Writing an estate plan is important if you own personal assets but is all the more crucial if you also own your own business. This is due to the additional business complexities that need to be addressed, including tax issues, business succession and how to handle bigger and more complex estates. Seeking professional help from an accountant, lawyer or financial advisor is an effective way of dealing with such complexities. As a starting point, ask yourself these seven key questions and, if you answer “no” to any of them, it may highlight an area that you need to take remedial action towards.
- Have you made a contingency plan for what will happen to your business if you are incapacitated or die unexpectedly?
- Have you and any co-owners of your business made a buy-sell agreement?
- If so, is the buy-sell agreement funded by life insurance?
- If you have decided that a family member will inherit your business when you die, have you provided other family members with assets of an equal value?
- Have you appointed a successor to your business?
- Are you making the most of the lifetime capital gains exemption ($835,714 in 2017) on your shares of the business, if you are a qualified small business?
- Are you taking care to minimize any possible tax liability that may be payable by your estate in the event of your death?
The process of freezing the value of your business at a particular date is an increasingly common way of protecting your estate from a large capital gains tax bill if your business increases in value. To achieve this, usually the shares in the business that have the highest growth potential are redistributed to others, often your children, meaning that they will be liable for the tax on any increase in their value in the future. In exchange, you will receive new shares allowing you to maintain control of the business with a key difference – the value of the shares is frozen so that your tax liability is lower and that of your estate when you die will also be reduced.
Retirement planning can be challenging, we’ve outlined what we feel are 6 steps to retirement success.
- Have a written plan which merges life priorities with financial resources.
- Consolidate your income-producing assets with one advisor.
- Layer different sources of income in the most efficient manner.
- Structure income in order to preserve valuable tax credits and government benefits.
- Create efficient cash flow by investing your income-producing assets wisely.
- Implement efficient solutions for health-cost risks and wealth transfer strategies.
Talk to us about a complimentary comprehensive review of your retirement plan.
One of the financial planning issues that business owners face is how to access their corporate earnings in a tax efficient way.
There are 5 standard methods:
- Shareholder Loans
- Transfer Personal Assets
- Income Splitting
There are also unique ways utilizing life insurance and critical illness insurance to access your retained earnings. Please contact us to learn how we can get more money in your pocket.
It has certainly been a busy week in terms of announcements regarding financial policies for small businesses. Following the series of proposed tax reforms that the government announced back in July, various tweaks and changes have subsequently been made, owing, perhaps in part, to confusion and frustration expressed among the small business community. This week Finance Minister, Bill Morneau, has made further clarifications and adjustments to his original set of proposals, aiming to bring more of a sense of balance to the plans. Like all policy changes, the detail can be a little overwhelming, so here is a summary of the key points for your reference:
- The government intends to honor a commitment made prior to the election, to reduce the small business tax rate from 10.5% to 9% by the year 2019.
- Morneau confirmed that the government has scrapped the proposal to limit access to the Lifetime Capital Gains Exemption.
- The plans announced earlier in the year to reduce the value of passive investments made by corporations will continue in principle, but with few key changes. There will be a threshold of $50,000 of income per year, which will be excluded from the newly set higher rate of tax.
- The government has agreed to “simplify” the rules related to the new plans, to prevent income splitting for family members, who are not active in a business, but the plan will still move ahead in principle.
- Morneau has confirmed that the government will still provide good entrepreneurial incentives for venture capitalists and angel investors. The criteria for which still needs to be established.
- The proposed rules to limit the conversion of income to capital gains have been abandoned due to the concerns that many related to intergenerational transfers and insurance policies were held inside corporations.
Of course, this is one area of government policy which is not only constantly changing, but particularly controversial in the current climate, so keep yourself updated regularly on new announcements and news, to ensure your understanding in this area and its potential impact on your family and business. If you have any questions, please talk to us.
The month of July saw a set of proposed tax changes announced by the Federal Minister of Canada which are potentially the most impactful and significant amendments since the large-scale tax reform of 1972. We will go on to describe the detail and impact of the proposals, which fall into three main areas, below. In summary, however, the purpose of the changes introduced by the government is broadly to close the potential current perceived tax loopholes that exist for higher earners and owners of private corporations. In response to the proposals, the government is inviting views and opinions on the changes during a consultation period which will last until October 2 2017.
- Changes to Income Sprinkling
If a high earning individual moves a proportion of their income to a family member such as children or a spouse who hold a lower tax rate in an attempt to reduce the total amount of tax payable, this is known as income sprinkling. To mitigate this, the government is proposing to include adult children in the eligibility rules in addition to minors, as well as taking a “reasonability” approach to assessing their income and thus which rate the transferred income should be taxed at. This will mark a change to the current TOSI (tax on split income) rules which currently apply.
2. Minimizing the incentives of keeping passive investments in CCPCs
Currently, it can be advantageous for corporations to keep excess funds in a CCPC due to the fact that the corporate tax rate on the first $500,000 of taxable income is often much lower than the tax that would be payable by an individual. The government is moving to make this option less beneficial by the following two initiatives: firstly, by the removal of the option of crediting the capital dividend account (known as the CDA) equal to the amount of the non-taxable portion of any capital gains and secondly by removing the refundability of passive investment taxes.
3. Reducing the transfer of corporate surpluses to capital gains
Tax advantages can currently be achieved by the sharing out of corporate surpluses to shareholders through dividends or salaries, which are often taxed at a lower rate than if earned as personal income. This is due to the fact that just 50% of capital gains are taxable.
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About Peace Agencies
Our mission is to assist individuals, families and organizations in building or maintaining their financial structure. This brick by brick method is a ground up approach starting at the foundation and is realized through careful, realistic financial planning advice. This mission is pursued within the context of a commitment to honesty, integrity and best interest principles of you.