Talk is turning to action on the pension front as the province of Ontario just announced details of its Ontario Retirement Pension Plan to launch in 2017. In the February issue of REM, details about the new Personal Pension Plan tailored to business owners and incorporated professionals were discussed.
On other fronts, an insured personal pension plan (iPPP) is set to make an appearance (the first of its kind geared to real estate agents). In addition, a group of Realtors is petitioning CREA for a pension for its members and a real estate investment trust (REIT) representing the more than 100,000 members in the profession across Canada.
James Zaza
Toronto-based financial consultant James Zaza, president of Zaza Financial Group, teamed up with insurance companies to create a proprietary iPPP for self-employed people – in this case real estate agents who can’t take advantage of incorporated tax benefits that real estate brokers get through their personal pension plan.
The plan offers tax-free growth on investments, tax-free income during retirement (with no set retirement age) and tax-free money to their heirs, says Zaza, who says his company is the largest income replacement health care broker for the real estate industry in the Greater Toronto Area.
“For anyone struggling in this industry, it might just give them that edge they need,” he says. The self-directed plan is open to any age and has no minimum income requirements.
“If you go a period of time without any income or you take a sabbatical from the business, the plan is flexible: you can take the plan with you wherever you go because it is an insurance contract and you own it,” says Zaza.
The drawbacks are few, benefits many, he says. For example:
- flexible tax sheltered contribution from zero to $100,000 annually, comparing favourably to RRSPs (up to only about $25,000) and tax free savings accounts that top out at $5,500
- interest on money borrowed for a pension plan is tax deductible
- loans for pension investment are tax deductible
- RRSPs rolled into the pension plan are tax free
- defined as an insurance contract, it is not subject to Canada Revenue Agency audit
- tax-free withdrawal
- contributions are not related to income
- if the contributor dies, the beneficiaries receive tax-free payout
- no forced withdrawals at 71
- no pension adjustment on foreign income benefits
- it is not income-tested for clawbacks such as CPP and other income sources
“A major thing for real estate agents,” Zaza says, “is disability and health protection, which is inflation-adjusted annually. You are guaranteed growth, safety and control because it is in segregated (not mutual) funds.”
Zaza says his iPPP can offer clients 10 times as much health and life insurance as is available from traditional policies and there are no setup charges. His management fee (one per cent) is only for managing RRSPs, which are rolled into the tax-free iPPP.
The financial consultant has partnered with lawyers experienced in pensions and tax law, and he will be marketing the plan through seminars presented at broker offices and through contact with individual agents.
Zaza says he created the iPPP in concert with the insurance industry to make sure “it was compliant, acceptable, doable and sustainable.” His firm also offers the PPP for incorporated businesses with fewer than five employees.
Pension plan petition
On another front, a group of Realtors has formed a non-profit association called United Real Estate Agents of Canada (UROC) to lobby CREA and the Ontario Real Estate Association to create a REIT and a pension plan.
The group hopes to take the petition for a pension plan to CREA and OREA this spring with the signatures of 5,000 Realtors, says Pat Javdan, one of the founders of UROC and a broker at Re/Max Right Choice in Toronto.
While some Realtors make a good income from the profession, the majority don’t, says Michael Sobhi, president of UROC. At the same time, Canadian Realtors are paying more than $40 million in dues and fees annually, he says. Some of the money could kick-start the pension plan or REIT initiative, he says.
The REIT would represent the more than 100,000 members in the profession in Canada. Each Realtor – a shareholder in the REIT – would make a commission for buying and selling for the REIT and would receive profits, based on the number of shares they held, says Sobhi.
Javdan says that currently developers use commission as a motivator for sales. Commission rates are set according to supply and demand. The downside for Realtors is that developers use their own staff for sales when the market is strong.
He says for the REIT to generate profit, the corporation should develop and build condos and commercial projects before it buys investment properties.
Unlike the insured personal pension plan structured by Zaza Financial Group, Javdan says UROC’s mandate is to create a pension plan based on collective action – much like the Ontario Teachers’ Pension Plan.
He says the rules and regulations of the REIT and pension plan will be finalized by a future panel consisting of UROC, CREA and OREA in accordance with Canada Revenue Agency guidelines.
Don Procter is a contributing writer for REM.
