Many business owners have built up earnings in their corporation and are looking for tax efficient ways to pull the earnings out to achieve their personal and business financial goals such as:
building and protecting your savings
providing for loved ones
planning for retirement
Factors to consider when investing as a corporation:
What’s the purpose of the investment? First, think about what you’ll be doing with your savings. This will help dictate what savings vehicle is best suited for your situation. Then consider the following factors:
Taxes: As a small business owner, you have access to the small business tax rate which is typically lower than your personal tax rate. (See table below.) Also, as of January 1, 2019, the Federal Budget decreased the small business limit for corporations with a set threshold of income generated from passive investments.
2019 Corporate Income Tax Rates
Taxes on investment growth: Depending on what you invest in, you will want to review this as different asset types are taxed at different rates.
Timing: You can control the timing of the payout which means you could potentially defer paying out the money until you need it and determine if you’d like to pay it out as salary or dividend.
Creditor Protection: Sometimes, investments held inside a corporation can be vulnerable to creditors, therefore you may want to consider using a holding company or trust or pay out money to yourself personally. This can be complex and requires professional advice.
Capital Gains Exemption: If your investment grows too large, it may endanger your qualification for the lifetime capital gains exemption that ‘s available when shares of a qualified small business corporation are sold or transferred.
For business owners, before investing personally or corporately, it’s certainly worth seeking professional advice to ensure that it suits your individual circumstances.
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:
Transfer Personal Assets
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.
For business owners, making sure your business is financially protected can be overwhelming. Business owners 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 business in the case of uncontrollable events such as disability, critical illness or loss of a key shareholder or employee.
This infographic addresses the importance of corporate insurance.
The 4 areas of insurance a business owner should take care of are:
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 business owners, 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 business owners that are looking to provide alternative health plans in a cost effective manner, you may want to consider a health spending account.
Consider the financial impact this would have on your business if you, a key employee or shareholder were to suffer from an injury or illness. Disability insurance can provide a monthly income to help keep your business 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 the key employee while they’re disabled and protect the business from lost revenue while your business finds and trains an appropriate replacement.
Buy sell disability insurance can provide you with a lump sum payment if your business partner were to become totally disabled. These funds can be used to purchase the shares of the disabled partner, fund a buy sell agreement and reassure creditors and suppliers.
Key person critical illness insurance can be used to provide funds to the company 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 a business owner, 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 business and also be another form of investment for excess company funds.
Key person life insurance can be used to provide a lump sum payment to the company 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.
Buy sell life insurance can provide you with a lump sum payment if your business partner or shareholder were to pass away. These funds can be used to purchase the shares of the deceased partner, fund a buy sell agreement and reassure creditors and suppliers.
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 company 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 about helping making sure you and your business are protected.
On July 17th, Finance Minister Bill Morneau announced proposed changes to the Canada Emergency Wage Subsidy (CEWS) that will expand the number of businesses that qualify for the program.
The major changes he announced were:
“First, we’re proposing to extend this program through until December 19th.”
“Secondly, we know that it’s also critical that we have the businesses able to continue to hire people even as they get into the restart and we know that the requirements in businesses have a 30% reduction in revenue is not helpful in that regard.”
“businesses will get the wage subsidy if they’ve had any reduction in revenue so it’s going to go all the way down to businesses who even have a small amount of revenue reduction they’ll get the subsidy and it will be in proportion to the amount of the revenue reduction that they will get a subsidy.”
“Third, we’ve tailored the program so that it helps those organizations that are particularly hard hit. So for organizations with over a 50% reduction of revenue over the last few months they’ll actually get a top up, they’ll get up to 25% additional subsidy so that they can deal with this really challenging time for their businesses.”
“What that means for businesses, those that were already in the program that have that 30% revenue decline that will continue to be the case for July and August. For those businesses as I said that are particularly hard hit it will be even more. It will go up to 85% wage subsidy or $960 per person.”
“For those businesses less hard hit but still hit they will be able to get into the program. The program will continue but as we restart, the program will be tailored to help businesses appropriately in that restart.”
The new rules will be retroactive to July 5th but require parliamentary approval.
Great news for Canadians out of work and looking for work. The CERB will be extended another 8 weeks for a total of up to 24 weeks.
As the country begins to restart the economy, the Federal government will be making changes to the program to encourage Canadians receiving the benefit to get people back on the job. From Prime Minister Justin Trudeau’s website:
“The Government of Canada introduced the CERB to immediately help workers affected by the COVID-19 pandemic, so they could continue to put food on the table and pay their bills during this challenging time. As we begin to restart the economy and get people back on the job, Canadians receiving the benefit should be actively seekingwork opportunities or planning to return to work, provided they are able and it is reasonable to do so.
That is why the government will also make changes to the CERB attestation, which will encourage Canadians receiving the benefit to find employment and consult Job Bank, Canada’s national employment service that offers tools to help with job searches.”
More small businesses can apply for CEBA $40,000 no-interest loans
Applications for the expanded Canada Emergency Business Account (CEBA) will be accepted as of Friday, June 19th, 2020. Small businesses that are:
“… owner-operated small businesses that had been ineligible for the program due to their lack of payroll, sole proprietors receiving business income directly, as well as family-owned corporations remunerating in the form of dividends rather than payroll will become eligible this week.”
“The funds from this loan shall only be used by the Borrower to pay non-deferrable operating expenses of the Borrower including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.”
Lower rent by 75% for small businesses that have been affected by COVID-19
The Application portal for the Canada Emergency Commercial Rent Assistance (CECRA) opens at 8:00am EST on May 25th. The description from the CMHC website:
“Canada Emergency Commercial Rent Assistance (CECRA) for small businesses provides relief for small businesses experiencing financial hardship due to COVID-19. It offers unsecured, forgivable loans to eligible commercial property owners to:
reduce the rent owed by their impacted small business tenants
meet operating expenses on commercial properties
Property owners must offer a minimum of a 75% rent reduction for the months of April, May and June 2020.”
Due to expected high volumes of applications, the application dates will be as follows:
Monday – Property owners who are located in Atlantic Canada, BC, Alberta and Quebec, with up to 10 tenants who are eligible for the program
Tuesday – Property owners who are located in Manitoba, Saskatchewan, Ontario and the Territories, with up to 10 tenants who are eligible for the program
Wednesday – All other property owners in Manitoba, Saskatchewan, Ontario and the Territories
Thursday – All other property owners in Atlantic Canada, BC, Alberta and Quebec
“To qualify for CECRA for small businesses, the commercial property owner must:
own commercial real property* which is occupied by one or more impacted small business tenants
enter (or have already entered) into a legally binding rent reduction agreement for the period of April, May and June 2020, reducing an impacted small business tenant’s rent by at least 75%
ensure the rent reduction agreement with each impacted tenant includes:
a moratorium on eviction for the period during which the property owner agrees to apply the loan proceeds, and
a declaration of rental revenue included in the attestation
The commercial property owner is not and is not controlled by an individual holding federal or provincial political office.
CECRA will not apply to any federal-, provincial-, or municipal-owned properties, where the government is the landlord of the small business tenant.
Where there is a long-term lease to a First Nation, or Indigenous organization or government, the First Nation or Indigenous organization or government is eligible for CECRA for small businesses as a property owner.
Where there are long-term commercial leases with third parties to operate the property (for example, airports), the third party is eligible as the property owner.
Also eligible are post-secondary institutions, hospitals, and pension funds, as well as crown corporations with limited appropriations designated as eligible under CECRA for small businesses.
NOTE: Small businesses that opened on or after March 1, 2020 are not eligible.
* We define commercial Real Property as a commercial property with small business tenants. Commercial properties with a residential component and multi-unit residential mixed-use properties would equally be eligible with respect to their small business tenants.
NOTE: Properties with or without a mortgage are eligible under CECRA for small businesses.
What is an impacted small business tenant?
Impacted small business tenants are businesses —including non-profit and charitable organizations — that:
pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement)
generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level)
have experienced at least a 70% decline in pre-COVID-19 revenues **
NOTE: Eligible small business tenants who are in sub-tenancy arrangements are also eligible, if these lease structures meet program criteria.
** Small businesses can compare revenues in April, May and June of 2020 to that of the same period in 2019 to measure revenue losses. They can also use an average of their revenues earned in January and February of 2020.“
Financial Planning for business owners is often two-sided: personal financial planning and planning for the business.
Business owners have access to a lot of financial tools that employees don’t have access to; this is a great advantage, however it can be overwhelming too. A financial plan can relieve this.
A financial plan looks at where you are today and where you want to go. It determines your short, medium and long term financial goals and how you can reach them. For you, personally and for your business.
Why do you need a Financial Plan?
Worry less about money and gain control.
Organize your finances.
Prioritize your goals.
Focus on the big picture.
Save money to reach your goals.
For a business owner, personal and business finances are connected. Therefore both sides should be addressed: Personal and Business.
What does a Financial Plan for a Business include?
There are 2 main sides your business financial plan should address: Growth and Preservation
Cash Management- Managing Cash & Debt
Tax Planning- Finding tax efficiencies
Retaining & Attracting Key Talent
Investment- either back into the business or outside of the business
Insurance Planning/Risk Management
What does a Personal Financial Plan include?
There are 2 main sides your financial plan should address: Accumulation and Protection
Cash Management – Savings and Debt
What’s the Financial Planning Process?
Establish and define the financial planner-client relationship.
Gather information about current financial situation and goals including lifestyle goals.
Analyze and evaluate current financial status.
Develop and present strategies and solutions to achieve goals.
Monitor and review recommendations. Adjust if necessary.
Talk to us about helping you get your finances in order so you can achieve your lifestyle and financial goals.
Feel confident in knowing you have a plan to get to your goals.
Business owners are increasingly recognizing the key importance of implementing employee benefit plans in their organization and this is an area that has grown considerably in recent decades. Employee benefits comprise all of the additional things that you offer to your employees on top of their regular salary, which could include pension contributions, health cover / insurance policies, training and education programs etc. Employees are more and more interested in the total benefits package that a potential employer can offer them, rather than just being focused on a binary salary figure and recognizing and understanding this cultural shift in the modern working world is crucial to maintain your ability to recruit and retain the right talent for your business.
Many employees value the benefits that their employer offers, considering them an integral part of their take home pay, none more so than health cover. This benefit can provide financial and emotional security to your employees and their families, without the need for them to complete any health requirements to be on the plan. They are likely to benefit from a preferable level of cover and the plan may even provide them with insurance products such as long-term disability cover, which can be harder to gain outside of a group plan. What’s more, group plans often offer out-of-country emergency healthcare for employees which has the potential to save them money on personal travel insurance products.
Not only do these benefits provide a sense of security to your employees, they can also help them to feel valued as part of your organization, which may in turn foster higher morale and increased motivation within their roles. It is therefore worthwhile for business owners to encourage their teams to recognize the fact that the benefits package that you offer should be considered as an integral part of their take home pay, alongside their actual salary.