Investing as a Business Owner

June 4, 2019/in blog, Business Owners, corporate, Investment, RRSP, Tax Free Savings Account/by Pro Active Financial Services Ltd.

Investing as a Business Owners

Many business owners have built up earnings in their corporation and are looking for tax efficient ways to pull the earnings out to achieve their personal and business financial goals such as:

building and protecting your savings
providing for loved ones
planning for retirement

Factors to consider when investing as a corporation:

What’s the purpose of the investment? First, think about what you’ll be doing with your savings. This will help dictate what savings vehicle is best suited for your situation. Then consider the following factors:

Taxes: As a small business owner, you have access to the small business tax rate which is typically lower than your personal tax rate. (See table below.) Also, as of January 1, 2019, the Federal Budget decreased the small business limit for corporations with a set threshold of income generated from passive investments.

2019 Corporate Income Tax Rates

Taxes on investment growth: Depending on what you invest in, you will want to review this as different asset types are taxed at different rates.

Timing: You can control the timing of the payout which means you could potentially defer paying out the money until you need it and determine if you’d like to pay it out as salary or dividend.
Creditor Protection: Sometimes, investments held inside a corporation can be vulnerable to creditors, therefore you may want to consider using a holding company or trust or pay out money to yourself personally. This can be complex and requires professional advice.
Capital Gains Exemption: If your investment grows too large, it may endanger your qualification for the lifetime capital gains exemption that ‘s available when shares of a qualified small business corporation are sold or transferred.

For business owners, before investing personally or corporately, it’s certainly worth seeking professional advice to ensure that it suits your individual circumstances.

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Comparing TFSA’s and RRSP’s – 2019

February 1, 2019/in blog, Family, Individuals, Investment, Retirees, RRSP, tax, Tax Free Savings Account/by Pro Active Financial Services Ltd.

If you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can both be effective options for you to achieve your savings goals more quickly. However, each plan does have distinct differences and advantages / disadvantages. Let’s take a look at their key features:

While a TFSA can be used for any type of savings, an RRSP is used exclusively for retirement savings.
You can enjoy tax free withdrawals from your TFSA due to the fact that you make your contributions after you have paid tax, whereas the opposite is true for withdrawals from your RRSP (except in the case of lifelong learning plan and home buyers’ plan)
TFSA contributions aren’t tax deductible whereas RRSP contributions are i.e. with an RRSP, you can deduct the contributions that you make from your income when you file your tax return.
It is required that you use earned income to contribute towards your RRSP but this is not the case for your TFSA.
You can continue to contribute towards your TFSA for as long as you like, whereas you must close your RRSP and stop contributing towards it when you turn 71 and purchase an annuity or convert it to a RRIF with the savings that you have made within the plan.
You are able to specify your spouse as your beneficiary with both your TFSA and your RRSP, however there is a key difference with how your savings are treated upon your spouse’s death. With an RRSP, there will be taxes payable upon the monies left in the plan by your children who inherit it, whereas with a TFSA, tax is only paid on the increase in the value of the plan since the date of death in the year that it is inherited by your children. What’s more, no tax is payable if the value that they receive is less than the value of the TFSA at the time of death.

In summary, your individual circumstances will dictate which plan is the most appropriate for you, depending on your tax position and withdrawal intentions. The primary difference between both plans is the timing of the taxes payable i.e. if you want to defer the payment of your taxes, particularly if your marginal tax rate will be lower in retirement, an RRSP may be more beneficial for you. Alternatively, if your marginal tax rate will be higher when you plan to make withdrawals, a TFSA may suit you better.

2019 Financial Calendar

January 1, 2019/in blog, Business Owners, corporate, Individuals, Investment, RRSP, tax, Tax Free Savings Account/by Pro Active Financial Services Ltd.

2019 Financial Calendar

Financial Calendar for 2019 – All the deadlines you need to know to maximize your benefits!

Retirement Planning for Business Owners

September 3, 2018/in blog, Business Owners, corporate, Retirees, RRSP, tax, Tax Free Savings Account/by Pro Active Financial Services Ltd.

Retirement planning can be a complex process for us all, but if you are the owner of a small business it may can get even more complicated, due to the various factors and circumstances that you have to take into consideration. A common mistake made by small business owners is reinvesting extra money to grow their business, at the expense of putting it aside to save for their retirement.

Although there is no magic formula for getting started on a retirement strategy for your business, there are some general principles which might help you to get a handle on the steps that you need to take. One of the key ideas is the consideration of both your business and your personal finances and how to structure and integrate the two in order to create a robust retirement financial strategy.

Here are some tips on how to get started on a retirement plan.

Set aside time to plan for the future – It’s important to make retirement planning a priority, or you run the risk of never getting around to it. A professional financial planner can help you to assess your personal circumstances and create a personalized plan that suits you and your business, with the right balance between saving and reinvestment to help your business to grow.

Think about your future retirement income – Here are the main sources of retirement income that small business owners usually rely on:
Equity held in your business – If your business is successful, you are likely to benefit from equity from it in your retirement. Selling your company is an option, particularly attractive to some as, in some cases, you could benefit from the lifetime capital gains exemption on the sale. Of course, finding the right person to run your business in the future is easier said than done. A clear succession plan, created in advance of your retirement, can help you to ensure that business continuity will be affected as little as possible and will give you peace of mind as you approach your retirement. You may also want to consider using the expertise of an accountant or mergers and acquisitions specialist to help you to value your business correctly and also look after your interests when liaising with potential purchasers.

Alternatively, you may choose for your children to inherit your business, or you may decide to retain ownership of dividend-paying preferred shares in order to maintain an ongoing source of income.

Registered plans – A Registered Retirement Savings Plan (RRSP) can offer personal tax deductions on your contributions, plus your savings will grow as tax-deferred whilst in the plan. In addition, tax-free savings accounts (TFSAs) can be a useful way to save tax-free in particular circumstances.

Consider offering a retirement savings plan to your employees – Paying your statutory contribution of the Canada Pension Plan is just the minimum – many small businesses choose to offer their employees enhanced pension contributions as an incentive or employee benefit. For example, you could match their RRSP contributions to a set limit, to help their retirement nest grow more quickly. Alternatively, you could offer a benefit plan with an investment contribution package from an insurance company, which can be a more straightforward and cost-effective choice.

Be sure to diversify – As a small business owner, you should avoid putting all of your eggs in one basket, financially speaking, as this could leave you vulnerable to changes in the market. Try to diversify your investments and spread your funds in order to protect yourself and engage the help of a professional where necessary to help you to do so.

In summary, it’s important to remember that retirement planning is a process which is unique and personal to your own and your business’ circumstances and there is no uniform approach which works across the board. Take time to take stock of your current situation, as well as your goals for the future and this will help you to create a retirement plan that is right for your needs, both current and future.

6 Steps to Retirement Success

July 1, 2018/in blog, Business Owners, Families, Investment, Retirement Savings, Tax Free Savings Account/by Pro Active Financial Services Ltd.

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.

Getting the best from a financial advisor

April 1, 2018/in blog, Business Owners, Charitable Gifting, corporate, disability, Estate Planning, Family, Group Benefits, health benefits, Individuals, Investment, life insurance, long term care, pension plan, Retirees, RRSP, tax, Tax Free Savings Account, travel insurance/by Pro Active Financial Services Ltd.

Working with a professional to help you to make sense of your finances can be a wise move, but for this relationship to work effectively it is important that you understand what to expect from your financial advisor.

What can your financial advisor help you with?

Defining your financial goals and creating a step by step plan or strategy to achieve them.
Planning for the future, including for retirement, future education or housing needs.
Choosing the mix of investments and assets that suit your goals, lifestyle, time horizon and appetite for risk.
Building a solid estate for your family to inherit in the future.
Choosing the most tax-efficient methods of saving and investing.

What should your financial advisor inform you of?

The range of services that they offer and how much and by which method you will compensate them.
Your mutual responsibilities and obligations towards each other.
What the planning process will look like and the documents that they will provide you with.

What will your financial advisor need from you or need to ask you about?

What your financial goals are.
What your personal circumstances – such as your marital status, any dependents, your job, earnings and tax situation.
Any investments or assets that you currently have – such as registered accounts, workplace pensions, property etc.
Your appetite for risk and investment preferences.
Information on your income and also your outgoings, including debts such as mortgages, loans or credit cards.
Whether or not you have a will, and its contents.
Your estate and inheritance planning situation.

If you’re looking to achieve your financial goals, talk to us. We can help.

Comparing TFSAs and RRSPs

February 16, 2018/in Family, Individuals, Investment, Retirees, RRSP, tax, Tax Free Savings Account/by Pro Active Financial Services Ltd.

If you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can both be effective options for you to achieve your savings goals more quickly. However, each plan does have distinct differences and advantages / disadvantages. Let’s take a look at their key features:

While a TFSA can be used for any type of savings, an RRSP is used exclusively for retirement savings.
You can enjoy tax free withdrawals from your TFSA due to the fact that you make your contributions after you have paid tax, whereas the opposite is true for withdrawals from your RRSP (except in the case of lifelong learning plan and home buyers’ plan)
TFSA contributions aren’t tax deductible whereas RRSP contributions are i.e. with an RRSP, you can deduct the contributions that you make from your income when you file your tax return.
It is required that you use earned income to contribute towards your RRSP but this is not the case for your TFSA.
You can continue to contribute towards your TFSA for as long as you like, whereas you must close your RRSP and stop contributing towards it when you turn 71 and purchase an annuity or convert it to a RRIF with the savings that you have made within the plan.
You are able to specify your spouse as your beneficiary with both your TFSA and your RRSP, however there is a key difference with how your savings are treated upon your spouse’s death. With an RRSP, there will be taxes payable upon the monies left in the plan by your children who inherit it, whereas with a TFSA, tax is only paid on the increase in the value of the plan since the date of death in the year that it is inherited by your children. What’s more, no tax is payable if the value that they receive is less than the value of the TFSA at the time of death.

In summary, your individual circumstances will dictate which plan is the most appropriate for you, depending on your tax position and withdrawal intentions. The primary difference between both plans is the timing of the taxes payable i.e. if you want to defer the payment of your taxes, particularly if your marginal tax rate will be lower in retirement, an RRSP may be more beneficial for you. Alternatively, if your marginal tax rate will be higher when you plan to make withdrawals, a TFSA may suit you better.

2018 Financial Calendar

January 1, 2018/in blog, Family, Individuals, Investment, mortgage, pension plan, Retirees, RRSP, tax, Tax Free Savings Account/by Pro Active Financial Services Ltd.