Business Owners’ Guide to Reduce your Business and Personal Taxes

Four things to consider when building wealth as an entrepreneur

You’ve built a thriving and successful business. You continue to be profitable. You continue to reinvest into your business while building wealth for your eventual retirement. You have a succession plan in place and a plan to exit the business at some point over the next 15 years. The plan is to work hard and transition to the new ownership group and work towards making the transition as seamless as possible. You want to minimize the need for you to stay on beyond your intended exit date. You’ve put a buy-out structure in place that makes sense for you and the new ownership group. So what else do you need to consider?

1. Managing against the unknown

One of the first things you need to consider is business protection insurance and addressing the business risks that can sideline succession plans and undermine business continuity management. Nothing can disrupt a business exit strategy like the critical illness, disability or premature death of a business owner. The largest threat to your retirement is a disruption to your ability to earn a living. Fortunately, business protection insurance can not only manage business risk, but can also be a great way to build wealth and be a key part of your corporate tax planning strategies.

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2. Creditor protecting yourself and your business

Another thing you should do is to creditor protect yourself in the event of a creditor trying to seize your assets. Your Accountant and Lawyer will set you up with the proper corporate structure to help safeguard this from happening (Holding Company versus Operating Company) but does that prevent creditors from coming after you personally or going after assets within your business?

A business owner or shareholder should set up a Personal Pension Plan versus contributing to RRSPs. Not only is there is greater contribution room versus an RRSP, rate of return is guaranteed by your business, contributions and fees are considered an expense to the business and they are completely creditor protected.

Another way to creditor protect your business is by putting any cash or passive investment into a segregated fund. Segregated funds are like mutual funds within an insurance contract that offer guaranteed performance but also creditor protection if your business should face insolvency or face a potential lawsuit.

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3. Diversifying the assets within your business

Now that you’ve managed against potential risks to you and your business, how are we going to get those profits from your business into your hands personally without paying too much tax? Leveraging some of these insurance contracts that you’ve used to protect your business is a very smart way to get money out of your business if you set up and access these assets properly. By overfunding a permanent life insurance policy that’s owned by your business, the assets grow tax-free and over time can represent a huge asset that can fund a very attractive retirement package regardless regardless of whether you have your succession plans in place.

Funding your own personal pension plan is another strategy in building wealth by harnessing your business. By taking advantage of past experience, unused RRSP room, rolling existing RRSPs into your pension or terminally funding a pension even after you’ve left the business, augments a great retirement nest egg.

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4. Starting as early as possible

These assets won’t grow overnight but rather a continuous and consistent approach to building wealth over time. The earlier you start, the more significant the returns. Take the following illustration of an IRP as an example:

As much as we all have our personal goals to achieve: paying down personal debt, being mortgage free, buying a vacation property or extensive travel; by bonusing or paying dividends to ourselves comes at a price of paying a huge tax bill. By utilizing some of these other strategies through your business, you will be able to achieve both.

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