The Money Scope Podcast

Today’s episode comes to you live from the 22nd Institute for Advanced Financial (IAFP) Planning Conference in Gatineau, Quebec, recorded in front of an audience of professional financial planners. For this special episode, we cover key planning issues for incorporated business owners and walk through the lifecycle of a business owner or professional who eventually chooses to incorporate. We discuss crucial financial decisions they face along the way, particularly as corporate assets begin to grow, and wrap up with a Q&A covering topics like tax brackets, salary offsets, and more. Our conversation also tackles common misconceptions and explains strategies for income smoothing, tax deferral, and managing 'corporate bloat.' With today’s conference theme inspired by Star Wars, expect plenty of niche references along the way! Key Points From This Episode: (0:00:17) Introducing the topics that will be covered in today’s special live episode at the 22nd Institute for Advanced Financial Planning Conference in Gatineau, Quebec.  (0:03:57) Guidelines and benefits of becoming incorporated, including income smoothing.  (0:06:49) Advice for navigating taxes when becoming incorporated.  (0:08:42) Common misconceptions that people have regarding getting incorporated.  (0:13:53) How to capitalize on the benefits of tax deferral in a corporation.  (0:16:24) Key insights on tax integration and eligible dividends.  (0:20:07) Achieving optimal compensation and how it solves the problem of “corporate bloat.”  (0:25:08) Ways to treat and prevent corporate bloat.  (0:28:47) The math behind Mark and Ben’s optimal compensation algorithms.  (0:32:08) Advantages of planning over products for solving optimal compensation.  (0:35:10) Audience questions and answers, from tax brackets to Star Wars.    Links From Today’s Episode: Institute for Advanced Financial Planning Conference — https://iafpsymposium.ca/Salary and Dividend Optimizer Calculator — https://www.looniedoctor.ca/ccpc-income-disperser/ ‘Dividends To Maximize Your Corporate & Personal Cash Flow’ — https://www.looniedoctor.ca/2023/06/30/pay-dividends-corporation/#algorithm Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://x.com/LoonieDoctor Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Understanding the implications of the 2024 Federal Budget and its proposed changes to capital gains taxation is crucial for individuals and corporations alike. In today’s episode, we take a deep dive into the Canadian federal budget for 2024 and its impact on capital gains taxation. In our conversation, we discuss the technical details of capital gains taxation and its historical context and offer practical advice for navigating the proposed changes in the 2024 federal budget. We discuss the increase in the capital gains inclusion rate and how these changes will affect individual investors and corporations. Discover the mechanics of capital gains tax in Canada, essential tax planning strategies, the importance of diversified tax exposure, and the concept of capital gains harvesting. Gain insights into the impact of the changes on the retirement plans of incorporated business owners and professionals, the role of optimal compensation in realizing capital gains, and approaches for navigating the proposed changes. Join us as we delve into the complexity of tax planning for incorporated business owners and the importance of long-term projections, personalized advice, and strategic decision-making for realizing a capital gain. Tune in now! Key Points From This Episode: (0:00:00) Overview of the changes and their relevance for Canadian investors.  (0:07:59) How capital gains tax works in Canada and its impact on taxable income.  (0:13:34) Reasons for the variation of capital gains inclusion rates.  (0:18:18) The differences in tax treatment for individuals versus corporations.  (0:22:41) Capital gains in a CCPC, how it works, and the role of a shareholder.  (0:29:36) Implications of the changes on Alternative Minimum Tax (AMT) in Canada.  (0:37:58) Learn about the ‘breakeven horizon’ and essential capital gain considerations.  (0:46:35) Capital gain harvesting and how optimal compensation ties into it.  (0:58:17) Explore the trade-offs of realizing a large capital gain and tax-reducing strategies.  (1:12:30) Hear case studies that illustrate the application of various tax-reducing strategies.  (1:29:56) Impact of capital gains inclusion rates on retirement planning for CCPCs.  (1:37:36) Final takeaways and tax planning recommendations.    Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://x.com/LoonieDoctor Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Episode 10 & 11: Case Conference — https://moneyscope.ca/2024/04/12/ep-10-11-case-conference-corporate-investing-puzzle-pieces/ Episode 13: Optimal Compensation from a CCPC — https://moneyscope.ca/2024/04/26/episode-13-optimal-compensation-from-a-ccpc/ Rational Reminder: Episode 304 — https://rationalreminder.ca/podcast/304 The Loonie Doctor Calculators — https://www.looniedoctor.ca/canadian-financial-calculators/#tax Realize or Defer Capital Gains Calculator — https://research-tools.pwlcapital.com/research/realize-gain Conquest Planning — https://conquestplanning.com  

Business owners often have reservations about paying into the Canada Pension Plan (CPP). Many think they’re getting a bad deal by paying both the employer and the employee portion of the contribution, but can they do better by paying themselves dividends? In the last two episodes, we did an extensive review of how you can compensate yourself as a business owner through a private corporation. Today, we take a deeper look at two of the payroll expense aspects that often come up in discussions with financial planners: CPP and Employment Insurance (EI). If you are self-employed, there are a few things you need to consider, including your decision to pay yourself a salary or take dividends. We discuss that in this episode, as well as whether self-employed business owners are really getting the short end of the stick when it comes to CPP and EI contributions. Tuning in today, you’ll learn about some of the unique features of CPP, how it’s calculated, and the three major risks it offers protection against, plus we walk you through various models to illustrate the consequences of paying yourself dividends versus salary. We also delve into EI for self-employed business owners, the special benefits thereof, models that consider different amounts of income and consumption, and much more. For a comprehensive guide to CPP and EI for self-employed business owners, don’t miss this episode of Money Scope with Benjamin Felix and Dr. Mark Soth!   Key Points From This Episode: (0:00:20) Reasons that today’s topic on CPP and EI is so complex.  (0:04:04) How CPP is calculated: an overview of what you pay and what you receive.  (0:05:59) Whether or not business owners get a bad deal with CPP.  (0:11:34) Viewing CPP as a tax and when paying dividends versus salary is favourable.  (0:17:33) The unique features and benefits of CPP and the risk protection it offers.  (0:25:15) Assessing the value creation and performance of a pension fund like CPP.  (0:30:42) Crunching numbers to calculate a combined CPP benefit for a household.  (0:33:52) Making the comparison between paying CPP and investing in a corporation.  (0:37:23) Tax planning consequences of paying dividends to avoid paying into CPP.  (0:41:16) Various models to illustrate many of the scenarios we covered in this episode. (0:48:36) Why paying into CPP and dying early results in a bad financial outcome.  (0:51:36) Comparing CPP with other corporate and personal investment options.  (0:59:54) Key takeaways on CPP; a chance to buy into a truly inflation-indexed annuity.  (1:01:48) An overview of employment insurance (EI) for self-employed individuals.  (1:05:38) EI special benefits that self-employed business owners can access.  (1:13:55) Insight into EI for incorporated versus non-incorporated business owners.  (1:23:43) Our post-op debrief of today’s episode on CPP and EI!    Links From Today’s Episode: Dr. Mark Soth (The Loonie Doctor) — looniedoctor.ca Dr. Mark on X — twitter.com/LoonieDoctor Benjamin Felix — pwlcapital.com/author/benjamin-felix  Benjamin on X — twitter.com/benjaminwfelix Benjamin on LinkedIn — inkedin.com/in/benjaminwfelix Aravind Sithamparapillai — ironwoodcanada.com/aravind-sithamparapillai Sebastien Betermier — sbetermier.com   Papers Mentioned: ‘Five Examples of Direct Value Creation and Capture in the Pension Fund Industry’ – papers.ssrn.com/sol3/papers.cfm?abstract_id=4616266

When it comes to creating an optimal compensation strategy plan, there’s a lot to navigate. And while there may be a plethora of general rules floating around on the internet, each individual’s optimal strategy is ultimately going to be dependent on their unique situation. That is why we’re using today’s conversation to break down the findings of our mental model algorithm. Tuning in you’ll hear a detailed explanation of the five steps for creating an optimal compensation strategy plan, and how to apply them. Find out how to plan your consumption, account for mandatory income, clear out notional accounts, use salary to make up the difference, and utilize salary dollars that aren’t for spending. We also cover key areas, like Canada Child Benefit (CCB) clawbacks, incorporating income splitting when using your salary, and how to pay yourself a salary bonus to bring the corporate active income down. Join us today to learn how you can implement a dynamic salary and dividend strategy for optimal compensation, and much more. There’s a lot to unpack here, so get your note-taking devices ready, and let’s get started!   Key Points From This Episode: (0:05:19) Optimizing integration: general rules and exceptions in different contexts. (0:07:48) The first three steps in our mental model algorithm: planning consumption, accounting for mandatory income, and clearing out notional accounts. (0:15:25) A quick warning on thinking about money in terms of inflation-adjustments, and why it’s important. (0:16:11) How to use capital dividend accounts (CDAs) in different situations and why it’s generally the most useful notional account. (0:28:03) An overview of Eligible Refundable Dividend Tax on Hand (ERDTOH), how to use it, its status as the second most useful notional account, and why it’s considered more useful than CDAs in certain cases. (0:30:58) Important details on Non-eligible Refundable Dividend Tax on Hand (NRDTOH). (0:32:42) Everything you need to know about the General Rate Income Pool (GRIP) in various contexts. (0:41:01) Situations where it may make sense to pay extra dividends and key factors that impact personal tax rates. (0:56:31) A breakdown of the Canada Child Benefit (CCB) clawback versus Notional Account Release, and key factors to consider. (01:03:22) Factoring in RRSP contributions when paying yourself a salary and how to take advantage of them. (01:08:39) How to incorporate income splitting using your salary depending on the situation. (01:13:48) What to do with salary dollars that you won’t take for spending. (01:18:46) Key insights, analysis, and caveats on bonusing down the SBD rate; how to pay yourself a salary bonus to bring the corporate active income down. (01:30:19) Implementing a dynamic strategy of salary and dividends, how it might unfold over time, and examples of analysis that we’ve done. (01:37:19) Our post-op debrief: a review of our mental model algorithm and creating an optimal compensation strategy plan to pay yourself from your corporation.   Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://twitter.com/LoonieDoctor Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Corporate to Personal Salary Dividend Optimizer — https://www.looniedoctor.ca/ccpc-income-disperser/