The ability to get assets out of your corporation is about to become even harder, however, there is a small window of opportunity that will expire at the end of this year.
If you have a corporation that has assets in it (real estate, cash, investments), you know that taking money out of your corporation brings a big tax bill (almost 50%). For example, while you may have built up funds inside your holding corporation over the year, you know that if you wanted to use those assets, a $50,000 car would actually cost you $72,500. The ability to get assets out of your corporation is about to become even harder and less efficient. There is a small window of opportunity that will expire at the end of this year, however, and we strongly urge you to consider acting on this now, before that happens.
For a long time, tax professionals have advised clients to incorporate when possible because the corporation would only be subject to a 14% tax rate, much lower than the personal tax rate. This was good advice, and has facilitated significant growth inside the corporations of many individuals. The challenge now faced by many investors is how to get that money out of the corporation and into the hands of the next generation in as efficiently (read: least tax) a manner possible.
Until now, the answer has been clear: Life Insurance. For myriad reasons, insurance, when utilized properly, provided the best way to get the most money out of a corporation to cover a tax bill, into the hands of the next generation, and/or charity possible—by a landslide. Many ancillary benefits also resulted from this. Knowing that the next generation could withdraw money tax-free, investors were able to take less risk in their investments and still preserve the value of their estates. They could also use insurance to increase the value of their estates, freeing them up to spend the capital they had accumulated in their lifetime, knowing the next generation would be taken care of. As an investment, it provides the highest guaranteed tax-free growth and tax-free withdrawals. This efficiency makes it an important part of a strategic wealth plan, and is one we have advocated for some time where it fits.
A number of those factors are changing beginning January 1, 2017. Simply put, the amount that can be withdrawn tax-free from a corporation will be reduced—significantly—as will the amount of tax-free income that can be produced using insurance strategies.
The good news is that policies put in force prior to December 31 of this year will be grandfathered under the current rules, maintaining a level of efficiency and results that will not otherwise be attainable. If you have a corporation that has—or will have—significant assets that you intend to use for intergenerational wealth transfer, it behooves you to investigate this while you can. The process can take a number of months, so if this applies to you, your clients, your partners, or anyone you know, we, at The Seidman Kaufman Group, encourage you to reach out to us for more information and to discuss whether this is a strategy that can help you achieve what you want for your family and for others. Very little else matters as much to the big picture of planning as this does. If this is a subject of interest to you, if you would like to know how these changes may impact you specifically, or if you would like more information and detail on this topic, we invite your questions.
Disclaimer: The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Insurance services are offered through Richardson GMP Insurance Services Limited in BC, AB, SK, MB, NWT, ON, QC, NB, NS, PEI and NL Additional administrative support and policy management are provided by PPI Partners. Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson, & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.