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

A detailed look at financial planning strategies surrounding professional corporations for doctors, dentists, lawyers, business owners and other Canadian professionals. If you're a doctor, a dentist, a lawyer, or a business owner—virtually any type of professional in Canada—you strongly need to consider how incorporating fits into your financial plan. A good financial planner should acknowledge they have absolutely no control of the markets. However, taxes are completely controllable, and having a corporation is a powerful tool that allows professionals to control their tax bill. Using a mix of personal observations, real-life examples, and strategy evaluations, this book guides the professional along their path to using their corporation in the most efficient way. Kickstart Your Corporation: The Incorporated Professional's Financial Planning Coach is your practical guide to controlling your tax bill and taking advantage of all that a Professional Corporation has to offer. Drawing upon decades of hands-on experience in wealth management, author Andrew Feindel provides clear and accurate advice on making the incorporation decision, setting up and investing inside your corporation, optimizing your salary and dividend compensation mix, valuing permanent insurance on your corporate balance sheet, using prudent leverage, weighing the pros and cons of active or passive investment management, using alternative strategies like a Capital Gains Strip, Individual Pension Plans and Retirement Compensation Arrangements, and much more. This must-have book: Provides Canadian professionals with an accurate and straightforward investment and financial planning guide to incorporation Covers the basics of incorporating for the professional and business owner, including a review of the process and the costs to incorporate, and the likely benefits Analyzes the best financial strategy for various situations Offers real-world advice on structuring compensation, risk management, borrowing to invest, and the role of trusts in professionals’ financial plans Written by a senior vice president at an independent leading-edge wealth management firm Kickstart Your Corporation: The Incorporated Professional's Financial Planning Coach is essential reading for any professional who has incorporated and is looking to maximize benefits, and those wanting to incorporate for the first time with expert guidance.

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