption that the user is either a financial advisor or has a similar knowledge level of financial concepts Leverage Professional Software is a user friendly program which provides analysis of three leverage strategies Interest Onlv Loans Term Loans RRSP Catch up Loans Foreach type of analysis inputs are entered on the left with two panels or tabs Investor Info Projected Returns Analysis results are presented on the right part of the screen in four panels Summary Table Summary Chart Projection Table Projection Chart DISCLAIMER Please note that every possible effort has been taken to ensure that analysis and projections produced by Talbot s Leverage Professional software are accurate Financial Success Strategies Inc nor any of its associates assume any liabilitv for the accuracy of the software the interpretation of its projections or any damages that may result from its use Leverage Software User Manual 4 BASICS BUTTONS AND FUNCTIONS SAVE DEFAULTS On the File menu the Save Defaults item saves the current values of all inputs and setup parame
8. 0 0 of loan interest is tax deductible Projected returns are 70 0 deferred capital gains 25 0 realized taxable capital gains 5 0 dividends 0 0 interest Sufficient ongoing cashflow and discipline to complete this strategy Net Before Tax Value After 10 Years Return No Leverage Leverage Increase Increase 0 0 22 750 0 22 750 100 3 0 25 895 14 559 11 335 44 5 2 28 569 28 569 0 0 7 0 30 900 41 819 10 919 35 10 0 35 371 69 550 34 179 97 Notes Based on the above assumptions the minimum before tax return for leveraging to be better than not leveraging is 5 296 Leverage column shows net amount after paying off loan and taxes on triggered capital gains after 10 years Averaging 7 096 returns and 7 0 interest expense leverage increases your investments by 10 919 after 10 years per 50 000 borrowed All returns and interest expenses are effective compounded annual before tax rates Projections are NOT GUARANTEED Actual results will vary perhaps significantly kkx We the undersigned have reviewed and confirmed that these assumptions reflect the client s situation We understand that these projections are NOT GUARANTEED and that borrowing to invest can help or hurt investors depending on the actual returns interest costs time invested client behaviour during the down markets etc Client s signature Spouse s signature Date Advisor s signature Manager s signature Date Projections prepared us
9. 3 before tax in RRSP at the start of each year after tax cost of 4 325 Annual Projections for Returns of 7 0 ud Catch Up Loan Annual Spend Refund Annual Reinvest Refund Annual Gross Up Refund Contrib RRSP Val Contrib RRSP Val Incr Contrib RRSP Val Incr Contrib RRSP Val Incr 1 50 000 53 500 4 325 4 627 91 5 838 6 247 88 6 653 7 119 87 2 0 57 245 4 325 9 578 83 5 838 12 931 77 6 653 14 736 74 3 0 61 252 4 325 14 876 76 5 838 20 083 67 6 653 22 886 63 4 0 65 540 4 325 20 545 69 5 838 27 735 58 6 653 31 607 52 5 0 70 128 4 325 26 610 62 5 838 35 924 49 6 653 40 939 42 6 0 75 037 4 325 33 100 56 5 838 44 685 40 6 653 50 923 32 7 0 80 289 4 325 40 044 50 5 838 54 060 33 6 653 61 607 23 8 0 85 909 4 325 47 475 45 5 838 64 091 25 6 653 73 038 15 9 0 91 923 4 325 55 425 40 5 838 74 824 19 6 653 85 270 7 10 0 98 358 4 325 63 932 35 5 838 86 309 12 6 653 98 358 0 Projections prepared using Talbot s Leverage Professional 2004 Prepared for John and Mary Smith Leverage Analysis Summary Interest Only Loan June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 interest only loan interest rate of 7 096 2 753 initial after tax annual investment 3 500 before tax annual payments After tax amount will change every year 35 0 average tax rate 52 0 of which is federal tax 15 996 dividend tax rate 50 0 of capita
10. C Program Files Leverage Pro directory PROGRAM WON T PRINT PROGRAM CRASHES WITH ERROR MESSAGE Please note that this program does not print the graphs just the Summary and Projection Tables One to print charts is to display the leverage results you want on the screen and capture the screen image and print it from a different program To do this start Talbot s Leverage Professional display the results you want printed e g Summary Chart capture the screen image by holding down the Alt key and pressing PrintScreen paste the image into a word processing or image program like Word with a blank document by pressing Ctrl V Now you should be able to print the document containing the screen image of the leverage results you want LICENSING ISSUES Most problems are related to getting the license to work Once the program has been installed and you have been emailed your personal license file you need to get the license file into the C Program Files Leverage Pro directory If you were emailed the license use your email program to save the attached license file directly into the C Program Files Leverage Pro directory For example using Outlook you right click on the license file attachment and choose Save As and save the file to C Program Files Leverage Pro Leverage Software User Manual 27 FREQUENTLY ASKED QUESTIONS FOR NON REGISTERED ANALYSIS INTEREST ONLV AND TERM LOANS THE RESULTS REFERENCE THE NET BE
11. FORE TAX VALUE WHAT DOES THIS MEAN RECOGNIZING THAT THE SUMMARY TABLE NOTES STATE THAT LEVERAGE SHOWS NET AMOUNT AFTER PAYING OFF LOAN AND TRIGGERED CAPITAL GAINS TAXES All non registered analysis in Talbot s Leverage Professional compares net before tax values This calculates the before tax value that the investor is left with after cashing out enough funds to completely pay off the loan and the capital gains taxes that are due whenever a non registered investment is sold for more than the amount invested the Adjusted Cost Base This before tax figure is what most investors think of and is what they would see on an account statement For example if 50 000 is leveraged and grows at 12 to 145 500 after 10 years the investor needs to cash out more than the 50 000 borrowed In this case an investor in a 40 tax bracket needs to cash out about 55 500 to end up with 50 000 after paying capital gains taxes on the withdrawal Thus as the software shows the net before tax value from leveraging is about 90 000 145 500 55 500 not 95 500 If the software did not account for the extra funds needed to pay the taxes incurred in paying off the loan the analysis would overstate the benefits of leveraging DOES THE SOFTWARE ALLOW ANALYSIS OF 1 1 2 1 AND 3 1 LEVERAGE LOANS The requirement for collateral to secure an investment loan does not affect the merits of leveraging or the projected gains or losses Leverage
12. TALBOT S LEVERAGE PROFESSIONAL SOFIWARE USER MANUAL BY TALBOT STEVENS TABLE OF CONTENTS INTRODUCTION FEATURES INSTALLATION STEP 1 DOWNLOADING THE INSTALLATION FILE STEP 2 INSTALLING THE SOFTWARE STEP 3 TO START THE PROGRAM STEP 4 ACTIVATING YOUR CUSTOMIZED LICENSE OVERVIEW DISCLAIMER BASICS BUTTONS AND FUNCTIONS SCREEN LAYOUT ADVANCED AND BASIC DETAILS ANALYSIS RESULTS SCREENS LICENSE INFORMATION TAX INFORMATION Tax DEDUCTIBILITY LANGUAGE SELECTION TYPES OF LOANS INTEREST ONLY LOANS INTEREST ONLY LOANS TERM LOANS RRSP CATCH UP LOANS PRINTING LIMITED DEDUCTIBILITV FREQUENTLY ASKED QUESTIONS 00040 U AAA UNNINN INTRODUCTION Talbot s Leverage Professional is a program for analyzing the net benefits of borrowing to invest It evaluates leveraging using Interest Only loans Term Loans that are paid off over time and RRSP Catch Up loans FEATURES Automatically calculates the critical Better Than point where the returns from leveraging start exceeding those of not leveraging Investors learn how much leveraging can potentially benefit them with reasonable projections as well as how much leveraging would hurt them if they sell when returns are below the Better Than return Shows results for 4 user customizable projected returns so investors understand how leverage can help or hurt them ov
13. W DO 1 ANALYZE LEVERAGE WHERE THE INVESTOR MAKES AN INITIAL DEPOSIT AND USES THAT TO SECURE AN INVESTMENT LOAN SUCH AS 2 1 ETC See the answer to Does the software allow analysis of 1 1 2 1 and 3 1 leverage loans WE ARE COMMITTED TO CONSTANTLY IMPROVING THE QUALITY AND VALUE OF OUR PRODUCTS IF YOU HAVE ANY QUESTIONS OR SUGGESTIONS TO MAKE THIS SOFTWARE MORE VALUABLE PLEASE FAX THEM 519 663 1101 OR E MAIL TO INFOGQTALBOTSTEVENS COM Leverage Software User Manual 29
14. al Gross Up Refund Strategy Invest 6 653 before tax in RRSP at the start of each year after tax cost of 4 325 RRSP Value After 10 Years RRSP Annual Annual Annual RRSP Catch Up Spend Reinvest Gross Up Return 7 Loan Refund Refund Refund 43 246 58 381 66 532 0 0 50 000 14 17 33 51 063 68 936 78 559 3 0 67 196 24 3 17 63 932 86 309 98 358 7 0 98 358 35 12 0 75 814 102 349 116 638 10 0 129 687 429 6219 6109 We the undersigned have reviewed and confirmed that these assumptions reflect the client s situation We understand that these projections are NOT GUARANTEED and that borrowing to invest can help or hurt investors depending on the actual returns interest costs time invested client behaviour during the down markets etc Client s signature Spouse s signature Date Advisor s signature Manager s signature Date Projections prepared using Talbot s Leverage Professional 2004 Prepared for John and Mary Smith Leverage Projection Interest Only Loans 7 0 Interest 7 0 Returns Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 interest only loan interest rate of 7 0 2 275 after tax annual investment 3 500 before tax annual payments 35 0 average marginal tax rate 100 0 dividend tax rate 50 0 of capital gains are taxable when realized 100 096 of loan interest is tax deductible Projected returns ar
15. al gains Allreturns and interest expenses are effective compounded annual before tax rates Undeducted expenses after pay off loan of 0 Federal 17 049 Provincial Projections are NOT GUARANTEED Actual results will vary perhaps significantly Projections prepared using Talbot s Leverage Professional 2004 Leverage Projection Term Loan 7 0 Interest 7 0 Returns Prepared for John and Mary Smith June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 loan paid off over 10 years interest rate of 7 096 7 119 annual payments after tax amount is less and changes every year 35 096 average tax rate 52 096 of which is federal tax 15 996 dividend tax rate 50 0 of capital gains are taxable when realized Federal 100 0 of loan interest is tax deductible Provincial Expense deductibility is limited to investment income taxable capital gains are included as income Projected returns are 70 0 deferred capital gains 25 0 realized taxable capital gains 5 0 dividends 0 0 interest Investment Loan Type 100 Other Unleveraged Investments 0 Annual Projections for Returns of 7 0 Leverage No Leverage End of Balance Incl Balance After Loan Int Partof Loan Inv Expense Inv Expense Tot Undeducted Tot Undeducted After tax Before Tax Adjusted Year Loan AfterLoan PavLoan Balance Pmt Pavdown Deducted Fed Deducted Prov Expenses Fed Expenses Prov Invest
16. analysis deals solely with the investor s cash flow not collateral Depending on the lender and type of loan program used collateral may be required to secure an investment loan Whether for example 50 000 of investments is held where it is or with a lender has no impact on the projected leverage results Analysis simply compares the net results achieved by investing a certain amount of cash flow without leveraging against using the same cash flow to finance an investment loan To truly understand the merits of leveraging it is necessary to separate the projected growth of collateral from the projected growth of using cash flow to finance an investment loan Leverage Software User Manual 28 FREQUENTLY ASKED QUESTIONS Combining these projections to illustrate a 2 1 investment loan distorts the true impact of leveraging summarize collateral required for a 1 1 2 1 or 3 1 loan is a condition of acquiring the loan and not a parameter in the analysis How much an investor can borrow and invest is solely determined by their cash flow the interest rate of the loan and whether the loan is amortized and paid off or the investor makes interest only payments In cases of limited deductibility the Investor Info panel allows the user to choose the investment type 100 1 1 2 1 3 1 and 4 1 This information is used only for the purposes of calculating taxable income and not when performing actual leverage calculations HO
17. can have components that are fs enesdDetaie Deferred Capital Gains Taxable Capital Gains ig a Dividends or Interest These components must total MB p 100 of the Gross Return ENDE ss EE M Interest Portion Leverage Software User Manual 11 TYPES OF LOANS TERM LOANS INVESTOR INFO The Investor Info panel for Term Loans is the same as for Interest Only loans with three exceptions E Talbot s Leverouc Professional Licensed To A Trusted Financial Advisor Ee sep Heb After Tax Annual poe Suma Tatie Suranay Chat Progeten fe Preston har Investment has been 1 Net Helorc Tex Value After 10 Years sedorito Priete replaced with Annual suam Loan Payment gt en ao 00 0 STNE C ament am 178448 ooo w II 70 aae sasis d Savings Period 47 35 580 12272677 27129 20 years is now A x replaced with Loan teme kun T taz erm years po 597 7 reure and 7 rre anzi o hveetrerts b 10842 irren TEL barones Advanced Details ore NOT GUARANTEED Actas wil vat thaps ian are available Am FIL L INVESTOR INFO ADVANCED DETAILS Sets the number of times the loan is repeated View Change the advanced details for the current For instance a 5 year loan could be repeated BEEN once over a ten year p
18. e Provincial Expense deductibility is limited to investment income taxable capital gains are included as income Projected returns are 70 0 deferred capital gains 25 0 realized taxable capital gains 5 0 dividends 0 0 interest Investment Loan Type 100 Other Unleveraged Investments 0 Annual Projections for Returns of 7 0 No Leverage Leverage End of Before Tax After Tax Adjusted Balancelnci After Tax Net Balance After After tax Inv Expense Inv Expense Tot Undeducted Tot Undeducted ACB After Year Balance Distribution Cost Base Loan Distribution Pay Loan Investment Deducted Fed Deducted Prov Expenses Fed Expenses Prov Pay Loan 1 2 753 0 2 753 53 319 869 3 109 2 753 3 500 656 0 2 844 2 966 2 5 681 48 5 546 56 858 927 6 450 2 745 3 500 700 0 5 644 5 876 3 8 796 99 8 382 60 633 988 10 037 2 738 3 500 746 o 8 398 8 738 4 12 109 153 11 265 64 658 1 054 13 884 2 729 3 500 796 0 11 102 11 561 5 15 633 210 14 195 68 950 1 124 18 009 2 720 3 500 849 0 13 753 14 356 6 19 382 272 17 178 73 527 1 198 22 428 2 711 3 500 905 o 16 348 17 131 7 23 369 337 20 216 78 407 1 278 27 160 2 701 3 500 965 o 18 883 19 896 8 27 611 406 23 312 83 612 1 363 32 224 2 690 3 500 1 029 0 21 354 22 662 9 32 122 480 26 471 89 162 1 453 37 642 2 679 3 500 1 097 0 23 757 25 438 10 36 921 558 29 695 95 081 1 550 43 436 2 666 3 500 1 170 0 26 086 28 234 Notes Net Balance After Pay Loan shows net amount after paying off loan and taxes on triggered capit
19. e 70 0 deferred capital gains 25 0 realized taxable capital gains 5 096 dividends 0 096 interest Annual Projections for Returns of 7 0 End of Before Tax Year Balance 2 275 4 701 7 288 10 047 12 989 16 126 19 471 23 039 26 843 30 900 Notes Net Balance After Pay Loan shows net amount after paying off loan and taxes on triggered capital gains No Leverage After Tax Distribution Cost Base 0 40 82 127 175 226 280 338 400 467 Adjusted 2 275 4 590 6 946 9 348 11 798 14 298 16 854 19 467 22 142 24 884 Leverage Balance After Tax Net Balance Incl Loan Distribution After Pay Loan 53 319 869 2 914 56 858 927 6 067 60 633 988 9 474 64 658 1 054 13 149 68 950 1 124 17 109 73 527 1 198 21 371 78 407 1278 25 952 83 612 1 363 30 873 89 162 1 453 36 155 95 081 1 550 41 819 All returns and interest expenses are effective compounded annual before tax rates Projections are NOT GUARANTEED Actual results will vary perhaps significantly Projections prepared using Talbot s Leverage Professional 2004 ACB After Pay Loan 2 780 5 527 8 247 10 949 13 638 16 323 19 012 21 712 24 433 27 183 June 16 2004 Comparison Net Balance Increase Increase 639 28 1 366 29 2 186 30 3 102 31 4 120 32 5 245 33 6 481 33 7 834 34 9 311 35 10 919 35 Leverage Projection Term Loan 7 0 Interest 7 0 Returns Prepared for J
20. ed Investments Unregistered are assumed to be the same investment type ry Investment Loan type ie as the leveraged investment and thus generate similar taxable income 0 Other Unleveraged Investments Unregistered Leverage Software User Manual 25 ADDITIONAL OUTPUTS In Advanced Details mode when deductibility is limited additional columns are added to the Projection Table These indicate the value of the expenses deducted that period as well as the total undeducted expenses both federally and provinciallv Also the value of the undeducted expenses after the loan balance is paid off in the final period is shown below the table Leverage Software User Manual D penses non d duies apie paiement du prt 0 F d ral 17 005 Provincial 26 FREQUENTLY ASKED QUESTIONS LICENSE TXT FILE NOT FOUND IN THE CURRENT DIRECTORY This error is most frequently encountered while trying to install or run the Leverage Professional update Please note that the update cannot be run off of the internet and must be downloaded To do this in Internet Explorer right click on the Download link and select Save target as and then save it to the Leverage Professional directory In order for the update to work it must be copied over the old LeveragePro exe file and be in the same directory as your license If you have it saved to your desktop or another location it must be moved to the
21. er a range of possibilities Prints 1 page Summary Reports or Detail Projections showing year by year results Printout option for client signatures to give advisors proof of full disclosure Accounts for taxable distributions in non registered projections Accurate future value analysis for lump sum and annual investments Analysis of limited tax deductibility of investment expenses at the provincial and or federal level As of March 30 2004 tax deductible investment expenses for Quebec residents are limited to taxable income and unused deductibility is deferred Quantify the exact tangible benefit of using tax efficient funds Simple efficient interface AutoCalc feature automatically updates results Advanced Details mode allows advanced users full access to all analysis parameters Quantify the impact of different RRSP Refunds Strategies allowing a comparison of the RRSP Catch Up loan strategy with annual RRSP investing where refund is spent reinvested or grossed up INSTALLATION INSTALLATION IF YOU HAVE ALREADY INSTALLED THE 30 DAY EVALUATION VERSION PLEASE SKIP TO STEP 4 STEP 1 DOWNLOADING THE INSTALLATION FILE Using Internet Explorer go to www TalbotStevens com Click on the Downloads link on the left side Click on the link for Talbot s Leverage Professional 30 Day Evaluation Version Press OK You will be prompted to save the file to your disk Select a directory where you would like the Se
22. eriod The number of Advanced Details years for the entire period must be no more ils A o Times Loan than 80 d RRSP CATCH UP RRSP Catch Up Loans p Summa Tabie Suarna Chat Te Chad LOANS por Petree UE NE NE ns Am ww EE vun INVESTOR INFO ES b SE Tene vue amis BO mou Analyzing RRSP Catch eee Rum e d pereo sen pannon amm la ein A T penus I PA E not a T GUN AN TEED awn PARAN cutest Leverage Software User Man 12 Ta gx e cn en nn f Taw SOS TYPES OF LOANS up Loans is very similar to Term Loans Loans can be repeated by clicking on Advanced Details RRSP Catch up loan results from a single lump sum investment are compared against investing annually into RRSPs where the refund is either spent reinvested or grossed up See Talbot s Summary of Dispelling the Myths of Borrowing to Invest for more details on the different RRSP refund strategies The Summary Table shown above shows the percent change relative to the Catch up strategy in brackets For example at 9 returns annual RRSP investing with 100 of the refund reinvested second column from right results in 16 less than the Catch up strategy Leverage Software User Manual 13 TYPES OF LOANS PRINTING Open the printing dialog box by selecting
23. es on triggered capital gains after 10 years Averaging 7 096 returns and 7 096 interest expense leverage increases your investments by 6 027 after 10 years per 50 000 borrowed Undeducted expenses after pay off loan of 0 Federal 12 275 Provincial All returns and interest expenses are effective compounded annual before tax rates Projections are NOT GUARANTEED Actual results will vary perhaps significantly kkx We the undersigned have reviewed and confirmed that these assumptions reflect the client s situation We understand that these projections are NOT GUARANTEED and that borrowing to invest can help or hurt investors depending on the actual returns interest costs time invested client behaviour during the down markets etc Client s signature Spouse s signature Date Advisor s signature Manager s signature Date Projections prepared using Talbot s Leverage Professional 2004 Leverage Projection Interest Only Loans 7 0 Interest 7 0 Returns Prepared for John and Mary Smith June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 interest only loan interest rate of 7 0 2 753 initial after tax annual investment 3 500 before tax annual payments After tax amount will change every year 35 0 average tax rate 52 0 of which is federal tax 15 9 dividend tax rate 50 0 of capital gains are taxable when realized Federal 100 0 of loan interest is tax deductibl
24. hurt investors depending on the actual returns interest costs time invested client behaviour during the down markets etc Client s signature Advisor s signature Spouse s signature Date Manager s signature Date Projections prepared using Talbot s Leverage Professional 2004 Leverage Analysis Summary Term Loan Prepared for John and Mary Smith June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 loan paid off over 10 years interest rate of 7 096 7 119 annual payments after tax amount is less and changes every year 35 0 average tax rate 52 0 of which is federal tax 15 996 dividend tax rate Federal 100 0 of loan interest is tax deductible Provincial Expense deductibility is limited to investment income Projected returns are 70 0 deferred capital gains 25 096 realized taxable capital gains 5 096 dividends 0 096 interest 50 0 of capital gains are taxable when realized Investment Loan Type 10096 Other Unleveraged Investments 0 Net Before Tax Value After 10 Years Return No Leverage Leverage Increase Increase 0 0 67 332 50 000 17 332 26 3 0 75 872 66 191 9 681 13 5 7 84 440 84 440 0 0 7 0 89 054 95 081 6 027 7 10 0 100 433 123 719 23 286 2396 Notes Based on the above assumptions the minimum before tax return for leveraging to be better than not leveraging is 5 796 Leverage column shows net amount after paying off loan and tax
25. ing Talbot s Leverage Professional 2004 Leverage Analysis Summary Term Loan Prepared for John and Mary Smith June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 loan paid off over 10 years interest rate of 7 0 7 119 annual payments after tax amount is less and changes every year 35 0 average marginal tax rate 15 9 dividend tax rate 100 0 of loan interest is tax deductible Projected returns are 70 0 deferred capital gains 25 0 realized taxable capital gains 5 0 dividends 0 0 interest 50 0 of capital gains are taxable when realized Sufficient ongoing cashflow and discipline to complete this strategy Net Before Tax Value After 10 Years Return No Leverage Leverage Increase Increase 0 0 63 773 50 000 13 773 22 3 0 72 280 66 191 6 089 8 4 8 78 021 78 021 0 0 7 0 85 785 95 081 9 296 11 10 0 97 818 123 719 25 902 26 Notes Based on the above assumptions the minimum before tax return for leveraging to be better than not leveraging is 4 896 Leverage column shows net amount after paying off loan and taxes on triggered capital gains after 10 years Averaging 7 0 returns and 7 0 interest expense leverage increases your investments by 9 296 after 10 years per 50 000 borrowed All returns and interest expenses are effective compounded annual before tax rates Projections are NOT GUARANTEED Actual results will vary perhaps significantly
26. l gains are taxable when realized Federal 100 096 of loan interest is tax deductible Provincial Expense deductibility is limited to investment income taxable capital gains are included as income Projected returns are 70 0 deferred capital gains 25 096 realized taxable capital gains 5 0 dividends 0 096 interest Investment Loan Type 100 Other Unleveraged Investments 0 Net Before Tax Value After 10 Years Return No Leverage Leverage Increase Increase 0 096 3 0 28 630 0 28 630 31 979 15 356 16 624 35 666 35 666 0 36 921 43 436 6 516 40 953 71 634 30 681 100 52 0 18 75 6 0 7 0 10 0 Notes Based on the above assumptions the minimum before tax return for leveraging to be better than not leveraging is 6 0 Leverage column shows net amount after paying off loan and taxes on triggered capital gains after 10 years Averaging 7 0 returns and 7 0 interest expense leverage increases your investments by 6 516 after 10 years per 50 000 borrowed Undeducted expenses after pay off loan of 0 Federal 17 049 Provincial All returns and interest expenses are effective compounded annual before tax rates Projections are NOT GUARANTEED Actual results will vary perhaps significantly kk We the undersigned have reviewed and confirmed that these assumptions reflect the client s situation We understand that these projections are NOT GUARANTEED and that borrowing to invest can help or
27. ment Balance Cost Base 1 53 319 6 743 6 433 46 381 3 500 3 619 3 500 656 0 2 844 6 372 6 372 6 372 2 56 858 14 002 12 755 42 509 3 247 3 872 3 247 700 0 5 391 6 410 13 205 12 893 3 60 633 21 810 18 987 38 366 2 976 4 143 2 976 746 0 7 620 6 452 20 533 19 574 4 64 658 30 200 25 147 33 932 2 686 4 433 2 686 796 0 9 510 6 496 28 393 26 428 5 68 950 39 212 31 257 29 189 2 375 4 744 2 375 849 o 11 036 6 544 36 822 33 465 6 73 527 48 884 37 338 24 113 2 043 5 076 2 043 905 0 12 175 6 595 45 861 40 700 sd 78 407 59 259 43 411 18 682 1 688 5 431 1 688 965 0 12 898 6 650 55 555 48 147 8 83 612 70 384 49 498 12 871 1 308 5811 1 308 1 029 0 13 176 6 708 65 951 55 820 9 89 162 82 307 55 621 6 653 901 6 218 901 1 097 0 12 980 6 771 77 099 63 737 10 95 061 95 081 61 804 o 466 6 653 466 1 170 12 275 6 838 69 054 71 915 Notes Balance After Loan shows net amount after paying off loan and taxes on triggered capital gains All returns and interest expenses are effective compounded annual before tax rates Undeducted expenses after pay off loan of 0 Federal 12 275 Provincial Projections are NOT GUARANTEED Actual results will vary perhaps significantly Projections prepared using Talbot s Leverage Professional 2004 LIMITED DEDUCTIBILITY New legislation passed in Quebec on March 30 2004 limits the annual deductibility of investment expenses to taxable investment income Unused deductions can be carried back three years or carried forward i
28. ndefinitely to be deducted against future investment income Setup Talbot s Leverage Professional E ADDITIONAL INPUTS licere Tae Tabona Langue To model the new Quebec legislation Federaltas deduibiltv parameters and any possible federal changes that may CAN Annual deduetiiiv of investment 1000 x A expenses including leverage interest tite follow if investment expenses are limited Leverage Professional allows the adjustment of whether or not capital gains are counted as taxable investment income Provincial tax deductibility parameters Y kd Annual deductibiily of investment f 41000 a expenses interest TE E Include taxable capital gains in investment income TE Cancel Investor Info Projected Returns l With limited deductibility there are additional inputs on the Investor Info tab Because the annual deductibilitv of 50 000 Loan Amount investment expenses is limited to taxable investment or Initial After Tax income it is necessary to know the total amount of 32546 C Annual 2 unregistered investment income Investment Interest Rate on Loan 71 The Investment Loan Type can be 1 1 2 1 3 1 4 1 or 100 100 financing means there is no additional 40 TaxRate collateral earning investment income With a 1 1 loan there is one dollar of collateral for every dollar loaned 2 10 ED Period Any loan collateral and Other Unleverag
29. ohn and Mary Smith Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions 50 000 loan paid off over 10 years interest rate of 7 096 7 119 annual payments after tax amount is less and changes every year 35 0 average marginal tax rate 100 0 dividend tax rate 50 0 of capital gains are taxable when realized 100 0 of loan interest is tax deductible Projected returns are 70 0 deferred capital gains 25 0 realized taxable capital gains 5 0 dividends 0 0 interest Annual Projections for Returns of 7 0 End of Balance ACB After Loan int Part Loan After Tax Before Tax Leverage No Leverage Year Balance After Loan PavLoan Balance ofPmt Paydown Cashflow Balance 1 53 319 6 562 6 260 46 381 3 500 3 619 5 894 5 894 2 56 858 13 677 12 459 42 509 3 247 3 872 5 983 12 268 3 60 633 21 378 18611 38 366 2 976 4 143 6 077 19 159 4 64 658 29 702 24 731 33 932 2 686 4 433 6 179 26 610 5 68 950 38 686 30 838 29 189 2375 4744 6 288 34 664 6 73 527 48 374 36 948 24 113 2 043 5 076 6 404 43 369 7 78 407 58 808 43 080 18 682 1 688 5 431 6 528 52 776 8 83 612 70 036 49 253 12 871 1 308 5 811 6 661 62 940 9 89 162 82 109 55 488 6 653 901 6 218 6 804 73 922 10 95 081 95 081 61 804 0 466 6 653 6 956 85 785 Notes Balance After Loan shows net amount after paying off loan and taxes on triggered capital gains All returns and interest expenses are effective compounded annual before tax rates Projections a
30. re NOT GUARANTEED Actual results will vary perhaps significantly Projections prepared using Talbot s Leverage Professional 2004 Adjusted Cost Base Increase 5 894 11 979 18 269 24 781 31 531 38 538 45 820 53 398 61 296 69 536 June 16 2004 Comparison Net Balance 668 1 409 2 218 3 091 4 022 5 005 6 032 7 096 8 187 9 296 1196 1196 1296 12 12 12 11 11 11 11 RRSP Catch Up Loan Projection 7 0 Interest 7 0 Returns Prepared for John and Mary Smith June 16 2004 Prepared by A Trusted Financial Advisor ABC Financial Group Assumptions Have atleast 4 325 of after tax annual cashflow to invest over 10 years 35 0 average marginal tax rate and sufficient RRSP contribution room to deduct RRSP contribution produced by strategy All returns and interest expenses are effective compounded annual before tax rates RRSP Catch Up Loan Can borrow and invest 50 000 in RRSP now Deep in 35 tax bracket producing 17 500 refund that immediately reduces loan to 32 500 which is paid off over 10 years with annual payments of 4 325 assuming 7 0 non deductible loan interest Annual RRSP Spend Refund Strategy Invest 4 325 at the start of each year into RRSPs and spend the refunds Annual RRSP Reinvest Refund Strategy Invest 4 325 and the 35 0 refunds into RRSPs at the start of each year for a total annual contribution of 5 838 Annual Gross Up Refund Strategy Invest 6 65
31. s Summary Table Summary Chast Projection Table Projection Chart 350 000 Loan Amount or Alter Tax Annual 12100 C fi Interest Rate 2 40 TaxRate Tg Savings Period Geass Back Nest Net Before Tax Values for Returns of gt 7 amp Reference 0007s No Leverage Leverage Years iTalslalslel Back Next Press F1 for Help 5 28 2004 10 06 4M These Back Next buttons cycle through the Inputs panels These buttons apply to the Results views These Back Next buttons cycle through the Results views Leverage Software User Manual BASICS ADVANCED AND BASIC DETAILS To make analysis simple for casual and advanced users the inputs and Projection Tables have both Basic and Advanced Details modes By default only the minimal details are shown on each panel Advanced users can view and adjust additional parameters by clicking on the Advanced Details button at the bottom of the Investor Info and Projected Returns panels Note To understand all of the input assumptions in detail it is necessary to view the Advanced Details on all Investor Info and Projected Returns panels or print the Summary Table which details the numerical value of all inputs used in any analysis ANALYSIS RESULTS SCREENS The Results screens are where
32. ters as the new defaults and are loaded every time the program starts Various buttons and their functionality are explained in the table below Advanced Details Button Input Panel Advanced Opens a dialog box allowing an advanced user to replace Es predefined values with values specific to the situation Advanced Basic Details Button Projection Table Panel ps Clicking on the Advanced Details button allows advanced users Lr to view addition columns for the Projection Table only The button then changes to Basic Details Clicking on the Basic Details button hides the additional columns AutoCalc Toggle Button AutoCalc OFF Toggles Auto Calculation AutoCalc ON OFF Having AutoCalc disabled allows users with slower computers to change several parameters before updating calculations Back Next Button Back Mes Allows the user to move to the previous next panel Help Button Help Displays context sensitive Help for the screen or input you are currently on Print Button Print Allows printing of Summary and or Projection Tables Note that charts do not print Leverage Software User Manual 5 BASICS SCREEN LAYOUT Inputs are broken into two sections on panels or tabs Select the Type of Results you want to see Select the Type of Analysis ID Talbot s Leverage Professional Licensed To A Trusted Financial Advisor Interest Only Loan
33. tupLP EXE file to be downloaded to and press the SAVE button Remember where you saved it so you can run the setup program when it s finished downloading Note The SetupLP EXE file is approximately 8MB and may take up to 40 minutes to download on a 56K modem STEP 2 INSTALLING THE SOFTWARE Once download is complete run Windows Explorer and go to the directory where SetupLP EXE was saved to Step 4 above Run the SetupLP EXE program by double clicking on it Accept the license agreement and continue to press Next until the installation is complete This will install the software on the C drive under the Program Files Leverage Pro directory STEP 3 TO START THE PROGRAM The program can be started in one of two ways Double click the icon on the desktop labeled Talbot s Leverage Professional Click the START button on the bottom left of the screen click on Programs then Talbot s Leverage Professional Leverage Software User Manual 2 INSTALLATION STEP 4 ACTIVATING YOUR CUSTOMIZED LICENSE Your customized license will be sent to you by e mail Please follow these steps 1 In Microsoft Outlook go to your e mail and right click on the attachment License Your First Name Your Last Name TXT 2 Save the personalized license file in the folder C Program Files Leverage Pro Your license should automatically be linked the next time you run the program 3 Double click your LP icon on

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