Salary vs. Dividends – Which is Right for You?

Salary vs. Dividends – Which is Right for You?

by FinancialFinancial PlanningTax Planning

Many business owners are unsure of whether to opt for salary-based earnings or payments in dividends. There are various advantages and disadvantages between the two, and it is important to research whether or not one of these options is suitable for your business. By comparing salaries and dividends, we can clarify the differences between the two.

CPP and RRSP Payments

Being paid a corporate salary means that you will be able to contribute towards an RRSP. This is a result of you having a personal income, and it means that you’ll also be paying into the Canada Pension Plan (CPP) to secure a financially bolstered retirement. However, take into consideration the fact that as salary is 100% taxable as opposed to dividends (the latter taxed at a lower rate), you’ll need to pay both portions of the CPP as an employer and employee.

With dividends, you won’t be required to make regular CPP payments, which can help to save money, though it may be best to invest anyway as it can increase what you are entitled to upon retirement. Also, the logging of payments is a relatively simplified process compared to that of salary-based earnings that entail setting up payroll accounts with the Canada Revenue Agency and filling out extra paperwork. That being said, by receiving dividends you forfeit the ability to make RRSP contributions as a result of not having any income.

Tax Deductions and Increases

When it comes to taxes, salaries are seen as a burden due to the fact that they are 100% taxable. This means that your personal income is subject to higher rates and a smaller return. Additionally, you may not be able to carry back a business loss in future years when paid via a salary, which is quite the reverse if you were earning in dividends. That being said, owning a corporation that pays in salaries and bonuses enables for greater company tax deductions.

Dividends are taxed at a much lower rate than that of salaries, resulting in lower personal tax rates. This can enable for easier budget management, greater savings, and opportunities for investment in order to bolster income flow. However, it can also remove some personal income tax deductions, such as those for child care expenses.

Limitations for Small Businesses

It is important to bear in mind that the Small Business Limit is $500,000, which relates to income tax deductions available to private controlled Canadian corporations (CCPCs). On many occasions, salaries and bonuses are paid to ensure a corporation’s earnings don’t exceed this amount, with dividends being utilized if further income is required. This is due to the fact that after a business exceeds this figure, it pays much more in taxes.

Depending on cash flow needs, your income level, predicted company income for the year, and RRSP and tax deduction importance, salaries and dividends both offer a wide range of pros and cons. It is highly recommended that you consult with a financial advisor from The Beacon Group of Assante Financial Management Ltd. who can help you determine which option is more suitable for your situation and discuss other tax planning strategies to put more money back in your pocket.

Mother reading a book with her daughter

Making Financial Sense Out of Stay-at-Home Parenting

by BusinessFinancialFinancial PlanningInvestment PlanningTax Planning

When you and your spouse decide to start a family together, you have to make an important decision together: will both parents return to work, or will one remain as a stay-at-home parent? While there is no right or wrong answer, it is crucial that you first weigh whether or not it is suitable from an earnings and expenses-related standpoint.

Guaranteeing Sufficient Income

The most important thing to do is work out a budget with your spouse in advance of making such a change. It is important to ensure that the household can remain financially secure with a sole breadwinner. Factor in additional bills, investments, and savings to determine whether opting to be a stay-at-home parent is a viable option. Staying at home will also shift expenses; you’ll save on gas and lunches out, but you’ll have whole new expense categories for diapers and baby clothes.

Taking into consideration the age of your children, hours that they’re home, and amount of attentive care they require (special needs, etc.), the stay-at-home spouse may be able to work part-time or launch a home-based business. This can help to maintain a steady income flow as home office-based expenses and other legitimate costs associated with a home business are tax-deductible.

Saving Opportunities

If you are looking to save on expenses as a household, having one parent remain at home with the children can be a blessing in disguise. The biggest contributor is the lack of daycare costs, which in Calgary top $1000 per month per child. Child care for infants is even more expensive. If the family unit includes an older parent or in-law in need of consistent support, there may be an opportunity to save even more money. Having someone at home helps to reduce for care-related expenses either via facility or home care.

Tax Planning and Maintaining Insurance Coverage

Income-splitting opportunities are ripe for the picking for households with a stay-at-home spouse and the other being the primary source of income. The main breadwinner can contribute towards a spousal Registered Retirement Savings Plan (RRSP). Additionally, they have the option to give funds to the spouse with a lower income to invest in their own Tax-Free Savings Account (TFSA). Combined, expect a considerable deduction on taxes. Clever spousal loan strategies involving higher earning spouses lending money to their lower-earning partner to invest and be taxed at a lower rate are also applicable. In this sense, having a stay-at-home spouse can allow for lower taxes and higher return rates.

These savings may be important in regards to maintaining adequate insurance coverage. With one spouse no longer earning an income, it is more crucial than ever that the appropriate amount of insurance is readily available to cover the cost of replacing their services. Also, you may want to consider critical illness insurance to compensate for whoever remains at home with no income being ineligible for disability insurance.  

By considering your options and weighing the pros and cons appropriate for your income and expenses, becoming a stay-at-home parent may be more of an opportunity than a burden. Making sense of the financial aspects of such a lifestyle change is important to maintain a sound future, and reaching out to The Beacon Group of Assante Financial Management Ltd. to speak with one of our financial advisor will help make sense of it all. Feel free to contact us if you require further assistance with financial planning, investment planning, tax planning, and insurance planning with stay-at-home parenting in mind.

Should You Register Your Business Name, And How Do You Do It?

Should You Register Your Business Name, And How Do You Do It?

by BusinessFinancial

In the province of Alberta, the act of registering one’s business name is required by law unless if it is a sole proprietorship using the owner’s legal name with no additions. Therefore, it is important that prospective business owners understand the process of selecting a form of ownership and company name, as well as how to register it successfully.

Choosing Your Form of Business Ownership

Before even registering, you need to carefully consider how your business will be organized legally. After deciding whether you intend to function as a sole proprietorship, a partnership, corporation, or a cooperative, you are then ready to take the process further. Be sure to recognize your needs as a business owner and the type of ownership best suited for your company before moving further.

Selecting Your Business Name

For sole proprietorships in Alberta using your legal name — known as a trade name — without any additional words, you don’t need to worry about registration at all. However, this can’t apply to every company out there and as a result, any other type of business ownership requires name approval by the provincial Corporate Registry. Try searching online for your intended business name to see if it is already being used, as doing so will better protect you from trademark and other legal issues later on. Also, it is important to note that LLP names must be unique, so a bit of research goes a long way in making the process easier. Aim for a name that is short, uncommon, concise, and to the point to make it easy to search.

The Registration Process

Now that you’ve decided upon the name for your business, it is time to move on to the registration process. Owners first need to submit their name through Alberta’s Corporate Registry. Their computer system (CORES) enables for business information to be keyed digitally, which in layman’s terms means that you don’t need to worry about filling out forms. Next, you’ll need to present your information to an authorized service provider or Registry Agent. As the government doesn’t regulate registration fees, prices can vary from place to place. Try downloading the Registry Agent Product Catalogue to get a clearer picture of where you can find the best rates. For trade name declarations, the Alberta Business Service Centre lists sample applicable registration fees at $40 to $50.

Corporations require extra work and a larger investment for successful registration. You’ll need to provide the corporate name and address, describe your corporate structure, identify what type of corporation you intend to establish, and also provide detailed information about the directors, complete with their names, addresses, and Canadian residency status. Corporations require a NUANS search performed in your chosen name, and the report from the search needs to be brought to an accredited service provider. Also, you’ll need to prepare Articles of Incorporation, a cover letter, and an incorporation application that accompanies your fee. Be sure to consult the Alberta Corporate Registry site to learn what other information or procedures are required, and to get an idea of what the extra fees are. Note that as with partnerships, cooperatives or sole proprietorships, rates aren’t regulated.

In conclusion, you are required to register your business name in Alberta unless it is a sole proprietorship only using your legal name. Therefore, understanding the mechanics and intricacies of the appropriate process for your type of ownership is key in order to avoid extra fees or legal hurdles. If you require assistance with name registration or financial planning for business owners, consult your financial advisor at The Beacon Group of Assante Financial Management Ltd. to learn your best course of action.

 

Help Your Aging Parents Sell Their Home

Help Your Aging Parents Sell Their Home

by FinancialReal Estate

As your parents age, they may decide to sell their current home and move into one that is better equipped for their needs.  As they get older, the stress and uncertainty of the selling process can be difficult for them to deal with; that’s where you can help save the day by stepping in to navigate through the process. Here are some tips on how you can help your aging parents sell their home:

Hire a Realtor

Hiring a real estate agent can make the selling process much easier; plus, a realtor has the knowledge and expertise to help find and negotiate with the right buyer faster than you could on your own. You can help smooth over the process by taking part as the middle man. That way you are fully involved and can help guide the real estate agent as needed, ensuring your parents are getting the best advice and service possible.

Review the Costs

The total costs can come as a shock when the whole process is said and done. Doing the necessary research for your parents can guarentee they aren’t left with any surprises. Knowing how much it will cost to pay the realtor, arrange for home staging, moving costs, legal fees, new insurance premiums, and closing costs is important. What you don’t want is any hidden costs that may put your parents in an unfortunate financial situation.

Home Inspections

Your parents may not be as mobile as you, so taking on the task of inspecting the homes first may be a good idea. You can take pictures and create detailed lists of all the property features and prices. That way your parents can avoid the exhaustion of running around the city and instead select a few to look at on their terms.

Transaction

Your real estate agent and lawyer can take care of most of the transaction details for you, but when it comes to signing, it may be wise to review all the agreements. It will give your parents peace of mind that someone that they love and trust has also looked to make sure everything is correct.

Moving

Packing up a whole house full of items may be too much for your parents to handle. Arrange for family members to come and pitch in on the packing and unpacking; hire a moving company who can transport and move everything for your parents.

Giving your aging parents a helping hand in the sale of their house can make it a much easier transition for them. Hiring professionals that can help guide them is also a good idea, you will know you’re getting the best services and price for your parents.

Starting an RESP For Your Grandchildren

Starting an RESP For Your Grandchildren

by FinancialFinancial Planning

As a grandparent, you want what’s best for your grandchild. With the increased costs of education these days, there is no better way to support your kin than to start a Registered Education Savings Plan (RESP). An RESP is simple to start and comes with government incentives that help to increase the value. It’s an excellent way to shelter a little more cash from taxes while contributing to the future of your loved ones. Here we discuss what you need to know when contributing to an RESP.

How does an RESP work?

As a subscriber, you would make contributions to the RESP. The promoter, often a financial institution, will register the RESP with the Canada Revenue Agency. Your contribution, along with government grants and tax-sheltered income earnings, will accumulate in the account. The promoter will then pay the income earned along with the contribution amount when the beneficiary, your grandchild, is enrolled in an education program.

How much can you contribute?

You can contribute as much as you like each year and with a lifetime limit of $50,000 for each beneficiary. Just know that your RESP contributions are not tax deductible but are tax-sheltered.

How does the withdrawal work?

The contribution amount you contributed is after-tax income so, it can simply be withdrawn and made payable to you or your grandchild with no further taxes to worry about. The Educational Assistance Payment (EAP) amount however, is a withdrawal of funds that originates from the tax-free government grants (Canada Education Savings grant, the Canada Learning Bond, and amounts paid under the Provincial Education Savings Program) and tax-sheltered income earnings. For this reason, these payments will need to be included in your grandchild’s income statement for their annual taxes, but at the student’s minimal tax rate.

What if they don’t attend school?

If the beneficiary does not go to post-secondary school, then the contribution amount is paid out to you, the subscriber, at the end of the contract. At that time, you would not be required to include the contributions in your income statements.

Benefits

In Canada, all the contributions you make into an RESP will grow tax-free until withdrawn. You may also be eligible for the Canadian Educational Savings Grant where the government will match 20% at $500 per year and $7,200 over a lifetime. This makes an RESP a better inheritance contribution for your grandkids than money, as the money that you were planning to give your children can now be shielded from taxes as it grows. This won’t happen with cash inheritance and real estate.

If you’re interested in opening an RESP, reach out to a trusted advisor from The Beacon Group of Assante Financial Management Ltd. today who can walk you through all the necessary rules and regulations set out by your province The sooner you put in, the more the contributions will grow for your grandchild’s education.

Discuss Your Inheritance Plans

Discuss Your Inheritance Plans

by FinancialFinancial PlanningInheritance

You may be surprised to hear that many Canadians have not created a solid inheritance plan, even though they are expecting to leave assets to their loved ones. Creating a strategy is an important first step, but so is the discussion with the beneficiaries and a financial advisor. Keeping your inheritance private can cause all kinds of surprises and complications after your death. Here we explore the steps you can take to discuss your inheritance plans in advance.

Planning with your Partner

The first thing you should do is to create a plan with your partner on how your wealth should be distributed. This will involve outlining which of your family and friends will be beneficiaries, your financial situation, and your initial inheritance goals. You should also consider those who may need special financial assistance, if it will be equal share, and the necessary provisions.

Create an Inventory

Once you have a strategy, take some time to review your assets that will be included in your estate planning. Make an inventory of all the items such as your house, car, investment properties, personal belongings, and financial investments. Also, note any debts you may have and any fees that will be associated with probate.

Include a Financial Advisor

You should always discuss your inheritance plans with a financial advisor. They have the expertise to help you understand the tax implications, capital gains, and other financial responsibilities that will fall onto your beneficiaries.

Discuss Assets

You may expect that one of your kin will be thrilled with inheriting your belongings, but they may not feel the same. Not everyone can bear the burden of the costs of a house or cottage. Talking to your family before you finalize your inheritance plan for assets can help you both plan what is the best for everyone.

Communicate about Money

Communicating your plans to your family regarding money is also important. You may be considering charitable gifting to your beneficiaries as part of the inheritance. While it may be attractive to some family members, not everyone may prefer this over heirlooms.

Probate Planning

Joint investment or bank accounts with your children can help them to avoid probate fees after your death. But this can cause some issues and complications if there are other children involved. A discussion with your family members in advance may help smooth over any potential bad feelings.

Discussing your inheritance plans with your family, beneficiaries, and financial advisor is the best decision you can make to ensure that everything is left as you wish, and that everyone is as content as can be with your decisions. Your financial advisor at The Beacon Group of Assante Financial Management Ltd. can advise on estate planning strategies to ensure your wishes are met.

Helping Your Teen Navigate Student Loans

Helping Your Teen Navigate Student Loans

by EducationFinancial

Choosing the appropriate student loan structure can be a complex and difficult decision. Yet not as difficult as fully understanding what the loan entails or the full responsibilities associated with paying the loan back. With the costs of your child’s secondary education being one of the biggest investments you’ll potentially make in a lifetime, it’s important for them to comprehend this significance and guide them on how to pay it back promptly. Read on to find ways to help your teen navigate student loans to ensure they don’t end up in a load of debt that impacts their financial stability in the future.

How much should your teen borrow?

The minimum. Your teen should be utilizing as many bursaries, grants, and scholarships that they can since majority of these options do not have to be paid back and can help curtail the overall cost of tuition. New rules set for 2017 will further help students and their families. Depending on their financial situation, borrowers can get approved for grants that include reduced monthly payments and in some cases no tuition costs. Ottawa has also increased the amount available for grants – an increase of as much as 50% for some. There are options worth investigating to greatly reduce overall tuition costs.

What type of loan is best?

Government loans are the usually the best option. Provincial loans for instance, offer a delay before the interest starts to accumulate and includes a longer repayment period. After graduation if a student is having difficulty making the payments, they can apply to the Repayment Assistance Program for help. Also, graduates won’t have to start repaying loans until they make at least $25,000 a year, and for families of more than five people that number increases to $67,825 under the new legislation.

You could also opt to engage in bank loans or lines of credits. Even though these are harder to obtain after the economic downfall in 2008, you may still be eligible for a student line of credit. These are based on the prime lending rate, and currently the rate is attractive, but if the rate rises in the future, so will the interest rates.

How to plan a repayment strategy?

Work with your teen to start saving while in school. Many graduates believe they will get a high paid job when they finish school, but this is rarely the case. It may even take months or years to obtain a decent workable salary.

So before or while the loan interest is accumulating, they should have some money put away to start combating those monthly payments. Also, work with your teen to plan out a budget before they enter school. Knowing how much they can reasonably spend each month will ensure they won’t overspend while impacting their future goals and financial security.

How to get money back?

At the end of each year you should also employ the Canadian Revenue Agency tax credits. The CRA allows students to claim a tuition tax credit for the interest payable on the student loan. Unfortunately, they are phasing out the federal textbook and education tax credit. The CRA, however, does ensure that the scholarship exemption remains unaffected by the elimination of the tax credit.

Navigating student loans can be a complicated endeavor for students. Give your child a good head start by guiding them through the process. Teach them how to budget and prioritize in order to pay that debt off as quickly as possible so they can start their future off on the right foot. Your financial advisor at The Beacon Group of Assante Financial Management Ltd. can advise on other education planning strategies to meet your child’s education goals.

A Closer Look at Tax Free Saving Accounts

A Closer Look at Tax-Free Savings Accounts

by FinancialInvestment Planning

TFSAs are an excellent investment vehicle to save and grow money. With a sizeable contribution allowance and the ability to hold a wide range of investments, these savings accounts can be an excellent way for Canadians to save for their future. Here we will take a closer look at Tax-Free Savings Accounts and how they can benefit you.

What exactly is a TFSA?

A TFSA is a savings account that can help protect your future growth from income tax. Capital gains and dividends that are earned in a TFSA are not taxed, even when withdrawn.

How much can you contribute?

If you have never contributed before, by starting today you could contribute up to $52,000. The allowable contribution room is calculated per year and is indexed for inflation. Since the TFSA started in 2009, the contribution allowance has continued to grow each year.

Currently, the annual allowance is $5,500, whereas in 2009, when the TFSA was first introduced, it was $5,000. Any unused contributions can be carried forward and withdrawals result in new contribution room. When removing money from your TFSA you can add that amount back in the next year, plus the contribution amount for that year.

What are the conditions to opening a TFSA?

You must be 18 years of age and have a valid social insurance number to open a Tax-Free Savings Account.

What can I hold in a TFSA?

You can hold RRSPs, bonds, stocks, mutual funds, ETFs, GICs, options, and more. One thing to remember is that the financial rules of these instruments will still apply within the TFSA. Take GICs, for instance. If you lock your money into the GIC you cannot remove it even within the TFSA. The advantage of saving in a TFSA is that you won’t have to pay capital gains taxes if you trade within the TFSA.

Where can I find my contribution allowance?

The Canadian Revenue Agency will place the next year’s allowable contribution amount on the notice of the assessment you receive after processing your tax return. Generally, this includes the amount for the year, any amount you removed last year, and any unused contribution amounts from the years before.

Can you transfer between TFSAs?

If you have more than one TFSA you can transfer funds between them without it affecting your TFSA contribution room. You cannot however, withdraw money from one TFSA and contribute it to another TFSA – this would not be considered as a transfer and would come with penalties if you exceed your contribution allowance for that year.

What are the penalties for over-contributing?

If you over-contribute, there will be a penalty subject to 1% per month of the excess amount until the amount is removed. If you are found to be deliberately over-contributing, then you can end up paying a 100% tax on any gains you make on this amount.

Tax-Free Savings Accounts can be an excellent investment tool to help you save for the future and meet your financial goals. Speak with your financial advisor about TFSAs and other tax planning strategies to increase your personal wealth and leave more money in your pocket.

Understanding Trust Protectors

Understanding Trust Protectors

by Financial

Trust protectors are gaining popularity to help guard over assets. While there are many reasons to have a trust protector, the most common motivation is to help deal with an untrustworthy trustee. Should that ever happen, then a protector is surely the way to go. To help you better understand what a trust protector is and what they do, read on.

What is a Trust Protector?

To understand trust protectors, you need to first understand what a trustee is and how they differentiate. Trustees are responsible for managing the assets that are held in trust. Trust protectors on the other hand, are a third-party individual or group – someone who is separate from the trustee who exerts influence on how a trust is administered, and also checks on the actions of the trustee. They are hired by the person who created the trust, otherwise known as the settlor.

The trust protector maintains a fiduciary responsibility to that of the trust and acts in the best interest of the beneficiary. This person can also have the power to appoint and replace trustees, as well as remove trustees in case of misconduct.

What are the Added Benefits?

Beyond appointing and replacing, the protector also can serve as a mediator between trustees and beneficiaries. They can also veto questionable investment decisions, address any challenges to the trust such as tax or legal challenges, monitor changes to legislature and ensure the trustee is in compliance, and generally act to ensure trustees are doing their job.

How Do You Choose a Protector?

First and foremost, a protector should be someone you trust. Protectors need to understand your business goals including what their involvement will be in the process. Family businesses may prefer to choose a family member who understands the business in great detail – this can be beneficial as one can avoid paying fees, but on the other hand there may also be tax restrictions.

If the business is more complex in nature one may wish to appoint a professional, such as a tax advisor, trust company, or even an advisory board. Depending on the business structure you may also want to engage with an international expert that is located close to the place of business if you have an offshore trust or a company that operates in other regions.

In summary, the protector is a way to safeguard your trust from trustee misconduct. If you own a trust and would like an extra layer of protection then a protector may just be the way to go to safeguard your assets and give you some peace of mind.

Make a Difference with Giving Tuesday

Make a Difference with Giving Tuesday

by Financial

Have you joined the “Giving Tuesday” national movement? This year Giving Tuesday falls on November 28th, 2017 – the Tuesday following Black Friday and Cyber Monday. And what better way to end off the year than by giving back to your community? Below is a quick guide on how to jump on board, make a difference, and enjoy tax benefits by participating:

Volunteer and Raise Funds

There are lots of different ways to get involved for Giving Tuesday. One way is to volunteer at a local charity or even organize a team event with friends or colleagues. Many people are donating pro bono hours or organizing donation drives for people in need. Others are raising money for charities and organizing fundraisers as a way to participate while giving back to their own community.

You could even launch a campaign to obtain donations or organize your company in a 24-hour challenge to raise money. It’s an excellent way to achieve volunteer hours or to meet new people and get involved in your community.

Partner with Local Charities and Organizations

Another excellent way to help make a difference with Giving Tuesday is by partnering with local organizations to provide donations to charities and not for profits organizations. There are numerous organizations that have worked together to start their own “giving” movements by fostering collaboration and creating beneficial long lasting relationships.

Give your Business a Boost by Utilizing Social Media

Giving Tuesday is fueled by social media and community/industry partnerships. Share your photos and campaigns to boost your company’s values and community engagement. Set corporate sustainability and social governance goals, and incorporate this day as part of the initiatives.

Enjoy Tax Benefits by Donating

Did you know that Canadians are entitled to claim non-refundable tax credits on donations made to Canadian registered charities? And if you have never donated to charities before, the First-Time Donor’s Super Credit (FDSC) allows new donors to claim an additional 25% credit up to a maximum $1,000. This will be added to the regular federal tax credit of 15% on the first $200 and 29% on donations above $200, annually. That means that new donors will achieve 40% savings on $200 and 54% thereafter.

To note, this is not including your provincial tax savings. But when combining the federal and provincial tax credits you can get more money back.

To top it off you can combine your donations with your spouse or common-law partner and claim it through the person who receives the greatest tax saving.

Giving Tuesday has taken off in 98 countries around the world, raised over $168 million dollars already this year, and brought industries and people together while helping millions of others in need. Join the movement and enjoy the benefits – start giving today! Speak with your financial advisor at The Beacon Group of Assante Financial Management Ltd. for more tax planning strategies.