Business Planning
Independent financial planning · Alberta & Yukon
Planning for business owners
When you own a corporation, your business and your retirement are one plan, not two. How you pay yourself, what stays in the company, how it’s invested and how you eventually get it out all affect each other. I look at them together so the decisions line up.
Business owner FAQ
Questions worth asking
It depends on whether you need the money personally, your tax rate compared to the corporation’s, and how much investment income the corporation already earns. Money invested inside the corporation has only been taxed at the lower small business rate, which is an advantage. But once investment income passes $50,000 a year, it starts to reduce your access to that rate. For many owners, the answer is some of both.
Salary is deductible to the corporation and builds RRSP room and CPP. Dividends don’t, but they avoid CPP contributions and can be simpler. Most owners use a mix, and the right mix can change from year to year. It’s a decision to make with your accountant.
If your corporation earns more than $50,000 a year in investment income, your access to the small business tax rate starts to shrink. The more it earns above that, the less you keep, until the lower rate is gone entirely. It can affect any corporation with significant savings invested.
Now. To qualify for the lifetime capital gains exemption, your shares have to meet tests that often take time to satisfy. Sometimes that means moving assets out of the company or changing who holds shares. This can’t be fixed after the fact, so a couple of years’ notice is far better than a couple of months. This is a conversation that would involved a lawyer, an accountant, us and potentially a M&A Advisor
Why this changes what you should hold
Not all investment income counts the same under this rule. Interest counts in full; capital gains count more lightly. Choosing growth over income, deferring gains, and sometimes using a corporately owned life insurance policy can help keep investment income under the threshold while the money stays invested.
THE outcome
Your corporate savings are working, your small business rate is protected, and you’re building assets you can draw on in retirement.
THE strategy
Invest corporate money with the passive income rules in mind. Favour growth over income where it fits, and consider whether a corporately owned permanent life policy belongs in the mix.
THE PROBLEM
Retained earnings sit in a chequing account or a GIC, or they’re invested without considering how investment income is taxed inside a corporation. Too much passive income can reduce your access to the small business tax rate.
THE outcome
You pay yourself on purpose, not out of habit, and you understand what each choice does for you.
THE strategy
Choose a mix of salary and dividends that fits your income needs and long-term goals, and review it each year with your accountant.
THE PROBLEM
Salary or dividends? The way you take money out of your corporation affects your taxes today and your retirement tomorrow, and the right answer can change from year to year.
THE outcome
A written plan for drawing on your corporate and personal savings, with the tax picture known before you retire.
THE strategy
Start with the income you’ll need and work backward: how much comes from the corporation, how much from your RRSP and TFSA, and in what order. Where it fits, consider options such as an Individual Pension Plan or permanent life insurance.
THE PROBLEM
No pension, no employer match. Your retirement depends on the corporation, but there’s no plan for getting money out of it over 20 or 30 years.
THE outcome
The business can keep going, the buyout can actually happen, and your family receives value instead of shares in a company they can’t run.
THE strategy
Size insurance to the real cost of losing a key person and to the value of each owner’s shares. Structure ownership with your accountant and lawyer, and tie it to your shareholder agreement.
THE PROBLEM
If you or a partner dies or becomes seriously ill, the business may not have the cash to replace that person or buy out their shares. Many buy-sell agreements have no funding behind them.
THE outcome
A health event or a bad year doesn’t put your household or business at risk, and your personal coverage stays with you if you sell.
THE strategy
Put in place the protection an employee would have: personal life and disability insurance sized to your household, business overhead expense coverage, health benefits and an emergency fund.
THE PROBLEM
As an owner, you don’t automatically get group life, disability or health benefits. If you can’t work, the bills at home and in the business keep coming.
THE outcome
You leave on your terms, keep more of what you built, and your family knows the plan.
THE strategy
Plan the exit early. That covers share structure, keeping the company eligible for the lifetime capital gains exemption, family succession, and the tax that arises on death, coordinated with your accountant and lawyer.
THE PROBLEM
Whether you sell, pass the business to family or wind it down, many of the tax results depend on decisions made years earlier.
What we work on
The six conversations
The rule many owners haven't heard of
Investment income in your corporation can cost you the small business rate
Once your corporation earns more than $50,000 a year in investment income, its access to the lower small business tax rate starts to shrink. How the money is invested makes a difference.
How I work with your other professionals
One plan, with everyone at the table
I’m not here to replace your accountant or your lawyer, and I’ll tell you when a question belongs to them.
What I add is the connection between the pieces: your corporation, your household finances, your insurance and your retirement plan. When we all work from the same plan, the decisions line up.
Bring these to the first meeting
01
Your last two years of corporate financial statements
02
Your shareholder or buy-sell agreement, if you have one
03
What the corporation holds in cash or investments
04
Your personal statements: RRSP, TFSA, non-registered
05
Any insurance policies, personal or corporate
06
Your accountant's name, so I can include them
If you don't have half of these to hand, come anyway.