For incorporated professionals, making sure your practice is financially protected can be overwhelming. Incorporated professionals face a unique set of challenges when it comes to managing risk. Insurance can play an important role when it comes to reducing the financial impact on your practice in the case of uncontrollable events such as disability, or critical illness. This infographic and article address the importance of corporate insurance.
The 4 areas of insurance a incorporated professional should take care of are:
-
Health
-
Disability
-
Critical Illness
-
Life
Health: We are fortunate in Canada, where the healthcare system pays for basic healthcare services for Canadian citizens and permanent residents. However, not everything healthcare related is covered, in reality, 30% of our health costs* are paid for out of pocket or through private insurance such as prescription medication, dental, prescription glasses, physiotherapy, etc.
For incorporated professionals, offering employee health benefits make smart business sense because health benefits can form part of a compensation package and can help retain key employees and attract new talent.
For incorporated professionals that are looking to provide alternative health plans in a cost effective manner, you may want to consider a health spending account.
Disability: Most people spend money on protecting their home and car, but many overlook protecting their greatest asset: their ability to earn income. Unfortunately one in three people on average will be disabled for 90 days or more at least once before the age of 65.
Consider the financial impact this would have on your practice if you or a key employee were to suffer from an injury or illness. Disability insurance can provide a monthly income to help keep your practice running.
Business overhead expense insurance can provide monthly reimbursement of expenses during total disability such as rent for commercial space, utilities, employee salaries and benefits, equipment leasing costs, accounting fees, insurance premiums for property and liability, etc.
Key person disability insurance can be used to provide monthly funds for you or key employee while they’re disabled and protect the business from lost revenue while your business finds and trains an appropriate replacement.
Critical Illness: For a lot of us, the idea of experiencing a critical illness such as a heart attack, stroke or cancer can seem unlikely, but almost 3 in 4 (73%) working Canadians know someone who experience a serious illness. Sadly, this can have serious consequences on you, your family and business, with Critical Illness insurance, it provides a lump sum payment so you can focus on your recovery.
Key person critical illness insurance can be used to provide funds to the practice so it can supplement income during time away, cover debt repayment, salary for key employees or fixed overhead expenses.
Buy sell critical illness insurance can provide you with a lump sum payment if your business partner or shareholder were to suffer from a critical illness. These funds can be used to purchase the shares of the partner, fund a buy sell agreement and reassure creditors and suppliers.
Life: For an incorporated professional, not only do your employees depend on you for financial support but your loved ones do too. Life insurance is important because it can protect your practice and also be another form of investment for excess funds.
Key person life insurance can be used to provide a lump sum payment to the practice on death of the insured so it can keep the business going until you an appropriate replacement is found. It can also be used to retain loyal employees by supplying a retirement fund inside the insurance policy.
Loan coverage life insurance can help cover off any outstanding business loans and debts.
Reduce taxes & diversify your portfolio, often life insurance is viewed only as protection, however with permanent life insurance, there is an option to deposit excess funds not needed for operations to provide for tax-free growth (within government limits) to diversify your portfolio and reduce taxes on passive investments.
Talk to us to make sure you and your practice are protected.
Essential tips and tricks for paying less tax and keeping more of your retirement income
/in Blog, retirement /by Maritime Private Wealth Solutions Inc.Essential tips and tricks for paying less tax and keeping more of your retirement income
Most of your retirement income sources are taxable; Canadian Pension Plan (CPP), your personal pension plan (if you have one) and income from your RRIFs. However, if you’ve set up a TFSA in addition to your RRSPs, then you’re in luck – money you take out of your TFSA isn’t taxable!
We have some tips on combining savvy withdrawal strategies with retirement-related tax deductions to keep more of your retirement income.
Make a Plan
Determine all the different sources of retirement income you’ll have – don’t forget about things like annuities, GICs or income from a rental property if you have one. Once you have a complete list, a professional financial advisor can give you tips on when it’s best to start collecting pension income as well as how much to withdraw from your taxable investments. A strong plan can help reduce the amount of tax you have to pay and extend the life of your retirement income!
Split your pension income
If you have reached the age of 65 and have a pension, you can split up to 50% of the pension income with your spouse. Splitting your pension with a lower-income spouse can add up to savings, as this will cut down on the amount of taxes you’ll have to pay overall.
While rewarding, the process to split your pension income can be complicated, so it’s best to get professional advice before starting this process.
Buy an annuity
Annuities are a financial product that will provide you with a guaranteed regular income – a good choice if you are worried about your retirement savings running out.
These are the most common types of annuities:
Life annuities provide you with a guaranteed lifetime income, with the option for the annuity to be paid to a beneficiary after you die.
Term-certain annuities provide guaranteed income payments for a fixed period. A beneficiary or your estate will receive regular payments if you die before the term ends.
Variable annuities will provide you with both a fixed income and a variable income. The variable income will be based on the return of the annuity provider on the performance of the investments your annuity provider invests your money in.
All types of annuities will spread out the income from your retirement savings to lessen the tax you pay each year.
Take advantage of tax breaks
Now that you’re retired, there are retirement-related tax breaks you need to know about. Here are some of the tax breaks or credits you may be eligible for:
The age amount
The home accessibility tax credit
The medical expense tax credit
The disability tax credit
The pension income tax credit
We can help!
We can put together a plan that helps you keep more of your retirement income – call us today!
The Five Steps to Investment Planning
/in Blog, Financial Planning, Investment /by Maritime Private Wealth Solutions Inc.The Five Steps to Investment Planning
For a long time, there were limited options for most investors. But now, there are hundreds of investments for investors to choose. However, this amount of choice can be overwhelming. Fortunately, an investment advisor can help you figure out what the right investment choices are for you.
Meeting your investment advisor
When you first meet with your investment advisor, they will tell you about their obligations and responsibilities. They should:
Give you general information about your various investment choices (e.g. stocks, bonds, mutual funds)
Tell you how they are compensated for their services
Ask if you have any questions about specific investment vehicles (such as RRSPs or TFSAs)
Determining your goals and expectations
The next step is to for your investment advisor to fill out a “Know Your Client” type of worksheet. The information on this worksheet will help your investment advisor determine the most suitable investment options for you. You’ll need to provide information on your:
Income
Net worth
Investment knowledge
Risk tolerance
Time horizon (how long you want to invest for)
How frequently do you want to invest
Developing your investment plan
Once they have all the information they need, your investment advisor will suggest the investments they think are appropriate for you.
Implementing the plan
Once you approve your investment advisor’s suggestions, you will fill in all the appropriate paperwork to set things in motion. After that, you must provide a way to fund your investments. Your investment advisor can then make any initial purchases and set up any ongoing fund purchases or transfers from other investments.
Monitoring the plan
Your investment advisor should contact you at least once a year to make sure your plan is still suitable for you and discuss any changes you want to make to it. If you have any major life events, such as getting married or changing jobs, you should contact your investment advisor to see if you should revisit your plan.
The sooner you start your investment planning, the sooner you can reach your investment goals! So contact us today!
Insurance Planning for Incorporated Professionals
/in Blog, buy sell, critical illness insurance, disability insurance, Group Benefits, health benefits, incorporated professionals, Insurance, life insurance, travel insurance /by Maritime Private Wealth Solutions Inc.For incorporated professionals, making sure your practice is financially protected can be overwhelming. Incorporated professionals face a unique set of challenges when it comes to managing risk. Insurance can play an important role when it comes to reducing the financial impact on your practice in the case of uncontrollable events such as disability, or critical illness. This infographic and article address the importance of corporate insurance.
The 4 areas of insurance a incorporated professional should take care of are:
Health
Disability
Critical Illness
Life
Health: We are fortunate in Canada, where the healthcare system pays for basic healthcare services for Canadian citizens and permanent residents. However, not everything healthcare related is covered, in reality, 30% of our health costs* are paid for out of pocket or through private insurance such as prescription medication, dental, prescription glasses, physiotherapy, etc.
For incorporated professionals, offering employee health benefits make smart business sense because health benefits can form part of a compensation package and can help retain key employees and attract new talent.
For incorporated professionals that are looking to provide alternative health plans in a cost effective manner, you may want to consider a health spending account.
Disability: Most people spend money on protecting their home and car, but many overlook protecting their greatest asset: their ability to earn income. Unfortunately one in three people on average will be disabled for 90 days or more at least once before the age of 65.
Consider the financial impact this would have on your practice if you or a key employee were to suffer from an injury or illness. Disability insurance can provide a monthly income to help keep your practice running.
Business overhead expense insurance can provide monthly reimbursement of expenses during total disability such as rent for commercial space, utilities, employee salaries and benefits, equipment leasing costs, accounting fees, insurance premiums for property and liability, etc.
Key person disability insurance can be used to provide monthly funds for you or key employee while they’re disabled and protect the business from lost revenue while your business finds and trains an appropriate replacement.
Critical Illness: For a lot of us, the idea of experiencing a critical illness such as a heart attack, stroke or cancer can seem unlikely, but almost 3 in 4 (73%) working Canadians know someone who experience a serious illness. Sadly, this can have serious consequences on you, your family and business, with Critical Illness insurance, it provides a lump sum payment so you can focus on your recovery.
Key person critical illness insurance can be used to provide funds to the practice so it can supplement income during time away, cover debt repayment, salary for key employees or fixed overhead expenses.
Buy sell critical illness insurance can provide you with a lump sum payment if your business partner or shareholder were to suffer from a critical illness. These funds can be used to purchase the shares of the partner, fund a buy sell agreement and reassure creditors and suppliers.
Life: For an incorporated professional, not only do your employees depend on you for financial support but your loved ones do too. Life insurance is important because it can protect your practice and also be another form of investment for excess funds.
Key person life insurance can be used to provide a lump sum payment to the practice on death of the insured so it can keep the business going until you an appropriate replacement is found. It can also be used to retain loyal employees by supplying a retirement fund inside the insurance policy.
Loan coverage life insurance can help cover off any outstanding business loans and debts.
Reduce taxes & diversify your portfolio, often life insurance is viewed only as protection, however with permanent life insurance, there is an option to deposit excess funds not needed for operations to provide for tax-free growth (within government limits) to diversify your portfolio and reduce taxes on passive investments.
Talk to us to make sure you and your practice are protected.
Don’t lose all your hard-earned money to taxes
/in Blog, tax /by Maritime Private Wealth Solutions Inc.Don’t lose all your hard-earned money to taxes
Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:
Make the most of the lifetime capital gains exemption
Decrease your end-of-life tax bill
Look into Immediate Financing Arrangements
Lifetime capital gains exemption
The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.
End-of-life tax bill
As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.
Consider an Immediate Financing Arrangement
An Immediate Financing Arrangement (IFA) lets your business:
Get a life insurance premium on behalf of a shareholder
Create a tax deduction
Transfer assets tax-free from the business to a shareholder’s estate
Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.
The Takeaway
While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.
Five Ways To Withdraw Money From Your Business In A Tax-Efficient Manner
/in Blog, Business Owners, corporate, tax /by Maritime Private Wealth Solutions Inc.Five Ways To Withdraw Money From Your Business In A Tax-Efficient Manner
You have worked long and hard to build up your business, and now you are ready to withdraw money from your business’ bank account. But you don’t want to get hit with a huge tax bill. So here are 5 ways to withdraw money from your business in a tax-efficient manner.
1) Pay Yourself And Your Family Members
You can pay yourself a salary from your business and pay any family members who work in your business. However, the salary you pay family members must not be excessive – it must be in line with what they would receive for doing the same work elsewhere.
You and your family members will be taxed at the regular personal marginal tax rates on your salaries. However, your corporation can make a deduction based on salaries paid when determining taxable income.
2) Pay Out Taxable Dividends
You can use dividends to distribute money from your corporation to both yourself and family members if everyone holds shares in your corporation. However, when distributing dividends to a shareholder, it is critical to consider both the tax on split income (TOSI) rules and the corporate attribution rules before any distribution is made.
TOSI rules – Under the current income tax rules, the TOSI applies the highest marginal tax rate (currently 33%) to “split income” of an individual under the age of 18. In general, an individual’s split income includes certain taxable dividends, taxable capital gains and income from partnerships or trusts. – Canada.ca
Corporate attribution rules – Corporate attribution rules may result in additional tax if a transfer or loan to a corporation is made to shift income to another family member. This can result in additional tax for the individual making the transfer or loan.
3) Pay Out Capital Dividends
Another way to pay out dividends is via your corporation’s capital dividend account (CDA). Money in your corporation’s CDA can be dispersed to Canadian resident shareholders as a tax-free dividend, but be sure you are clear on what can legally be allowed in your CDA before you do this.
4) Adjust Your Salary And Dividend Mix
Keeping the right mix when paying yourself a salary and paying yourself via dividends is essential. You need to consider various factors – such as your cash flow needs, earned income for RRSP contributions, and any impact on taxes and other regulatory requirements – paying out salaries and dividends can have.
5) Repay Any Outstanding Shareholder Loans
If you loaned money to your company in the form of a shareholder loan, now may be the time to have your company repay that loan. Any money you receive to settle your shareholder loan will be paid to you as a tax-free distribution.
The Takeaway
Regardless of why you need to take cash out of your business, it is crucial to plan how to withdraw the money so you can do it in the most tax-efficient manner possible. Unfortunately, there is no one-size-fits-all solution for this, which is why talking to a professional advisor is so important.
We can help design a tax-optimized compensation strategy for you. Contact us to set up a meeting today!
July/August COMMENT Newsletter
/in 2022 Only, Blog, CLU Comment /by Maritime Private Wealth Solutions Inc.COMMENT for July/August 2022
COMMENT is an informative newsletter targeted to the unique niche that CLU advisors occupy in the financial services industry, with a focus on risk management, wealth creation and preservation, estate planning, and wealth transfer.
Recent Technical Updates Involving the Value of Life Insurance
by Florence Marino
Let’s examine the recent Canada Revenue Agency (CRA) technical interpretations involving life insurance and valuation. Charitable Gift of a Permanent Life Insurance Policy Arising from a Term Conversion A charity may provide a receipt for a gift of a life insurance policy for its fair market value (FMV).
Retirement Income and the Order of Asset Withdrawal
By Frank Di Pietro
Canada’s population is aging quickly. According to Investor Economics, there will be more than 10 million Canadians over the age of 65 within 20 years, representing nearly one-quarter of the total population. Since the average retirement age is 63 and Canadians are living longer, the average retirement could last 25 to 30 years or more in some cases, using current mortality tables.
Did You Know…
You can add your information to this issue of COMMENT to personalize the newsletter when sending to your clients or colleagues:
Log in to your Institute account to access the latest issue of COMMENT.
Once you are successfully logged in, click the CLU COMMENT link to access the latest version of COMMENT.
Click the download icon in the top left hand corner of the embedded issue of COMMENT.
Save the issue to your computer as a pdf file.
When you open the pdf file, simply add your personal information to the right hand upper corner of the first page of the newsletter.
The Five Steps to Insurance Planning
/in Blog, Insurance, life insurance /by Maritime Private Wealth Solutions Inc.The Five Steps to Insurance Planning
One of the first “grown-up” things you do is to get insurance. Maybe it’s renters’ insurance when you’re first starting out. After that, you move on to life insurance, home insurance, and car insurance.
Whatever your insurance needs are, meeting with a licensed insurance agent can help ensure you have all the coverage you need.
Find an insurance agent
The first thing you need to do is to find an insurance agent. Ask trusted friends or family members if they can recommend one. Look for reviews online and make sure that the person is licensed – this is required in all provinces.
Meet with your insurance agent
Your insurance agent may ask you to bring some information to the meeting – such as your current salary or the estimated worth of your house. The point of your first meeting is to determine what kind of insurance you need.
Review your insurance options
One of an insurance agent’s primary duties is to help you make an informed decision about your insurance coverage. Your insurance agent should explain the following:
Your insurance agent will talk to you about different scenarios where you could need insurance to help determine the best coverage for you.
Purchase insurance
Once you’ve settled on the amount of coverage you need, your insurance agent will then check to see if you are eligible for any discounts. They will then let you know how much your policies will cost and enroll you in them.
File a claim
If you get into a situation where you need to file a claim, your insurance agent can help you file a claim and update you on its progress.
It’s essential to be adequately insured – so contact an insurance agent or us today!
Don’t lose all your hard-earned money to taxes
/in Blog, tax /by Maritime Private Wealth Solutions Inc.Don’t lose all your hard-earned money to taxes
Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:
Make the most of the lifetime capital gains exemption
Decrease your end-of-life tax bill
Look into Immediate Financing Arrangements
Lifetime capital gains exemption
The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.
End-of-life tax bill
As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.
Consider an Immediate Financing Arrangement
An Immediate Financing Arrangement (IFA) lets your business:
Get a life insurance premium on behalf of a shareholder
Create a tax deduction
Transfer assets tax-free from the business to a shareholder’s estate
Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.
The Takeaway
While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.
Accessing Corporate Earnings
/in Blog, Business Owners, corporate, life insurance /by Maritime Private Wealth Solutions Inc.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:
Salary
Dividend
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 than in the government’s.
2022 Federal Budget Highlights
/in Blog, Insurance, Investment /by Maritime Private Wealth Solutions Inc.Federal Budget 2022 – Highlights
On April 7, 2022, the Federal Government released their 2022 budget. We have broken down the highlights of the financial measures in this budget into the following different sections:
Housing
Alternative minimum tax
Dental care
Small businesses
Tradespeople
Canada Growth Fund
Climate
Bank and insurer taxes
Housing
There were several tax measures related to housing introduced in the budget.
Budget 2022 introduced a new kind of savings account – a Tax-Free First Home Savings Account (FHSA).
These are the key things you need to know about the new FHSAs:
You must be at least 18 years of age and a resident of Canada to open an account. You must also not currently own a home or have owned one in the previous four calendar years.
You can only open and use an FHSA once, and you must close it within a year after your first withdrawal.
Contributions are tax-deductible, and income earned in an FHSA will not be either while it is in the account or when you withdraw it.
There is a lifetime contribution limit of $40,00, with an annual contribution limit of $8,000. You can’t carry contribution room forward.
If you don’t use the funds in your FHSA within 15 years of opening it, you can transfer them to an RRSP or RRIF tax-free. Transfers to an RRSP do not impact your RRSP contribution room.
Two existing tax credits were increased, and a new one was introduced:
The First-Time Home Buyers’ Tax Credit amount was increased from $5000 to $10,000, giving up to $1,500 in direct support to home buyers. This tax credit applies to all homes purchased on or after January 1, 2022.
The annual expense limit for the Home Accessibility Tax Credit has been increased to $20,000 for 2022 and subsequent tax years.
A new tax credit, the Multigenerational Home Renovation Tax Credit, was introduced, which will start in 2023. This tax credit is a 15% refundable credit for eligible expenses up to $50,000 (maximum tax credit is $7,500) for constructing a secondary suite for a senior or an adult with a disability to live with a qualifying relative.
Budget 2022 proposes new rules, effective January 1, 2023, that anyone who sells a residential property they have held for less than 12 months would be subject to full taxation on their profits as business income. However, there will be some exemptions to these rules due to life events such as a death, disability, the birth of a child, a new job, or a divorce.
Budget 2022 also announces restrictions that would help ensure that Canadians, instead of foreign investors, own housing. A two-year ban will be introduced on non-residents buying residential property, with some exceptions, such as individuals who have work permits and are living in Canada.
Alternative Minimum Tax
In Canada, the top federal tax rate is 33% and starts at an income of $221,708. However, many high-income filers end up paying less tax than this due to tax deductions and tax credits.
The goal of the Alternative Minimum Tax (AMT), which has been around since 1986, is to ensure high-income Canadians are paying their fair share of taxes. However, it has not been substantially updated since it was introduced. In Budget 2022, the government indicated they would be investigating changes to the AMT, which will likely be disclosed in the fall 2022 economic update.
Dental Care
For many Canadians without private coverage, going to the dentist is too expensive. Budget 2022 commits $5.3 billion to provide dental care for Canadians with family incomes of less than $90,000 annually. Coverage will start for children under 12 this year and expand to children under 18, seniors and those living with a disability in 2023, with the program will be fully implemented by 2025.
Small Businesses
Small businesses currently have a 9% tax rate on the first $500,000 of taxable income (compared to the corporate tax rate of 15%). However, after a small business’ capital employed in Canada reaches $15 million, it is no longer eligible for the 9% tax rate.
Budget 2022 proposes gradually phasing out the small business tax rate so that businesses are not discouraged from expanding. The new cut-off for the lower tax rate will be $50 million.
Budget 2022 also includes a proposal to create an Employee Ownership Trust. This would be a new, dedicated trust under the Income Tax Act to support employee ownership.
Tradespeople
Budget 2022 introduces the Labour Mobility Deduction. This would allow eligible tradespersons and apprentices to deduct up to $4,000 a year in eligible travel and temporary relocation expenses.
Budget 2022 also commits to providing $84.2 million over four years to double funding for the Union Training and Innovation Program, which would help 3,500 apprentices from underrepresented groups each year.
Canada Growth Fund
Budget 2022 introduces a new Canada Growth Fund, with the goals of both diversifying our economy and helping achieve our climate goals.
The Canada Growth Fund aims to attract considerable private sector investment, support the restructuring of vital supply chains, and bolster our exports. The Canada Growth Fund will also provide backing to reduce our emissions and invest in the growth of low-carbon industries.
Climate
Budget 2022 continues to confirm the government’s commitment to fighting climate change. It commits $1.7 billion over five years to extend the Incentives for Zero-Emission Vehicles Program until March 2025 and also provides funding to create a national network of electric vehicle charging stations.
Budget 2022 also commits $250 million over four years to support the development of clean electricity, including inter-provincial electricity transmission projects and Small Modular Reactors.
Bank And Insurer Taxes
Budget 2022 introduced a new financial measure called the Canada Recovery Dividend. Banks and insurers will have to pay a one-time, 15% tax on 2021 taxable income above $1 billion. This tax will be payable over five years.
Budget 2022 also proposes increasing the tax rate on income above $100 million for banks and insurers to 16.5% (currently 15% for other corporations).
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!