Being the owner of a corporation is no easy task. You are expected to don the hat of an individual, performing multiple tasks ranging from taking care of your employees and their needs, your personal financial needs, creating your own financial retirement plan to optimize your corporate tax liabilities, and the like. You are required to periodically monitor, evaluate and make alterations to the investments and plans when needed. But the question is if you have enough time to design, manage and develop a financial plan that best accommodates you and your employees in addition to your various other responsibilities.
This is where a certified financial advisor steps into the picture. They partner with the corporate owners and offer their invaluable observations, professional expertise, and insight, helping accelerate finances, thereby saving the owners valuable time and effort. Hiring and consulting such professionals help owners steer their business in the right direction for the stability and growth of the company, optimizing tax liabilities, growing their assets tax-efficiently, offering novel solutions, and helping cover the employee’s unexpected medical expenses. The advisors adopt a personalized approach and customize a plan based on each individual’s financial status to reach the financial goals.
While navigating through a series of essential strategies for a business, I decided to shed light on the four strategies that caught my eye and sparked my interest, as jotted below.
Establishing a Health Spending Account (HSA)
For employee health and satisfaction, most employers make it a point to offer Group Insurance Plans to their employees. Since the conventional Group Insurance Plans have multiple deductibles and caps on the covered medical services, you mostly will not acquire the full benefits from the plan. Moreover, the premiums will increase based on the growing age of employees and the insurance claims history. On the contrary, though not recognized by many, the Health Savings Account is an exceptional savings account that pays for health-related expenses while offsetting the increase in medical costs. Be it expenses related to getting registered massage therapy, physiotherapy, ultrasound, or even expensive qualified treatments, HSA has got you covered. The HSAs being ideal replacements for traditional health insurance are backed by the option of either using the funds the same year or being rolled over to subsequent years while deducting funds as corporate expenses, which leads to less corporate taxes.
Investing for Retirement by Using Corporate’s Funds
Corporate owners earning $100,000 or more a year often get overwhelmed and stunned when they notice how small their RRSP contribution rooms and retirement incomes could be via RRSP, as the expectation was to attain a hefty pension amount.
Considering the pension laws being far more generous than the RRSP laws, and owing to the Income Tax Act, the business owners and professionals can bridge the gap and narrow differences using Individual Pension Plans and a retirement planning solution called Retirement Compensation Arrangement.
Individual Pension Plan (IPP)
If you are on the lookout for another alternative to save for retirement while saving tax, the IPP is the way to go. An IPP is a registered defined-benefit pension plan solely sponsored by a company for either one individual and at times two individuals, provided they belong to the same family. It offers maximum retirement benefits permitted by the Canada Revenue Agency (CRA). The IPP is also ideal if the RRSP contribution limit has reached the maximum limit.
The money deposited in the IPP for the owner’s retirement due to being tax-deductible for corporations makes the corporate pay less taxes. Moreover, all the investment fees and expenses are deductible for corporations making it a total win-win solution.
Retirement Compensation Arrangement (RCA)
The primary purpose behind the RCA is to furnish the business owners and senior executives with supplemental pension benefits, which they reap only at the time of retirement. It is more or less like a trust meant for those unwilling to let go of their lifestyle and wish to sustain a certain quality of life even during retirement. Typically, an RCA is a part of a retirement plan set up by the employer. It is the perfect substitute for those who do not have a Registered Pension Plan (RPP) within their company.
For better understanding, it may be noted that IPP retirement benefits are subject to a maximum limit. As a result, the RCA may be considered a supplement to IPP retirement benefits for high-income earners.
Corporate Preferred Estate Transfer
Are you tired of paying too much taxes on your dividends? Is it even possible to withdraw retained earnings immediately and defer the tax payment to a future date? Well, of course. Parking and withholding large chunks of money within your corporation’s account does not help save money, but the business owner triggers passive income taxation, thus, increasing your income tax rate. However, if the payments are deferred until retirement, they would be taxed only at a lower effective tax rate.
We at WiseInvest have various other pointers and tactics up our sleeves that ensure your corporate strategies are optimized for success. Once you drop into our website and get in touch with us, we will take it from there. There is no commitment to take our services, but we are here to answer all your queries and can briefly discuss your objectives and plans.
