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Getting Your Incorporated Small Business to Fund Your Retirement

By Robert Mulrooney

If you’re a small business owner considering incorporation, there are obviously a lot of factors to take into account. But just in case you don’t have enough to consider already, here’s one more: retirement planning.

When it comes to strategic planning for retirement, shareholders of incorporated companies have many tools available to them to help shelter their income and cash flow from taxation. Some of the more common advantages of being an incorporated professional or business person include:

  • Lower corporate tax rates, which give you an enormous head start to wealth accumulation
  • Planning opportunities through income splitting, which can lower your overall tax bill
  • Tax tools like your company’s Capital Dividend Account, which can reduce the tax bill when you eventually sell your business
  • Estate planning benefits to minimize the amount CRA takes out of your estate

One of the biggest challenges for incorporated professionals and business people is managing their cash surplus and retained earnings. Often, business owners are advised by their accountants to keep as much cash in their business as possible. The problem with doing so is that idle cash generating interest income is highly taxable within an incorporated business, thus eating into the ability of shareholders to grow wealth.

Fortunately, both for investors and business owners alike, companies like NexGen Financial provide some unique investment strategies to minimize your tax liability on your corporate cash surplus. In my practice as an advisor with HollisWealth (formerly DundeeWealth), I confront these kinds of situations regularly. Some of the things I’m commonly asked to do, and which I’m happy to assist with, include:

  • Identifying the financial needs of my clients and their businesses
  • Showing clients the opportunities within their business that can reduce the tax liability of their growing cash surplus
  • Customizing comprehensive strategies and integrating investment tools to solve taxation issues
  • Talking with my clients’ accountants at least annually to ensure a team approach is taken in order to mutually optimize their tax situation
  • Increasing wealth by deferring taxes and compounding the growth of capital
  • Showing clients how they can use their corporation to fund their retirement

There’s a good chance you don’t need to pay as much tax as you think you do on your corporate cash. If that sounds like an intriguing proposition, let’s arrange a time to discuss increasing your corporate investment tax efficiency.

This article was originally published in the September 2012 edition of the Comox Valley Business Gazette.