Nobody succeeds alone.
The key to succeeding is having a resource of experienced advice and a plan that allows flexibility and is responsiviness to opportunities.
Often, your gut is right. Other times, it lies with a vengeance. As an business owner, one of the hardest things is removing your personal biases from your business planning. Gut instincts can blind you to potential risks and a false sense of security when setting goals. We provide unbiased, experienced insight to help guide your business to achieving its goals.
We provide access to the right team of people, working together to help bring your business to the to a new level of achievement while making sure the i’s are dotted and the t’s crossed along the way.
We can help you with:
Director and shareholder insurance
Key person insurance
Group retirement plans
Reducing your risk
Would your business be prepared if a catastrophic event occurred? Do you have a plan to cover the potential loss of a key person through choice or due to serious illness, disability, or death or to mitigate the consequences of a divorce, which can have a substantial impact on your business?
Planning ahead can help you limit the damage to the business you have worked so hard to build and to which you have committed so many resources. You protect yourself by insuring against risks like fire, damage to your premises and theft of equipment but an unforeseen event for which you haven’t planned can seriously affect your ability to deliver services to your customers. This can be detrimental to the value of your business, company morale and business performance.
In order to ensure the orderly succession of a business, it is wise for business owners (whether they are incorporated or not) to enter into a buy-sell agreement. The buy-sell agreement creates the conditions for purchase due to an unexpected event to one or more of the owners of the business. This could include, but is not limited to, death, severe disability, retirement, divorce, becoming legally incompetent, convicted of certain criminal offences, or personal bankruptcy. The buy-sell agreement dictates the price and conditions of the sale of shares if one of these events occurs.
Buy-sell insurance funds a win-win outcome
Buy-sell insurance is a good way to protect everyone’s interests. It funds the purchase of the remaining shares if a partner, co-owner, or shareholder in unable to remain actively involved in the business.
Advantages of an insurance funded buy-sell agreement:
- Can provide immediate liquidity to fund the agreement.
- Establishes a mutually agreeable price and terms to reduce potential future litigation or friction.
- It helps facilitate a smooth transition of management.
- Ensures that the family of the deceased receives cash instead of unmarketable stock.
- Protects the company’s liquidity needs at a potentially vulnerable time.
Key Person Insurance
When it comes to your business, there are some people that feel irreplaceable—they keep the engine running. Does your business depend on a key employee? Key person insurance helps your business recover from the loss or disability of someone who is invaluable to your company.
The loss of a shareholder or key person can put financial strain on a company in a variety of ways. It is often very difficult to replace a key person and once found, it may be months or even years before that replacement can operate at the same level. This can be very disruptive to a small business and can cause problems with efficiency and profitability.
How key person insurance can protect a business
The right insurance coverage can help you:
- Insurance can provide a business with the cash flow needed to shore up working capital.
- Provide the funds necessary to hire and train a replacement when a key executive dies, disabled, or critically ill.
- Secure or pay off a business loan (known as collateral assignment)
Funding buy-sell agreements and key person insurance:
Life insurance is frequently used by companies to fund buy-sell transactions that are triggered by a shareholders’ agreement upon death. In many cases, the surviving shareholders are not interested in having the deceased partner’s families involved in the business. And those families may not be interested in staying involved in the business and forgoing the estate proceeds.
The tax-free insurance proceeds can be used to buy out the shares owned by the deceased shareholder’s beneficiaries or to fund the replacement of the key employee who has passed away.
Critical Illness Insurance
With critical illness insurance, it will pay a tax-free lump sum to your business to help cover financial losses or lower productivity from a key person in your business who is unable to work due to a critical illness. It can also be used a part of a buy-sell agreement to buy out a ailing shareholder who is not longer able or un-willing to work any longer.
With a return of premium option, if your business does note make any claims you can receive 100% of your premiums back upon cancellation – which can be used for countless reasons, such as as a retirement bonus for that valuable team member.
Key person disability insurance can benefit your business two ways: If your key employee, business partner, etc becomes disabled, it can help you to continue providing them with a salary until age 65 or they recover, whichever comes first. It can also help you continue paying office expenses and salaries for the replacement help during the time of the disability.
Building Wealth & Retirement Planning
Some of the most difficult decisions faced by business owners revolve around how to best use their business to help further their personal financial goals.
Often, a business owner will choose to save for retirement (and other goals) inside his or her corporation. With complex tax laws and a seemingly unending list of strategies, it can be difficult to make the correct decision with these investments. We can help you find solutions to meet your needs while maximizing tax-efficiency when investing inside and outside of a corporation.
Creative solutions to optimize your wealth
Creating substantial wealth doesn’t happen by accident, it is the result of sustained hard work. Business owners are in a unique position to build their wealth as you have more control over the money you bring in, the profit you create in your business, and what to do with that profit.
As a business owner, you are probably time-starved and used to making fast decisions. Thus, you may be tempted to make fast decisions at tax time, especially when your tax preparer suggests that an RRSP is the answer to lower your tax bill and save some money for retirement. Easy enough, right? Not necessarily.
Creating wealth takes a strategic plan to find the appropriate strategy for your unique situation. RRSPs have their role within the retirement savings platform but there are other options and finding the right combination is vitally important to growing wealth and reducing taxes.
You do have other options – click on the tabs to learn more:
- Invest within your corporation
- Individual Pension Plan
- Retirement Compensation Arrangement
- Insured Retirement Plan
Invest within your corporation
Savings can be invested and can grow within your corporation just like in any other investment account. You can invest your corporate savings in stocks, bonds, ETFs, mutual funds or basically anything you can put into your non-registered account, including real estate (actual brick and mortar buildings) such as rental or commercial properties.
Why invest within your corporation?
The profits within your business have been subject to a corporate tax rate of approximately about 11%* for Canadian Controlled (CCPC) business earning under $500,000/year. A personal tax rate of up to 30 – 48%* applies when the owner withdraws these profits from the company. This creates a significant tax difference and is a big incentive to invest profits through the corporation rather than drawing them out, paying a larger tax bill, and then investing personally.
How to manage the passive income rules and reduce taxes?
Utilizing corporate class mutual funds which have a different legal structure than “traditional” mutual funds is an ideal way to solve this issue. The unique structure of this type of fund is particularly beneficial for corporations as they produce tax efficiency by:
- Sheltering the growth of your investment from the corporate passive income rules
- Taxes are minimized or deferred; leaving more money in the investment to benefit from compound growth
- Withdrawals are the form of tax-efficient capital gains or dividends
- Growing the CDA balance to facilitate a tax-free withdrawal of money from your corporation
As Canadian investors remain among the most heavily taxed investors in the world, Corporate Class structures provide an efficiency that should not be overlooked. Talk to your accountant and investment advisor before proceeding.
*Alberta and Federal rates combined as of 2022
Individual Pension Plan (IPP)
An Individual Pension Plan (IPP) is a defined benefit pension plan that allows you to increase your tax deferred retirement savings and establish long-term financial security.
- Increased tax-deductible contribution room – up to 65% more than an RRSP
- Can reduce passive income in Corporation
- Tax deductible contributions for prior years (past service)
- Richest benefit plan in Canada – 2% defined benefit pension plan
- All costs are tax deductible to the company
- Creditor Protection
- Increased corporate and personal tax savings
- Can include employed family members and pass on wealth to the next generation
An IPP is similar to an RRSP in that it uses an investment account to accumulate assets over time as retirement benefits. However, unlike the RRSP, an IPP allows for the accumulation of greater assets and like a traditional pension plan, sets your monthly income at retirement. An IPP also provides certain additional guarantees beyond an RRSP to further protect your financial future (assets accumulated within an IPP are locked-in and may be used only for retirement purposes).
Retirement Compensation Arrangement (RCA)
Ideal for high-income earners ($150,000+) such as business owners, athletes, executives, and incorporated professionals who wish to sustain their standard of living into retirement, a Retirement Compensation Arrangement (RCA) represents the highest level of retirement program available in Canada.
- Exempt from payroll taxes
- Ability to reduce amount of taxes paid by lowering participant’s tax rate
- Taxation only occurs at the time of withdrawal
- Taxation depends on place of residency at time of withdrawal
An RCA is a tax deferred savings vehicle that can be used to invest and save for retirement. Provided there is a change of employment status the member of the RCA may begin withdrawals from their RCA at any age they wish. By the same token, there is no requirement to begin withdrawals at age 71, such as applies to Registered Plans. The assets of the RCA may remain in the Trust Fund throughout the lifetime of the member and may subsequently be used for the benefit of spouses and beneficiaries.
Insured Retirement Plan (IRP)
The IRP is a financial planning strategy that uses a flexible investment vehicle – tax-exempt life insurance – to build your wealth and provide the following:
- A solution to current and future insurance needs
- An opportunity to take advantage of tax-deferred growth
- An innovative way to supplement your financial needs in retirement
With the IRP, the cash value held within a permanent life insurance policy provides tax-deferred growth, creditor protection and can be used to provide you with future cash flow that will supplement your retirement income. The IRP has three primary components:
- Death Benefit. Many companies require insurance coverage to protect themselves from the loss of key employees or to fund a buy-sell arrangement between partners. By using tax-exempt life insurance, you can protect your company as well as create tax deferred investment opportunities. The IRP is based on permanent coverage, which has two components: insurance coverage and cash value.
- Investments. The investments within the cash value part of a tax-exempt life insurance policy are allowed to accumulate on a tax-deferred basis, with some limitations. Your company can allocate excess earnings or current investments to a tax-exempt policy to maximize the growth of those assets. In other words, depending on the amount of insurance you purchase, you have the potential to build a great deal of equity within the policy.
- Income. Once the policy has accumulated a considerable cash value, your company can use those assets to obtain a loan from a financial institution. The loan can, for instance, be used to fund a new business venture or to buy out a retiring partner. You can also receive the income as a dividend for personal use. If you own a holding company, this is the approach to consider.
Taking care of your employees
Group retirement savings plan
All too often, people lack the discipline to set aside a certain amount from each pay cheque to invest for retirement, and, when they do, find it hard to figure out how they should invest.
A group retirement plan can solve some of these issues. People are many times more likely to save for retirement – and get more bang for their buck from their savings – if they are part of a group retirement plan for several reasons. Some of the reasons are:
- Organizations often offer matching contributions
- Group retirement plans charge lower fees than what traditional banks and insurance companies would charge
- A portion of every pay cheque comes out automatically which leads to better savings discipline
- People are less likely to make poor investing decisions
Group health & dental
From one employee and up, you can set up a group benefits plan for your team. Providing a health and dental plan can be extremely beneficial to some employees, especially to those that have medical conditions or like to take preventative care. The plans can include:
- Dental, Prescriptions, Extended health, & Travel
This can be partial or full coverage for dental, prescriptions, psychology, massage, physiotherapy, and chiropractic services, etc. This will help keep you or your employee(s)from having to dip into their savings or emergency fund to cover dental expenses.
- Wellness spending accounts
This is additional coverage can include gym membership, childcare, day camps and day programs for kids, sport league or team membership, golf fees, weight and nutrition counselling programs, etc.
- Health spending accounts
HSAs are an effective way to give employees more flexibility in how they use their benefits as the scope of what can be reimbursed is much broader than what is typically covered under a traditional plan. They can be added to a traditional health & dental plan or as a standalone product.
- Life insurance
Not everyone has life insurance, nor can everyone medically qualify for it, however group plans provide guaranteed coverage up to a certain limit to provide your employees spouse or loved ones with financial support to pay for funeral expenses, pay debts, and maintain their standard of living while they grieve.
This is designed to replace a portion of income if you or your employee(s) become disabled and are unable to work. A disability can result from a number of causes, including an injury, a serious illness or a mental health issue. And the duration of a disability can be either short- or long-term and can have significant impact on their ability to meet their financial obligations.
Download our free Business Owners Guide to Financial Success
Whether you are already a business owner, or thinking about becoming one, the decisions you make will have far-reaching implications – not only for your business, but also for yourself and your family.
This guidebook explores a range of subjects unique to business owners, from consideration of the best structure for your business to development of a succession plan and your transition from the business into a well-planned and funded retirement.
From our knowledge and experience come the ideas and actions to improve your business and inform your future path. See below for our latest insights to support your business journey.
Insured Retirement Plans (IRP)
One of the most utilized tools in funding an estate plan is term or permanent life insurance. The IRP is a financial planning strategy that uses life insurance to build your wealth for retirement with the following benefits: A solution to current and...
Funding Business Buy-Sell Agreements with Insurance
In order to ensure the orderly succession of a business, it is wise for business owners (whether they are incorporated or not) to enter into a buy-sell agreement. The buy-sell agreement creates the conditions for purchase due to an unexpected event to one or more of...
The capital dividend account: a hidden value for businesses
Every private Canadian business has a tax account that is particularly valued by shareholders: the capital dividend account (CDA). What is so important about the CDA? When its balance is positive, it offers an exceptional tax advantage: to be able to withdraw a...
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