Kickstart Your Corporation: The Incorporated Professional's Financial Planning Coach

Acknowledgments xviiAbout the Author xixIntroduction: The Value of a Coach xxiChapter 1: Incorporation 101 1Why Incorporate? 2What Does It Cost to Incorporate? 2What's the Process to Incorporate? 3Written Consent 4Articles of Incorporation 4Payroll Remittances 4Employment Contracts 5Transferring Assets 5Real Estate 6Insurance Policies 6Choosing Your Corporation's Year-End and Maintaining Your Corporate Records 7When Does It Not Make Sense to Incorporate? 8What If You Have No Small Business Deduction? 10How Does Purchasing a Home Fit into My Incorporation Timeline? 11Saving for a Down Payment: Incorporated and Non-Incorporated Options 11Can I Purchase My Principal Residence through My Corporation? 12What about Shareholder Loans? 14Does a Professional Corporation Give Me Creditor Protection? 15How Could I "Supercharge" My Charitable Donation? 16What is the Lifetime Capital Gains Exemption (LCGE)? 17Now That I Have Incorporated, Can I Deduct My Golf Membership Fees? 20What Do I Do with My Corporation When I Retire? 20Real-Life Case Example of Restructuring Shares 21Chapter 2: The Compensation Decision: Salary or Dividends? 25Understanding the Roots of the Compensation Question 26Salary as Compensation 27Dividends as Compensation 27Dividend-Splitting with Family Members 28The Old Rules: Pre-2018 28The New Rules: Tax on Split Income--2019 and Afterwards 29Tax Integration 33Salary versus Dividend Examples 33Do You Want to Put Your Savings in an RRSP or in Your Corporation? 35The Value in the RRSP/Corporation Today 36The Tax Characteristics of Growth on the Investments 37Will We Pass Away with Funds in Our RRSP or Corporation? 40Other Factors 41Increased Financial Control 41Psychological Factors 41Creditor Protection 42Future Tax Law Changes 42Do We Want to Participate in the Canadian Pension Plan (CPP)? 42Beware the Overpayment Trap 44CPP Trends to Watch 44Bottom-Line Considerations 45Do We Have Investments Inside the Corporation? 45What Are Some Exceptions to these Rules? 46Small Business Deduction (SBD) 46Child Care Deduction 47SR&ED 47Other Specific Considerations 47Chapter 3: Investing Inside Your Corporation 51Can I Invest through My Corporation? 52What the Income Tax Act Says about Investing through a Corporation 52Structuring Investments Inside the Corporation 53Example 54RDTOH (Refundable Dividend Tax On Hand) 55Capital Dividend Account (CDA) 55Example 56New Passive Income Tax Rules 57Reminder: Asset Allocation Still Matters 58What Are Corporate-Class Investments? 60The Power of Tax-Deferred Compounding 62Working through the Example 63Working through the Example 65Rule Changes from Federal Budget 2016 66Considerations with Corporate Class 67Fees 67Loss of Control 68Little Fixed Income Exposure 69Future Potential Rule Changes 70What If I Want to Try Investing on My Own? 70What If They Increase Capital Gains Taxes? 70Chapter 4: Valuing Permanent Insurance on the Holistic Corporate Balance Sheet 73A Review of the Basics--Permanent Life Insurance as Tax Arbitrage 74The Benefits of Corporate-Owned Permanent Life Insurance 75Pay Premiums with Corporate Dollars 75Avoid New Passive Income Rules 76Creating Cash Flow 76Provide a Tax-Efficient Financial Legacy 77A Real-World Example: My Plan in Action 78Funding the Plan 78The Growth of Funds in the Plan 79Assumptions in the Projections 79Rates of Return Assumptions 80Beyond the First 10 Years 81The Plan as an Investment 81Understanding the Criticisms of Corporate-Held Permanent Life Insurance 83Risk Review: Economic and Tax Considerations 83Tax Policy Risk: "What if tax rates change?" 83Economic Risk: "What if dividend rates or interest rates change?" 84Appropriateness Review: Concerns about the Sales Process 85"This strategy is designed to maximize advisor sales commissions--if it's so good, why do so many people oppose it?" 85"Shouldn't I help my kids today, instead of building an estate?" 86This strategy is "an expensive way to buy insurance, and I can gethigher investment returns elsewhere"--shouldn't I just "buy term and invest the difference?" 86The True Cost of Term Insurance 86Buying Term and Investing the Difference: A Review of the Factsand Assumptions 87"What if something changes and I can't afford the premiums?" 89Comparing U.S. and Canadian Scenarios 89Chapter 5: Risk Management 93A Careful Examination 93The Way We Think About Insurance 94Wealth Insurance 95Wealth Insurance on Parents 95When You Pay the Premiums 95Example 96When an Estate Bond Pays the Premiums 98Example 99Risk Insurance (Life and Disability Insurance) 100Risk Insurance 100Example 100Life Insurance 101How much life insurance do we need? 101Example 102Association Plan or Individual Plan Life Insurance? 103Disability Insurance 105Disability Insurance: Do We Need the Ferrari Disability Package? 106The Good Insurance Rider 106The Situational/Dynamic Insurance Riders 107The Don't Always Recommend Riders 108Example 109Other Common Questions 109Should we own insurance corporately? 109I'm young and invincible; should I have disability insurance? 110Should I get a lump-sum payout instead? 110Critical Illness Insurance 110Long-Term Care Insurance 112Chapter 6: Borrowing to Invest 115What is Leverage? 115Who Are Good Candidates for Using Leverage? 119Enhancing Returns in the Corporation with Leverage 119Strategic Prudent Leverage: Timing 123Some Basic Assumptions 123Building a Non-Registered Portfolio 124Example 125Migrating Efficiently to a Non-Registered Portfolio 126Withdrawing from the RRSP with the Use of an Offsetting Deduction 127Make Your Mortgage Interest Tax-Deductible 128Debt Swap Scenario 1: Making Your Mortgage Interest Tax-Deductible 128Example 129Debt Swap Scenario 2: Parents Helping Kids HelpThemselves 129Example 130Investments That Use Leverage 132Leveraged and Inverse ETFs 132Example 132Risk Parity Funds 133When Does Leveraging Go Bad? 134Some Built-In Conflicts of Interest 134Examples 134Chapter 7: Investing: Active or Passive? 139What is Active Investing and What is Passive Investing? 140Understanding Investment Trends 141A Deep Dive into Passive Management 142Fees--Passive Management 142The Impact of Fees 143Performance 144What about Outside Canada? 148Diving into Active Management 149The Behavioral Gap 149Better Risk Management 150Fees--Active Management 150Flexibility to Manage After-Tax Returns 151Allowing Pursuit of Expressive Objectives 151Market Return Does Not Equal Average Investor Return 151Performance 152Is Your Fund "Truly Active"? 152The Growth of Passive Investments May Sow the Seeds of Their Underperformance 153Access to IPOs May Become More of a Differentiating Factor 153Wrapping Up the Debate 154Fees 154Performance 155Behavior 157Chapter 8: The Role of Trusts in Your Financial Plan 163Speaking the Language of Trusts 164Trust Concepts 165Residency of Trusts 165Taxation of Trusts 165The 21-Year Rule 166Probate 167Privacy 167Inter Vivos Trusts 167Example 169Example 169Discretionary Investment Trust for Grandchildren 170Example 171Bearer Trusts 171Inter Vivos Cottage Trust 172Testamentary Trusts 173Establishment of Testamentary Trusts 173Asset Protection 173Tax Savings 174Other Factors to Consider 177Probate 177Costs 177Minor Children 178For Family Members with Special Needs 179Spousal Trust 179Use of Spousal Trust 180When a Testamentary Trust Loses Its Status 181Chapter 9: Alternative Investment Strategies 183Capital Gains Strip 184Suitability for Capital Gains Strip 186Overall Bottom Line 187Individual Pension Plans (IPP and PPP) 188Why an IPP? 188Considerations 190Suitability 191Next Steps 191What's the Difference between an IPP and a PPP? 192Overall Bottom Line 193Retirement Compensation Arrangements 194Steps to Implement an RCA 195Advantages of the RCA 195Disadvantages of the RCA 197Investment Account 197Withdrawals 198Overall Bottom Line 198Investing in Watches: Can I Buy My Rolex through the Corporation? 198Overall Bottom Line 200Art: Can I Buy My Pablo Picasso Painting through the Corporation? 200Buying Art 200Transferring Art 200Selling/Donating Art 201Overall Bottom Line 203Private Health Services Plans 203Health Spending Accounts 204Chapter 10: Pulling It All Together: Your Financial Plan 209The Value of a Financial Plan 213Example 214Plan Analysis Synopsis 215Client Information 215Family Member Information 215Advisor Information 215Plan Assumptions 215Estate Assumptions 216Income Information 216CPP/QPP & OAS Information 216Expense Information 217Regular Expenses 217Lump-Sum Expenses 217Insurance Scenario Lump-Sum Expenses 218Lifestyle Asset Information 218Portfolio Assets 218Liabilities 219Life Insurance Policies 220Disability Insurance Policies 220Critical Illness Insurance Policies 220Education Goals 220Savings Strategies 221Surplus Savings Strategies 221RRSP Maximizer Savings Strategies 222Transfer Strategies 222Deficit Coverage Order During Pre-Retirement 222Liquidation Order During Retirement 223Private Corporation Synopsis 223Dr. Michael Jones Corp.--Current Plan 223Summary 223Share Ownership 224Preferred Ownership 224Historical Data 224Investment Accounts 225Real Estate Assets 225Contributions--Inter-Company Dividends Received 225Withdrawals--Manual Dividend Distributions 225Estate 225Net Worth Statement 227Current Plan 227Net Worth Timeline 227Current Plan 227Net Worth Outlook 228Current Plan 228Cash Flow Outlook 230Current Plan 230Retirement Cash Flow Timeline 231Current Plan 231Retirement Need and Investable Assets 232Current Plan 232Detailed Estate Analysis 235Current Plan 235Utilizing Tax-Efficient Strategies 237Recommendations 238Net Worth 238Proposed Recommendations--Utilizing Tax Efficient Strategies Available for Corporations 238Cash Flow Outlook 239Proposed Plan 239Net Worth Timeline 242Proposed Plan 242Net Worth Outlook 242Proposed Plan 242Retirement Cash Flow Timeline 244Proposed Plan 244Retirement Need and Investable Assets 246Proposed Plan 246Detailed Estate Analysis 249Proposed Plan 249Closing Thoughts: Your Next Steps 251Index 255