10 Essential Decisions for Business Owners

10 Essential Decisions for Business Owners

Business owners can be busy… they’re busy running a successful business, wearing lots of hats and making a ton of decisions. We’ve put together a list of 10 essential decisions for every business owner to consider.

10 essential decisions for a business owner from considering corporate structure to retirement and succession planning. 

The essential questions include:

  • Best structure for your business (ex. Sole Proprietor, Corporation, Partnership)

  • Reduce taxes

  • What to do with surplus cash

  • Build employee loyalty

  • Reduce risk

  • Deal with the unexpected

  • Retire from your business

  • Sell your business

  • Keep your business in the family

  • What to do when you’re retired

As a financial advisor, we are uniquely positioned to help business owners, talk to us about your situation and we can provide the guidance you need.

Paying for Education

Post-secondary education can be expensive, however having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easier to make financial decisions that align with your goals and provide peace of mind. In the infographic, we outline 7 sources of funds for paying for post-secondary education: 

  • Registered Education Savings Plan

  • Tax Free Savings Account

  • Life Insurance

  • Scholarships, grants, bursaries

  • Personal Loans, Lines of Credit

  • Government Student Loan

  • Personal Savings 

How to Make the Best of Inheritance Planning

How to Make the Best of Inheritance Planning

Inheriting an unexpected, or even an anticipated, lump sum can fill you with mixed emotions – if your emotional attachment to the individual who has passed away was strong then you are likely to be grieving and the thought of how to handle your new-found wealth can be overwhelming and confusing but also exciting. One of the best pieces of advice in this situation is to give yourself some time before making any binding financial decisions. The temptation to quickly put the money to so-called ‘good use’ or to rush out and spend it can be strong but you must allow the news to sink in and also take some time to consider your options before you embark on the process of dealing with the inheritance. In the short term, put the money away in a high interest savings account and take time to research and think carefully about your financial goals and objectives and how this inheritance can help you to secure and maximize your financial future in the best way.

Although there is no one-size-fits-all approach to dealing with larger sums of money, here are some useful ideas of where to start.

Reduce your debt burden

If you have significant or high-interest debts, one of the safest options of all is paying this debt down. Not only will you achieve a guaranteed after-tax rate of return of your current interest rate, it can also add to your feeling of financial security and potentially offer you a more consistent financial picture. Debt often carries with it a significant interest rate – particularly on credit cards and overdrafts for example – so in many cases, eliminating this burden should be considered as one of your main priorities.

However, you may like to take careful note of the option below regarding investing the money instead as much depends on the prevailing interest rates and, of course, your appetite for risk, as you may well find an investment option with a potentially higher return more attractive.

Make investments

A particularly effective way of investing an inheritance is to add it to your retirement savings – especially if your nest egg is not looking quite as healthy as it should due to missed savings years for example. Those with lower or less reliable incomes should look upon this option as a great choice in particular.

Be charitable

After considering your own future financial needs, giving some of your wealth away to either charities or to family and friends is a good option to share out some of your inheritance to those who could benefit from it. What’s more, donating to charity can also offer you some tax breaks which may reduce your overall tax burden.

Many individuals see this philanthropic route as offering them the opportunity to do something meaningful and rewarding with their wealth and contributing towards their own sense of moral duty and emotional wellbeing.

Make a spending plan

Of course, you are likely to be keen to spend some of your wealth on yourself and your family, particularly if your financial situation means that you have previously had to be more careful and prudent with money than you would have liked. A great way to do this is to create a spending plan so that you can enjoy the benefits of spending, without it significantly eating into money set aside for your financial planning goals. You could, perhaps, aim to set aside 10% of the inheritance just for yourself and loved ones to enjoy. The proportion will naturally depend on your circumstances but, in principle, it’s a great idea as it allows you to balance sensible saving and investments with some short-term enjoyment of your wealth.

Talk to us, we can help.

Estate Planning for Business Owners

Writing an estate plan is important if you own personal assets but is all the more crucial if you also own your own business. This is due to the additional business complexities that need to be addressed, including tax issues, business succession and how to handle bigger and more complex estates. Seeking professional help from an accountant, lawyer or financial advisor is an effective way of dealing with such complexities. As a starting point, ask yourself these seven key questions and, if you answer “no” to any of them, it may highlight an area that you need to take remedial action towards. 

  • Have you made a contingency plan for what will happen to your business if you are incapacitated or die unexpectedly?

  • Have you and any co-owners of your business made a buy-sell agreement?

  • If so, is the buy-sell agreement funded by life insurance?

  • If you have decided that a family member will inherit your business when you die, have you provided other family members with assets of an equal value?

  • Have you appointed a successor to your business?

  • Are you making the most of the lifetime capital gains exemption ($848,252 in 2018) on your shares of the business, if you are a qualified small business?

  • Are you taking care to minimize any possible tax liability that may be payable by your estate in the event of your death?

Estate freezes 

The process of freezing the value of your business at a particular date is an increasingly common way of protecting your estate from a large capital gains tax bill if your business increases in value. To achieve this, usually the shares in the business that have the highest growth potential are redistributed to others, often your children, meaning that they will be liable for the tax on any increase in their value in the future. In exchange, you will receive new shares allowing you to maintain control of the business with a key difference – the value of the shares is frozen so that your tax liability is lower and that of your estate when you die will also be reduced. 

The importance of a suitable travel health insurance policy

The importance of taking out a robust travel health insurance policy, which is appropriate for your needs cannot be underestimated if you plan to travel outside of Canada, no matter where to or for how long. Naturally, there are many different types of product on the market and therefore decisions have to be made in relation to the type of cover that you require but, as a minimum, you should consider taking out health, life and disability coverage so that you don’t get caught out for medical treatment in other countries, should an accident or illness strike. Additionally, it is worthwhile taking out insurance for flight disruptions, lost luggage and documents etc. if you are flying, as such incidents can be costly and inconvenient.

Why do I need travel health insurance?

Some people mistakenly believe that their Canadian provincial or territorial health policy will cover them if they fall sick abroad, but this is almost certainly not the case. Check the small print of your policy to make sure that you understand exactly what you are and aren’t covered for before taking a trip and arrange appropriate additional cover where required. It is not unknown for hospitals in other countries to refuse treatment for patients who do not have health cover or, if they do treat you and you are uninsured, you could be facing a substantial hospital bill which takes you years to repay.

How do I choose my travel health insurance policy?

There are lots of factors to consider when selecting the most suitable plan for you and you should not be afraid of asking questions in order to determine the exact scope and coverage of the policy before committing to it.

Some areas to consider include the following:

  • The length of the policy – whether it is continuous, its maximum duration and whether or not you can renew it from abroad if necessary.

  • Whether medical costs are paid directly to the health provider in the country of the incident or whether you have to pay directly and are then subsequently reimbursed by the insurer.

  • The extent to which the policy covers pre-existing medical conditions. This is a really important area which should not be skimmed over as failure to ensure the exact terms of how pre-existing conditions will be treated could result in them only being partially covered, or even being excluded altogether. Specifically ask for:

    • A full list of the definitions, limitations and restrictions relating to your pre-existing condition.

    • An agreement in writing confirming that your pre-existing condition is covered.

    • A stability clause which details that no changes should be made to new or existing medical conditions, symptoms or medication during the stability period before your trip.

    • A compassion clause so that the whole policy isn’t invalidated due to an inadvertent incorrect statement.

  • Whether or not the cover provides medical evacuation back to Canada, with a medial escort if required.

  • That your medical care abroad and any remote telephone support with the insurance provider is in English.

  • How deductible costs are dealt with – going for a 100% coverage plan, though more expensive, gives you greater peace of mind and financial back up should the worst happen.

  • In the event that you die abroad, whether your cover will pay for the preparation and return of your remains to Canada.

How do I make sense of my travel insurance policy?

It’s imperative that you read and understand the terms of your policy so that you are fully prepared in case you have to use it.

When taking out your policy, make sure that you give honest, accurate and complete information as failure to do so can invalidate your policy. Ask all of the questions that you need to get assurance that the product meets your needs fully and ask for confirmation in writing for any areas of dispute or uncertainty.

There are a number of things that are not normally covered by insurance companies, so you should check with your provider directly if they affect you. Activities such as extreme sports or treatment for cosmetic surgery or incidents as a result of drugs or alcohol are often not covered by the insurance.

Make sure that you check the Travel Advice and Advisories website both when you are booking your trip and also just before you leave. The purpose of this is to ensure that no Travel Advisories have been issued for your destination as this is likely to impact your insurance policy and it may even be the case that your provider will not cover medical treatment undertaken in a country for which the Government of Canada has issued an official Travel Advisory.

Don’t forget to make sure that your medical paperwork is in order if you do end up having treatment abroad. As a minimum, you’ll need a thorough medical report with a breakdown of the treatment that you have received, with an invoice or receipt. If in doubt, request additional information to safeguard against queries or potential hold ups when it’s time to make your claim

Finally, keep your insurance documents on you or easily to hand when you travel and also pass on the details of your policy to somebody else such as a family member or your travel agent in case they need to act on your behalf in an emergency.

Remember that preparation is key when it comes to taking out a travel health insurance policy and with good planning, there is no reason why you won’t be able to secure a robust policy which meets your needs and gives you the necessary financial and emotional security to enjoy your trip.

2019 Ontario Budget

2019 Ontario Budget

The 2019 budget for Ontario was announced by Vic Fedeli, Finance Minister, giving details of a deficit of $11.7 billion for 2018-19 and $10.3 billion for 2019-20. Below are details of the key changes in relation to personal and corporate finances.

Personal

The budget did not announce changes to personal tax rates.

Ontario Childcare Access and Relief from Expenses (CARE) tax credit

Effective the 2019 tax year, the budget introduces a new refundable Ontario Access and Relief from Expenses (CARE) personal income tax credit, beginning with the 2019 tax year.

The tax credit will be based on the taxpayer’s family income and eligible child care expenses. It will provide the following tax credit per child up to:

  • $6,000 under the age of 7

  • $3,750 between age 7 to 16

  • $8,250 with a severe disability

The new credit will be calculated as the amount of eligible child care expenses multiplied by the credit rate shown below. The credit is eliminated when family income is greater than $150,000.

For 2019 and 2020, the taxpayers may claim the new tax credit on their tax returns. In 2021, Ontario intends to allow families to apply for regular advance payments.

Estate administration tax

Effective Jan 1, 2020 the budget eliminates the Estate Administration Tax on the first $50,000 of an estate’s value and extends the filing deadline of the Estate Administration Tax Information Return with the Ministry of Finance to 180 days (from 90 days) after the receipt of an estate certificate, and extends the deadline for filing amended information returns to 60 days (from 30 days).

Review of property tax assessment system

The province will review the property tax assessment system.

Addressing tax loopholes and tax integrity

The province has created a specialized unit of tax experts to find and address tax loopholes and abuse.

Corporate

The budget did not announce changes to the provincial corporate rate.

Ontario interactive digital media tax credit

The budget reduces the minimum Ontario labour expenditure to qualify as a specialized digital game corporation to $500,000 (from $1 million.)

Review

The budget will review the Ontario Innovation Tax Credit, other research and development incentives and cultural media tax credit certification process.

Please don’t hesitate to contact us if you have questions about how the budget will affect you.

Do you REALLY need life insurance?

You most likely do, but the more important question is, ‘What kind?’ Whether you’re a young professional starting out, a devoted parent or a successful CEO, securing a life insurance policy is probably one of the most important decisions you will have to make in your adult life. Most people would agree that having financial safety nets in place is a good way to make sure that your loved ones will be taken care of when you pass away. Insurance can also help support your financial obligations and even take care of your estate liabilities. The tricky part, however, is figuring out what kind of life insurance best suits your goals and needs. This quick guide will help you decide what life insurance policy is best for you, depending on who needs to benefit from it and how long you’ll need it. 

Permanent or Term? 

Life insurance can be classified into two principal types: permanent or term. Both have different strengths and weaknesses, depending on what you aim to achieve with your life insurance policy. 

Term life insurance provides death benefits for a limited amount of time, usually for a fixed number of years. Let’s say you get a 30-year term. This means you’ll only pay for each year of those 30 years. If you die before the 30-year period, then your beneficiaries shall receive the death benefits they are entitled to. After the period, the insurance shall expire. You will no longer need to pay premiums, and your beneficiaries will no longer be entitled to any benefits.

Term life insurance is right for you if you are: 

  • The family breadwinner. Death benefits will replace your income for the years that you will have been working, in order to support your family’s needs.

  • A stay-at-home parent. You can set your insurance policy term to cover the years that your child will need financial support, especially for things that you would normally provide as a stay-at-home parent, such as childcare services.

  • A divorced parent. Insurance can cover the cost of child support, and the term can be set depending on how long you need to make support payments.

  • A mortgagor. If you are a homeowner with a mortgage, you can set up your term insurance to cover the years that you have to make payments. This way, your family won’t have to worry about losing their home.

  • A debtor with a co-signed debt. If you have credit card debt or student loans, a term life insurance policy can cover your debt payments. The term can be set to run for the duration of the payments. 

  • A business owner. If you’re a business owner, you may need either a term or permanent life insurance, depending on your needs. If you’re primarily concerned with paying off business debts, then a term life insurance may be your best option. 

Unlike term life insurance, a permanent life insurance does not expire. This means that your beneficiaries can receive death benefits no matter when you die. Aside from death benefits, a permanent life insurance policy can also double as a savings plan. A certain portion of your premiums can build cash value, which you may “withdraw” or borrow for future needs. You can do well with a permanent life insurance policy if you: 

  • …Have a special needs child. As a special needs child will most likely need support for health care and other expenses even as they enter adulthood. Your permanent life insurance can provide them with death benefits any time within their lifetime.

  • …Want to leave something for your loved ones. Regardless of your net worth, permanent life insurance will make sure that your beneficiaries receive what they are entitled to. If you have a high net worth, permanent life insurance can take care of estate taxes. Otherwise, they will still get even a small inheritance through death benefits.

  • …Want to make sure that your funeral expenses are covered. Final expense insurance can provide coverage for funeral expenses for smaller premiums.

  • …Have maximized your retirement plans. As permanent life insurance may also come with a savings component, this can also be used to help you out during retirement.

  • …Own a business. As mentioned earlier, business owners may need either permanent or term, depending on their needs.

A permanent insurance policy can help pay off estate taxes, so that the successors can inherit the business worry-free. Different people have different financial needs, so there is no one-sized-fits-all approach to choosing the right insurance policy for you. Talk to us now, and find out how a permanent or term life insurance can best give you security and peace of mind. 

Tax Lines to Look Out for 2018 Income Tax Year

Tax Lines to Look Out for:

2018 Income Tax Year

It’s that time of year again, when many of us sit down to complete our income tax return and hope that we have done enough preparation to ensure a smooth tax return. We’ve outlined the key lines to look out for in the 2018 Income Tax Year:

Expenses relating to medical expenses have been expanded to include service animals and can be claimed for non-refundable tax credit. You should also be aware that you can claim for yourself, your spouse or common law partner and any dependent children under the age of 18.

Tax on Split Income (TOSI) (Line 424)

As of January 1, 2018, in addition to applying to certain types of income of a child born in 2001 or later, TOSI may now also apply to amounts received by adult individuals from a related business.

Interest Expense & Carrying Charges (Line 221)

Any fees paid for specific advice about your investments or for tracking your income from investments.

Any fees paid for management of your investments, except administration fees paid for your registered retirement savings plan or registered retirement income fund.

Interest you paid to borrow when borrowing to invest for investment income only except if investment income is considered capital gains.

Insurance policy loan interest you paid in 2018 to make income. To claim this amount, the insurance company must complete Form T2210 before your tax return deadline.

Carry forward information (Line 208 and 253)

If you are not deducting all your RRSP contributions you made in 2018 and the beginning of 2019, your unused contributions can be carried forward.

Generally, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gains for that year. If you still have a loss, it becomes part of the computation of your current year net capital loss. You can use a current year net capital loss to reduce your taxable capital gains in any of the 3 preceding years or in any future year. Capital losses can be carried forward indefinitely and are only deductible against capital gains.

Charitable Donations

As of January 1, 2018, the first-time donor’s super credit has been eliminated.

If you owe money when your income tax return is complete, the only way to delay payment is to delay the filing until the April 30th deadline. Alternatively, if CRA owes you money, then file as early as possible.

This article and infographic are for illustrative purposes only. You should always seek independent legal, tax, financial and accounting advice with regard to your situation.

Long Term Care

Long-Term Health Care: 3 Things You Should Know

At some point, you’re going to need help doing basic daily activities you may take for granted. Even if it seems like a distant reality, the day you’ll need long term health care will eventually arrive, and you better start planning for it now. 

Here are 4 things you need to know.

1. It is inevitable. Seven out of ten people older than 65 will need custodial care in doing their day-to-day tasks, according to recent statistics. Long-term care becomes necessary when a person needs help with at least two basic tasks such as eating or taking a bath. 

2. It can be expensive. A lot of people take for granted the need to plan their long term care expenses, believing that this will be taken care of by the government. This, however, is not always true. Living in a semi-private nursing home may cost you around $73,000 each year, according to 2012 data. For private nursing homes, it may go up to around $81,000. These prices will most likely increase in the near future. 

3. Preparing for it is best thing you can do for yourself before you retire. Through a long-term health care insurance policy, you can start preparing for the kind of long-term care you will need, depending on your needs and lifestyle. Aside from getting your other retirement benefits in order, an insurance plan that includes assisted care after retirement means less worries in the future. Think of it as an investment for your own peace of mind, as well as your loved ones’.

4. There is no better time to start than NOW. The sooner you start, the more you can maximize a long-term care insurance policy. The premiums you pay will depend on a few factors:

  • How old you are
  • Your current health status
  • How long you think you’ll need coverage
  • How much you want to protect yourself from inflation.

With inflation protection, the value of your benefits can even increase over time. With a 5-percent inflation protection in place, for example, the value of your insurance benefits will increase by 5 percent as well.

While your family may be there to also support your needs, it is important to think about how you’ll live the rest of your years after without breaking the bank or financially burdening loved ones. Think about how old you think you’ll be when you need assisted care, or what financial safety nets you have in place in case of disability. 

Talk to us, and find out what long-term health care insurance benefits will best suit your plans and needs.

Ontario Budget 2018

The 2018 Ontario budget features a number of new measures and billions of dollars of enhanced spending across the spectrum, as announced by the province’s Finance Minister, Charles Sousa. Read on for some of the key proposals.

Personal

Eliminate Surtax

A new sliding scale for personal income tax will be introduced, with seven personal income tax rates which will be applied directly to taxable income, in an attempt to eliminate Ontario’s surtax. The province estimates that approximately 680,000 will pay less tax as a result.

Free Tuition

Access to further education will be income linked, with those families with an income of less than $90,000 per year receiving free tuition and families with an income of between $90,000 and $175,00 per year receiving financial aid for tuition costs.

Free Pre-School Child Care

Effective in the Fall of 2020, children aged two-and-a-half until they are eligible for kindergarten can receive free licensed child care. 

New Ontario Drug and Dental Program

For those without workplace benefits or not covered by OHIP+, this program offers up to 4.1 million Ontarians a benefit that pays up to 80% of expense up to a cap of $400 for a single person, up to $600 for a couple and $50 per child in a family with two children, regardless of their income.

Free Prescription Drugs

The budget announces the introduction of free prescription drugs for those aged 65 or older, resulting in an average of $240 per year in savings per senior.

Charitable Donation Tax Credit

The non-refundable Ontario Charitable Donation Tax Credit will be tweaked to increase the top rate, remaining at 5.05% for the first $200 but increasing to 17.5% for anything above $200.

Seniors’ Healthy Home Program

$750 is offered to eligible households with seniors of 75 years of age or older to help them to care for and maintain their residence.

Corporate

R&D Tax Credit

The budget introduces a non-refundable tax credit of 3.5% on eligible costs relating to R&D, or an enhanced rate of 5.5% for eligible expenditures of $1 million plus. Note that this enhanced rate would not be payable to corporations where eligible R&D expenditures in the current tax year are less than 90% of eligible R&D expenditures in the tax year before.

Innovation Tax Credit

The existing Ontario Innovation Tax Credit will see changes to its credit rate in the following way:

·      If a company has a ratio of R&D expenditures to gross revenues of 10% or less, they will continue to receive the 8% credit.

·      If their ratio is between 10% and 20%, they will receive an enhanced credit rate of between 8-12%, calculated on a straight line basis.

·      If their ratio is 20% or more, they will receive an enhanced credit rate of 12%.

Ontario Interactive Digital Media Tax Credit

Eligibility to receive this tax credit will be broadened to include film and television websites.