Interesting Blog Posts

You’ve likely supported charitable causes in one way or another. But have you ever considered having a more formal philanthropic strategy in place? Perhaps you’d like to educate and get the next generation involved?

If so, your family may want to consider setting up a charitable foundation. This could be a public or private foundation, depending on your needs.

Both options let you make contributions and receive tax receipts. Both will also accept gifts of cash, publicly listed securities, mutual funds and life insurance—some of which have tax benefits associated with them.

The capital in your foundation will be invested in a balanced approach, and grants are disbursed over time to charities you and/or your family are connected to.

With a public foundation—or a “donor-advised fund”—all administration and reporting will be taken care of, giving you the option of being anonymous; whereas, with a private foundation, you are required to be responsible for fund administration and releasing annual reports to the public.

If you’re looking to be actively involved in your philanthropic activities, then a private foundation could be the right option for you. If you want the tax and legacy benefits that a charitable foundation offers—with less administration—then consider a public foundation.

Are you an incorporated business owner or professional receiving T4 income while contributing to an RRSP?

If so, you may want to consider an Individual Pension Plan (or IPP).

An IPP is a defined benefit pension plan your company can set up for you.

An IPP is ideal if you’re between the ages of 40 and 71, earning T4 income, and have owned your company for several years.

With an IPP, you can make higher annual contributions than an RRSP...

...and gain the ability for your company to make a large tax-deductible past- service contribution.

In addition, the company can make a top-up contribution if IPP assets fail to grow by 7.5% per year with adjustments.

Here’s a chart showing a comparison of IPP funds versus RRSP funds for someone who is 50 years old, with 23 years of past service.

As you can see, the ability to make a large past-service contribution, along with the increased annual IPP contributions, result in a higher registered plan balance.

While IPPs do involve more complexity and have higher annual fees than RRSPs, the fees are fully tax-deductible.

Canadian business owners work hard and always keep the needs of their business top-of-mind.

But did you know that although 60% of Canadian business owners are over the age of 55, 91% don’t have a formal business succession plan in place?^*

It’s important for business owners to start early and think about key issues like:

• Minimizing taxes;
• Strategizing the transition of their business;
• Planning for a comfortable retirement; and
• Considering how to best transfer wealth to the next generation.

Asking yourself the following five questions can help you get started:

1. How do you own your business?
2. Do you know what your business is worth?
3. What happens if there’s an unexpected tragedy?
4. Have you considered your exit options?
5. And what does retirement look like?

Working through these five key questions with your team of advisors will help ensure you cover off all the key details when it comes to building an effective business owner plan.

*Statistics source: Canadian Federation of Independent Business, November 2012 report. Updated report and statistics (2018) available here: https://www.cfib-fcei.ca/sites/default/files/2018-11/Getting-the-transition-right-succession-planning-report.pdf.

Did you know, your family can save on taxes by having a high-income family member loan cash at the current CRA prescribed interest rate — to a lower-income family member?

Any investment income earned by the low-income family member, exceeding the prescribed rate, is then taxed in their name.

For example, a high-income spouse can loan cash directly to a low-income spouse.

Or, a high-income parent can loan cash to a family trust to income split with their children.

The investment income earned in the trust can be used to fund child-related expenses, such as private school fees, lessons, or other expenses that directly benefit the child.

We all know the importance of regular health check-ups, but when was the last time you took a look at your Will or estate plan?

Is it overdue for a check-up?

Most legal professionals recommend reviewing your plan every 3 to 5 years, and any time you experience a major life event, such as:

• A marriage;
• The disability of a dependent; or
• The death of a beneficiary, spouse or executor, to name a few.

For example, a common misconception is that your assets will automatically pass to your surviving spouse in the event of your death. But, if you haven’t properly documented your wishes through a valid Will or beneficiary designations, you may be considered to have died “intestate”.

This means your assets will be administered under the intestate succession legislation for the province or territory where you live.

So, it’s possible your spouse may not receive all of your estate assets—even if this was your intention.

Protect your loved ones.

Do you own all the shares of your business?

If so, you may be limiting yourself from numerous tax and business transition opportunities.

An estate freeze of your shares can help minimize taxes and provide you with more flexibility.

There are a few tax benefits of an estate freeze.

Current capital gain on your shares is frozen. Any future growth is then transferred to the next generation, limiting your taxes at death.

As well, lifetime capital gains exemption can be multiplied with family members upon a sale.

You may also be able to pay dividends to lower-income adult family members subject to “Tax on Split Income” rules.

For example, if your business is worth $5MM, an estate freeze would lock in that value in your name.

Any future growth above $5MM would then accrue to the next generation.

For tax reasons, an estate freeze should be set up at least two years in advance of a potential sale — so early planning is key.