DEEP STRATEGIC WEALTH

  • Strategic Wealth Management

    Integrated Corporate & Personal Wealth Management

  • Strategic Wealth Management

    Integrated Corporate & Personal Wealth Management

  • Strategic Wealth Management

    Integrated Corporate & Personal Wealth Management

  • Strategic Wealth Management

    Integrated Corporate & Personal Wealth Management

  • Strategic Wealth Management

    For Business Owners, Executives and Incorporated Professionals

Strategic Wealth Management

Failure to plan is like planning to fail! Components of an integrated corporate & personal strategic wealth management plan include proper

  • Corporate Structuring
  • Tax, Trust & Estate
  • Asset Management
  • Legal
  • Insurance & Risk Management
  • Valuations
  • Pension & Executive Compensation
  • Investment Banking
  • Philanthropy
  • Succession & Legacy Planning

If you are a business owner, executive or incorporated professional, you should seek out top professionals to help you develop an integrated strategic wealth management plan & solutions to protect your assets and financial independence.

Exit Planning for Business Owners

Exiting your business is one of the biggest deals of your life. There are no “do-overs”. When building your business, you needed to do a lot of running & gunning. Strategic planning and especially business exit planning was far from your mind.

To build equity in your business, you may have built a solid management team you can trust, and must continue to institutionalize knowledge & learning in your company, and make it saleable. Proper, prudent tax, trust & estate planning must include an exit strategy that protects your hard earned equity and is flexible so that your exit opportunities are not curtailed.

Down the road, you may end up finding a strategic buyer or financial buyer, or develop a family buyout or management buyout (MBO) scenario. You may encounter exit opportunities that are structured as an asset sale, rather than a share sale.

Under all scenarios, you will want to continue to hone your management group, and implement executive compensation and corporate tax strategies & structures to optimize execution of a successful exit. Retention of key executive talent is critical, and you may be able to cultivate your management team as a potential management buyout group, which may end up being a convenient default exit option for all interested parties.

Proper, prudent corporate structuring and tax planning is needed to strategically pre-position to be flexible enough to preserve your equity/wealth under the many alternative scenarios that may arise, so that you remain compliant and avoid any faux-pas that might lead to a punitive tax or financial hit. Business owners should seek out top professionals to help develop their business succession or exit strategy, including corporate structuring, executive compensation, tax, trust & estate planning.

E.& O. E.

IPPs Just Got Better

Many business owners and incorporated professionals have heard the rumblings and are wondering what is happening with Individual Pension Plans. The Ontario Government has recently made changes to the Pension Benefits Act which have suddenly made the IPP a much better weapon in your arsenal to save for your retirement. 

IPPs Just Got a Lot Better

What’s going on with Individual Pension Plans?  What are the changes that have occurred? What does it mean for you as a business owner? and How can it help you save more for retirement?

IPPs are like an Ontario Teachers Pension Plan for business owners and incorporated professionals, with higher T-4 income, which are an excellent strategy to combat punitive taxation & bolster retirement savings. Yet, for the approximately 1.2 million SMEs in Canada, there are only about 13000 IPPs in existence. Why so few?  

Well, up until recently, IPPs have had rigid minimum funding requirements resulting in a lack of flexibility when making contributions, along with high admin cost and red tape.  Now, all that has changed.

IPPs just got a lot better and have effectively mutated into super-sized RRSPs, that allow contributions from your corporation, that are tax deductible.

Ontario, has recently amended the Pension Benefits Act (PBA) as part of a program to reduce regulatory burden and red tape under Bill 213, Better for People, Smarter for Business Act, 2020.

Flexibility and Simplicity

Bill 213 amends the PBA to permit individual pension plans (IPPs) and designated plans to be exempt from the PBA, its regulations and FSRA’s regulatory oversight.  Exempt plans no longer required to follow the PBA’s requirements to register the plan, file actuarial valuations, fund the plan or complete annual filing requirements.

With this exemption, the Ontario Government has made it flexible so that your business has the freedom to decide when to make contributions.  This allows you to skip years of contributions, to accommodate lean years.

This applies to “connected persons” that own greater than 10% for the exemption of an individual pension plan or designated plan if the employer files an election to be exempt and if certain other conditions are satisfied. All such plans established before December 8, 2020 are automatically exempt, and prior existing plans  must submit Election and Consent forms.

With these changes, companies are able to defer deductions while reducing the cost and regulatory burden. 

So, there are no more $750/year filing fees & The IPPs are exempt from FSRAs rules.

The negatives are: 1) You still have to get an (initial) actuarial valuation, and the exempt plan loses its creditor protection.

Ontario now joins Alberta, British Columbia, Manitoba and Quebec in freeing up regulatory requirements for IPPs.

IPPs Unchained

So, the IPP is now an excellent wealth & retirement planning strategy for business owners and incorporated professionals.

As a result of the changes, IPPs in Ontario, with their superior tax treatment and greater contribution room vs. RRSPs, have just become completely flexible, cheaper and easier to administer.  This has breathed new life into IPPs, which are now a whole different animal!

IPPs just got a lot better and have effectively mutated into super-sized RRSPs, that allow contributions from your corporation, that are tax deductible. 

So, I would encourage you to talk to your accountant or tax, trust & estate planner, to see whether this wealth planning strategy might be right for you.

 

E. & O. E. 

Wealth Weapons for Business Owners

Small to medium sized business owners and incorporated professionals are under attack in Canada on many fronts:

  • Financial/Taxation
  • Legal/Regulatory & Environmental compliance
  • From Government & Anti-capitalist groups
  • Pandemic lockdown/health arrest

It feels as though there has been this Shadow War on small to medium sized Business…Whether by covert or overt means. It really seems to be open warfare on independence and success.

The result is no less than an assault on your freedom, independence and financial legacy. 

A recent salvo by the Federal Government was the 2018 budget:

Changes to the Passive Income taxation rules for Canadian-Controlled Private Corporations (“CCPCs”) introduced punitive tax measures that amount to Confiscatory Taxation.

The main points of attack were punitive change to the passive income rules and income splitting.

In the run-up to the budget, Ottawa’s Anti-Capitalist bias was totally exposed when they branded business owners as TAX CHEATS for just following the rules.

The whole thing started in 2004 when the Doctors in Ontario were looking for a pay raise.  The Ontario Govt. said, “instead of fee increases, we will allow you to incorporate as a tax shelter,” which brought Ontario in line with the rest of Canada.

So they allowed funds to remain in professional corporations so they could save in a tax free environment for retirement and future cap/ex. This naturally led to passive income in the corporation.

Now, years later, the Federal Government has Broken the deal.

Ottawa took a look at all the funds sitting in corporations, and decided they wanted to tax those funds and have them circulated back into the economy. So, they said:

“You can take it out as either T4 Earnings, Dividends, or Bonus it out, however you will pay the same high rate of confiscatory tax…” under what is called “integration,”

Or…

“You can leave it sitting in your corporation; and potentially lose some or all of your small business deduction and pay even higher tax.”

They invoked the concept of “Integration,” which effectively means that whether you take T4 income, dividends or bonus-out your earnings, you will pay about the same amount of tax, so there is no comparative advantage.

On top of this, Ottawa has shut down “income sprinkling” or paying salary or dividends to family members.

Under new Tax on Split Income rules (TOSI) – family members that are not active in your business will be taxed at the top marginal rate on dividend payments.

They are limiting your alternatives and forcing you to make a decision. So you will likely need to take measures beyond the standard RRSP, Spousal RRSP, TSFAs and RESPs in response.

Part of the problem is that Accountants are often primarily focused on the now – occupied with immediate corporate and personal tax savings, preparing financial statements and tax returns and unable to do much proactive tax planning. And you are likely too busy running your business or practice to deal with these issues.

So, you can pay these funds out to yourself, and pay a lot of tax… or you can leave it in your corp. and pay even more tax!

You are being forced to do something or lose this equity.

So what to do to protect yourself? Well, proper planning & corporate structuring is needed.

Three  Primary Strategies

There are 3 main strategies to address this situation that could end up deferring and saving you a meaningful amount of tax, so you don’t end up giving away your sweat equity and family wealth.

You may want to look at:

  1. Individual Pension Plans (IPPs) as a basic core strategy,
  2. Corporate Owned Life Insurance (COLI), as well as
  3. Retirement Compensation Arrangements (RCAs)

or some combination of these, along with other proper corporate structuring that might be appropriate, to avoid and/or defer tax.

1)     Individual Pension Plans (IPPs)

IPPs – are private defined benefit pension plans, that are set up and registered with the federal government that allow tax deductible contributions to the plan.

The IPP is “the Teachers Pension Plan for Business Owners and Incorporated Professionals” – Including Doctors Lawyers, Dentists, Accountants etc.

The IPP resides with your corporation and allows you to put away significantly more for retirement than an RRSP on a tax deferred basis.

A major bonus is that past service may allow you to contribute a large initial amount of funds to the plan.

These funds are managed or invested in a number of possible vehicles within the plan.

The IPP strategy is now a main, go-to vehicle for tax deferred savings in your corporation.

An IPP may allow you to address the passive income situation and is great if you want:

  • Tax deferral
  • forced discipline of putting funds away, and
  • a guaranteed outcome during retirement!
2)     Corporate Owned Life Insurance (COLI),

The next strategy you might want to have a look at  is Corporate Owned Life Insurance.

Corporate Owned Life Insurance:

  • is one of the last remaining tax sheltered vehicles available
  • has the benefit of both risk management and tax deferred investment
  • allows corporate wealth to grow in a tax free environment… and you can access capital or pass it on to heirs.

So you might look at corporate owned Life Insurance as a savings/investment vehicle, which allows you to defer* the tax. (as long as you have an insurance need).

Since you’re likely not going to spend it but rather invest it…you might as well save the tax and invest it in a tax exempt insurance vehicle, where it can grow on a tax free basis.

These funds can be accessed once the policy has accumulated a significant cash value, as you can assign the policy as collateral for a third party line of credit and pay out to shareholders.

As well, remaining balances may eventually be paid out as a tax free benefit through your capital dividend account.

3)     Retirement Compensation Arrangements (RCAs)

For higher earning business owners, an RCA might be worthwhile. And I will cover RCAs again in-depth at a future date.

I would emphasize that the Federal Government is forcing you to make a decision, so you should seek out professional advice on proper, prudent corporate structuring, tax, trust & estate planning, to see how these, and other possible strategies, might fit your situation.

 

 

E. & O. E.

 

De-Risk Corporate DB Pensions with Copycat Annuities

We’re hearing a lot about problems with DB Pension plans in Canada… And not without good reason!

Problems with Defined Benefit pension plans are legion. Many companies in Canada are facing pension shortfalls. Unfunded pension liabilities have been exacerbated by extremely low interest rates and market volatility. This has constrained financial flexibility and weakened credit ratings for many of those firms.

DB Pension Risk

Extended mortality rates have increased longevity risk. With people living longer, payment steams must continue for longer periods of time.

Many companies involved in mergers & acquisitions and re-orgs, are looking for ways to annuitize their pension obligations and sterilize their risk, as are Canadian branch plant operations that have been spun off from their parent companies.

Many pension wind-ups lead to lump-sum buyouts to planholders, in-pay execs and employees, leaving them with a large tax bill, and impinging on the retirement benefits they were promised.

We are also seeing many DB pension wind-ups, with lump sum buyouts being offered to the planholders, as in the case of GM General Motors. This has left many of the plan members with large tax liabilities and a reduced pension promise.

Annuitize your DB Pension Obligations

Now, there are a number of popular solutions currently offered by Canadian pension consultants: These include ways to transfer risk, to annuitize pensions and include pension buy-ins, & buyouts & lift outs. These strategies are designed to transfer pension obligations to private insurance companies by purchasing huge group annuities to pay out benefits.

Such large transactions are celebrated in the media but are few and far between. Group annuity buyouts are prohibitively expensive, and best suited to Tier I Corporate Titans.

So, what is a mid-market corporation to do to annuitize in-pay DB pension obligations and get them off its books, as cheaply and efficiently as possible?

Well, it turns out that there is simple alternative mechanism that you can use to annuitize pension liabilities & de-risk your balance sheet, so you can surgically transfer risk to major insurance carriers.

Pension risk transfers to insurance companies (sometimes referred to as “pension lift-outs”) can be accomplished using copycat annuities.

DeRisking with Copycat Annuities

A copycat annuity is a payout annuity that meets the rules in Section 147.4 of the Income Tax Act.

If permitted by provisions of your plan, a copycat annuity can be used to mimic the existing plan, and provide the same or very similar options and guarantees, to retiring and in-pay executives and employees.

To accomplish this, plan holders commute their commuted value (“CV”) of their respective plans to a life annuity with a major Canadian insurance company.

The resulting plan remains registered, so there are no adverse tax consequences to the plan holder. This actually preserves & strengthens the pension for the employee, by providing a guaranteed monthly income for life, with no investment risk from a top financial institution.

So, copycat annuities allow you to perform select surgical lift-outs of in-pay defined benefit pensions to get them off your books.

Tax: Because the Copycat annuities mirror the existing plan, they remain registered, thus avoiding a massive tax hit.

ASSURIS Protection: The copycat annuity is protected by ASSURIS which provides up to $2,000 a month, or 85 per cent of the promised income benefit, whichever is larger in the event of failure of the life insurance issuer.

So, whether you are winding up or maintaining your ongoing pension plan, maybe you are not be getting the attention of pension consulting firms and are considering de-risking your DB plan, and perhaps you are not prepared to enter into a huge/expensive group annuity, copycat annuities might be worth investigating copycat annuities may be used to efficiently and surgically transfer risk of DB plans to a major insurance carrier.

 

 

E.& O.E.

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