Succession Planning for Business Owners

Succession Planning for Business Owners

Business owners deal with a unique set of challenges. One of these challenges includes succession planning. A succession plan is the process of the transfer of ownership, management and interest of a business. When should a business owner have a succession plan? A succession plan is required through the survival, growth and maturity stage of a business. All business owners, partners and shareholders should have a plan in place during these business stages.

We created this infographic checklist to be used as a guideline highlighting main points to be addressed when starting to succession plan.

Needs:

  • Determine your objectives- what do you want? For you, your family and your business. (Business’ financial needs)

  • What are your shares of the business worth? (Business value)

  • What are your personal financial needs- ongoing income needs, need for capital (ex. pay off debts, capital gains, equitable estate etc.)

There are 2 sets of events that can trigger a succession plan: controllable and uncontrollable.

Controllable events

Sale: Who do you sell the business to?

  • Family member

  • Manager/Employees

  • Outside Party

  • There are advantages and disadvantages for each- it’s important to examine all channels.

Retirement: When do you want to retire?

  • What are the financial and psychological needs of the business owner?

  • Is there enough? Is there a need for capital to provide for retirement income, redeem or freeze shares?

  • Does this fit into personal/retirement plan? Check tax, timing, corporate structures, finances and family dynamics. (if applicable)

Uncontrollable Events

Divorce: A disgruntled spouse can obtain a significant interest in the business.

  • What portion of business shares are held by the spouse?

  • Will the divorced spouse consider selling their shares?

  • What if the divorced spouse continues to hold interest in the business without understanding or contributing to the business?

  • If you have other partners/shareholders- would they consider working with your divorced spouse?

Illness/Disability: If you were disabled or critically ill, would your business survive?

  • Determine your ongoing income needs for you, your spouse and family. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?

  • Will the ownership interest be retained, liquidated or sold?

  • How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? Does the business have a savings or insurance program in place to address this?

Death: In the case of your premature death, what would happen to your business?

  • Determine your ongoing income needs for your dependents. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?

  • Will the ownership interest be retained, liquidated or sold by your estate? Does your will address this? Is your will consistent with your wishes? What about taxes?

  • How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? How will this affect your employees? Does the business have a savings or insurance program in place to address this?

Execution: It’s good to go through this with but you need to get a succession plan done.  Besides having a succession plan, make sure you have an estate plan and buy-sell/shareholders’ agreement.

Because a succession plan is complex, we suggest that a business owner has a professional team to help. The team should include:

  • Financial Planner/Advisor (CFP)

  • Succession Planning Specialist

  • Insurance Specialist

  • Lawyer

  • Accountant/Tax Specialist

  • Chartered Life Underwriter (CLU)

Next steps…

  • Contact us about helping you get your succession planning in order so you can gain peace of mind that your business is taken care of.

Money on the mind: survey finds Canadians worry about finances while on the job

A significant number of employees admit that their workplace performance has been eroded by the stress of their personal financial situation, a report from the Canadian Payroll Association says.

Association president Peter Tzanetakis said the annual survey paid increased attention to how much time Canadian employees are distracted by their personal financial situation.

Nearly one-quarter of the almost 4,285 employed people surveyed said they agreed or strongly agreed that stress about personal finances had an impact on their performance at work with about 70% indicating such matters occupy up to 30 minutes of a typical work day.

Read more…

https://www.investmentexecutive.com/news/research-and-markets/money-on-the-mind-survey-finds-canadians-worry-about-finances-while-on-the-job

Retirement Planning for Employees

When thinking about retirement, it can be overwhelming to figure out all the numbers, like what age you’re going to retire, how much money you need and how long do you need the money to last.

We’ve put together an infographic checklist that can help you get started on this. We know this can be a difficult conversation so we’re here to help and provide guidance to help you achieve your retirement dreams.

Income Needs

  • Determine how much you need in retirement.

  • Make sure you account for inflation in your calculations

Debts

  • If you have any debts, you should try to pay off your debts as soon as you can and preferably before you retire.

Insurance

  • As you age, your insurance needs change. Review your insurance needs, in particular your medical and dental insurance because a lot of employers do not provide health plans to retirees.

  • Review your life insurance coverage because you may not necessarily need as much life insurance as when you had dependents and a mortgage, but you may still need to review your estate and final expense needs.

  • Prepare for the unexpected such as a critical illness or long term care.

Government Benefits

  • Check what benefits are available for you on retirement.

  • Canada Pension Plan- decide when would be the ideal time to apply and receive CPP payment. (Payment depends on your contributions)

  • Old Age Security- check pension amounts and see if there’s a possibility of clawback.

  • Guaranteed Income Supplement- if you client have a low income, you could apply for GIS.

Income

  • Review your company pension plan. Check if it’s a defined benefits or contribution plan. Determine if it makes sense to take the pension or the commuted value.

  • Make sure you are saving on a regular basis towards retirement- in an RRSP, TFSA, LIRA or non-registered. Ensure the investment mix makes sense for your situation.

  • Don’t forget to check if there are any income sources.  (ex. rental income, side hustle income, etc.)

Assets

  • Are you planning to use the sale of your home or other assets to fund their retirement?

  • Will you be receiving an inheritance?

One other consideration that’s not included in the checklist is divorce. This can be an uncomfortable question, however divorce amongst adults ages 50 and over is on the rise and this can be financially devastating for both parties.

Next steps…

  • Contact us about helping you get your retirement planning in order so you can gain peace of mind that your family is taken care of.

Financial Advice

An advisor can help you determine where you are today financially and where you want to go. An advisor can provide you guidance on how to reach your short, medium and long term financial goals.

Why work with a Financial Advisor? 

  • Worry less about money and gain control. 

  • Organize your finances. 

  • Prioritize your goals. 

  • Focus on the big picture. 

  • Save money to reach your goals.

What can a Financial Advisor help you with? 

Advisors can help you with accumulation and protection

Accumulation: 

  • Cash Management – Savings and Debt

  • Tax Planning

  • Investments

Protection: 

  • Insurance Planning

  • Health Insurance

  • Estate Planning

How do you start? 

  • Establish and define the financial advisor-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. 

  • Implement recommendations. 

  • Monitor and review recommendations. Adjust if necessary. 

Next steps…

  • 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.

Do you need an estate plan?

Managing your finances raises a number of topics but none as tricky and potentially unpleasant as planning for your family and finances in the event that you pass away or become incapacitated. Understandably, these questions are often ignored by many—but don’t fall into the trap of avoiding these difficult matters. Good estate planning will help to make sure that your wishes are carried out, and your family and assets are well protected.

With this in mind, let’s take a look at the key areas that you should consider when designing your estate plan:

  • Choosing a guardian – One of the most important considerations is who you select to become the legal guardian of your children. This is a very personal and complex decision, and you will consider several unique factors depending on your circumstances, but your principal concerns might be how physically able the person is to look after your children, as well as such practical matters as how close they live to you and their personal and financial situation and stability.

  • Life insurance and trusts – Life insurance gives your family the financial security to continue their standard of living and fulfil their dreams in the event that you are unable to provide for them yourself. Life insurance payouts can be used in various ways, including paying off debts, paying for college education, or simply helping with general living costs.

 

A trust is a way of specifying how and when you wish to pass money and other resources to your children. It can be an excellent way of ensuring that their inheritance reaches them before the age of eighteen or twenty-one, unlike a court-controlled process, as you will stipulate who manages and distributes the funds.

·      Choosing someone to make decisions on your behalf

It is crucial to make sure that somebody trustworthy is nominated to manage and distribute your various assets according to your wishes. This executor can be anybody, though spouses, older children, or close friends are often common choices. Similarly, if you become too sick to make your own decisions about your finances or your family’s care, a health care directive and a power of attorney will give you peace of mind and go a long way towards protecting your assets.

Now that we understand the key areas that should be considered in estate planning, here are some of the important components or documents involved in the process:

·      Will, trusts, and beneficiary forms

Both a will and a trust should detail your assets and how you wish them to be distributed when you die, as well as assigning the guardians of your children. However, one benefit that a trust has over a will is that a trust does not have to go through probate prior to being executed, as well as the option of coming into effect before you pass away; it remains under your control and transfers the role of trustee to someone else when you decease.

 

Beneficiary forms are slightly different. They assign designated beneficiaries to specific financial accounts such as mortgages and bank accounts. As this information holds more legal weight than a will itself, it is crucial to regularly ensure that your beneficiaries are up to date.

 

·      Durable powers of attorney

The term power of attorney refers to the person, or persons, that you nominate to act on your behalf in the event that you are too ill to state or carry out your own wishes. There are various ways to implement this; you can choose specific individuals for particular roles, such as one person to look after your finances and another to make your healthcare decisions, or you can designate one person full power of attorney to manage all of your affairs.

 

·      A living will

Not to be confused with a last will and testament, a living will details the type of medical treatment that you wish if you were ever incapacitated. Along with a general or healthcare power of attorney (see above), this document is known as your advance health care directive, and it not only provides you with peace of mind that your medical wishes will be respected, but it also gives direction and support to your family when faced with difficult decisions about your care.

 

·      Letter of intent

This document is not legally binding and can offer a more personal touch alongside an official will or trust. As the letter is less formal and binding than other documents, many people use it to express their wishes about more personal aspects such as their requests for funeral arrangements, or even preferences and desires for how their family should be brought up.

As with any financial arrangement, changes over time, not only in process and legislation but in your own personal situation, mean that it is imperative to keep your estate planning strategy under review and regularly updated to ensure it’s fit for its purpose and accurately reflects your wishes. 

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.

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.

RRSP Tax Savings deadline – March 1, 2019

RRSP Deadline: March 1, 2019

This is the deadline for contributing to your Registered Retirement Savings Plan (RRSP) for the 2018 tax filing year. You generally have 60 days within the new calendar year to make RRSP contributions that can be applied to lowering your taxes for the previous year.

If you want to see how much tax you can save, enter your details below!