As a business owner, one of your challenges is learning how to balance between reinvesting into the business and setting money aside for personal savings. Since there are no longer employer-sponsored pension plans and the knowledge that retirement will come eventually, it’s important to have a retirement plan in place.
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.
Determine how much income you will need in retirement.
Make sure you account for inflation in your calculations.
You should try to pay off your debts as soon as you can; preferably before you retire.
As you age, your insurance needs change. Review your insurance needs, in particular your medical and dental insurance because a lot of plans 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 a need for long-term care.
Check what benefits are available for you upon retirement.
Canada Pension Plan- decide when would be the ideal time to apply and receive CPP payments. Business owners are in a unique position to control how much can be contributed to CPP by deciding to pay salary or dividends. (Dividends don’t trigger CPP contributions.)
Old Age Security- check pension amounts and see if there’s a possibility of clawback.
Guaranteed Income Supplement- if your income is low enough, you could apply for GIS.
Are you a candidate for an individual pension plan (IPP)? IPPs can provide higher contributions than typically permitted to an RRSP and the ability to create a lifelong pension.
Check if your business is a candidate for a group RRSP or company pension plan. This is a great way for you to build retirement savings and provide benefits for your employees and business too.
Make sure you are saving on a regular basis towards retirement- in an RRSP, TFSA, or non-registered. Since you can control how you get paid, salary or dividends, dividends are not considered eligible income to create RRSP room, therefore you should make sure you have the optimal mix of both to achieve your financial goals.
Ensure your investment mix makes sense for your situation.
Don’t forget to check if there are any other income sources. (ex. rental income, side hustle income, etc.)
The sale of your business can be part of your retirement nest egg. Therefore, you should make sure you know the valuation of your business and your plan to sell the business to your family, employees, partners or a third party. You should also know when you decide to sell your business too.
Are you planning to use the sale of your home or other assets to fund your 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.
Contact us about helping you get your retirement planning in order so your retirement dreams can be achieved.
The 2019 budget is titled “Investing in the Middle Class. Here are the highlights from the 2019 Federal Budget.
We’ve put together the key measures for:
Individuals and Families
Business Owners and Executives
Retirement and Retirees
Farmers and Fishers
Individuals & Families
Home Buyers’ Plan
Currently, the Home Buyers’ Plan allows first time home buyers to withdraw $25,000 from their Registered Retirement Savings Plan (RRSP), the budget proposes an increase this to $35,000.
First Time Home Buyer Incentive
The Incentive is to provide eligible first-time home buyers with shared equity funding of 5% or 10% of their home purchase price through Canada Mortgage and Housing Corporation (CMHC).
To be eligible:
Household income is less than $120,000.
There is a cap of no more than 4 times the applicant’s annual income where the mortgage value plus the CMHC loan doesn’t exceed $480,000.
The buyer must pay back CMHC when the property is sold, however details about the dollar amount payable is unclear. There will be further details released later this year.
Canada Training Benefit
A refundable training tax credit to provide up to half eligible tuition and fees associated with training. Eligible individuals will accumulate $250 per year in a notional account to a maximum of $5,000 over a lifetime.
Canadian Drug Agency
National Pharmacare program to help provinces and territories on bulk drug purchases and negotiate better prices for prescription medicine. According to the budget, the goal is to make “prescription drugs affordable for all Canadians.”
Registered Disability Savings Plan (RDSP)
The budget proposes to remove the limitation on the period that a RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit. (DTC) and the requirement for medical certification for the DTC in the future in order for the plan to remain open.
This is a positive change for individuals in the disability community and the proposed measures will apply after 2020.
Business Owners and Executives
Intergenerational Business Transfer
The government will continue consultations with farmers, fishes and other business owners throughout 2019 to develop new proposals to facilitate the intergenerational transfers of businesses.
Employee Stock Options
The introduction of a $200,000 annual cap on employee stock option grants (based on Fair market value) that may receive preferential tax treatment for employees of “large, long-established, mature firms.” More details will be released before this summer.
Retirement and Retirees
Additional types of Annuities under Registered Plans
For certain registered plans, two new types of annuities will be introduced to address longevity risk and providing flexibility: Advanced Life Deferred Annuity and Variable Payment Life Annuity.
This will allow retirees to keep more savings tax-free until later in retirement.
Advanced Life Deferred Annuity (ALDA): An annuity whose commencement can be deferred until age 85. It limits the amount that would be subject to the RRIF minimum, and it also pushes off the time period to just short of age 85.
Variable Payment Life Annuity (VPLA): Permit Pooled Retirement Pension Plans (PRPP) and defined contribution Registered Retirement Plans (RPP) to provide a VPLA to members directly from the plan. A VPLA will provide payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of VPLA annuitants.
Farmers and Fishers
Small Business Deduction
Farming/Fishing will be entitled to claim a small business deduction on income from sales to any arm’s length purchaser. Producers will be able to market their grain and livestock to the purchaser that makes the most business sense without worrying about potential income tax issues. This measure will apply retroactive to any taxation years that began after March 21, 2016.
To learn how the budget affects you, please don’t hesitate to contact us.
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.
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.
Retirement planning can be a complex process for us all, but if you are the owner of a small business it may can get even more complicated, due to the various factors and circumstances that you have to take into consideration. A common mistake made by small business owners is reinvesting extra money to grow their business, at the expense of putting it aside to save for their retirement.
Although there is no magic formula for getting started on a retirement strategy for your business, there are some general principles which might help you to get a handle on the steps that you need to take. One of the key ideas is the consideration of both your business and your personal finances and how to structure and integrate the two in order to create a robust retirement financial strategy.
Here are some tips on how to get started on a retirement plan.
Set aside time to plan for the future – It’s important to make retirement planning a priority, or you run the risk of never getting around to it. A professional financial planner can help you to assess your personal circumstances and create a personalized plan that suits you and your business, with the right balance between saving and reinvestment to help your business to grow.
Think about your future retirement income – Here are the main sources of retirement income that small business owners usually rely on:
Equity held in your business – If your business is successful, you are likely to benefit from equity from it in your retirement. Selling your company is an option, particularly attractive to some as, in some cases, you could benefit from the lifetime capital gains exemption on the sale. Of course, finding the right person to run your business in the future is easier said than done. A clear succession plan, created in advance of your retirement, can help you to ensure that business continuity will be affected as little as possible and will give you peace of mind as you approach your retirement. You may also want to consider using the expertise of an accountant or mergers and acquisitions specialist to help you to value your business correctly and also look after your interests when liaising with potential purchasers.
Alternatively, you may choose for your children to inherit your business, or you may decide to retain ownership of dividend-paying preferred shares in order to maintain an ongoing source of income.
Registered plans – A Registered Retirement Savings Plan (RRSP) can offer personal tax deductions on your contributions, plus your savings will grow as tax-deferred whilst in the plan. In addition, tax-free savings accounts (TFSAs) can be a useful way to save tax-free in particular circumstances.
Consider offering a retirement savings plan to your employees – Paying your statutory contribution of the Canada Pension Plan is just the minimum – many small businesses choose to offer their employees enhanced pension contributions as an incentive or employee benefit. For example, you could match their RRSP contributions to a set limit, to help their retirement nest grow more quickly. Alternatively, you could offer a benefit plan with an investment contribution package from an insurance company, which can be a more straightforward and cost-effective choice.
Be sure to diversify – As a small business owner, you should avoid putting all of your eggs in one basket, financially speaking, as this could leave you vulnerable to changes in the market. Try to diversify your investments and spread your funds in order to protect yourself and engage the help of a professional where necessary to help you to do so.
In summary, it’s important to remember that retirement planning is a process which is unique and personal to your own and your business’ circumstances and there is no uniform approach which works across the board. Take time to take stock of your current situation, as well as your goals for the future and this will help you to create a retirement plan that is right for your needs, both current and future.