Colin Younker, Senior Tax Advisor with MRSB Group, discusses the potential benefits of this new government savings plan.
If you are the parent or guardian of a disabled child or adult, you may worry about the long-term financial security of your loved one. The Government of Canada has addressed this issue and introduced a savings plan meant to help those caring for a person with a disability.
Just as the Registered Retirement Savings Plan (RRSP) is designed to help you save for your post-employment future, the Registered Disability Savings Plan (RDSP) is meant to provide a nest egg toward your family member’s long-term costs. Considering that many disabled persons find it difficult to maintain full time employment because of medical or other barriers, it can be a real assurance to know that you have funds put away for when your family member might need it most.
Appearing to be a fairly non-restrictive plan, an individual may be designated as the beneficiary of an RDSP if they meet the following criteria:
- They are a resident of Canada
- They have a valid social insurance number (SIN)
- They are eligible for the disability amount under the rules of the Income Tax Act of Canada
- They are under the age of 60 (this does not apply when the beneficiary’s RDSP is transferred from their former RDSP)
Many financial institutions now offer RDSPs and your first step can be to contact your financial advisor. The contribution limit is an overall lifetime contribution of $200,000 and there is no annual limit to what you choose to contribute. You may contribute to your RDSP until the end of the calendar year during which the beneficiary turns 59. Your RDSP earnings will accumulate tax-free until funds are withdrawn from the plan.
There are some other major benefits to contributing to an RDSP, especially for those who start the process early:
- The government of Canada will pay matching grants of up to $3,500 per year; this is capped at $70,000 in lifetime grants
- Bonds of up to $1,000 per year are available for low income and modest income beneficiaries. No matching contribution is required and the maximum lifetime contribution is $20,000 (note that the bond is not based on other family income, only the beneficiary’s)
- As there are no annual contribution rules, significant contributions can be made early on to benefit from tax-free growth
- Contributions can be made for a disabled child under the age of majority and also for an adult by any person, provided the beneficiary has approved the contributions in writing
- When funds are paid out of RDSPs they do not affect other benefits such as OAS or specific provincial programs
If you think your family member might be eligible for the RDSP, you can find more information on the Government of Canada’s website or by speaking with a financial advisor.
MRSB Partner Lloyd Compton on why buying a business might take you one step closer
Ok, so a million dollars is not what it used to be. However, when we think of what it means to be a millionaire, we think of financial independence and the ability to be the master of our own destiny. If you examine how most financially independent people acquired their wealth, it was through owning, operating and often selling their own business. As comedian Steve Martin once said, "You too can be a millionaire. First, get a million dollars."
So, if you are looking to achieve financial autonomy but you don't have a rich uncle with a two-pack-a-day habit, you should become a business owner.
The next question you may ask is, "Should I buy a business or start my own?" There are pros and cons to each option and they are not mutually exclusive. Starting a business typically means you must try to take market share away from someone else. While this is done all the time, it is also fraught with risk and expense. We have all heard the pessimistic and discouraging statistics that say 50 to 95 percent of new businesses fail within their first five years.
An alternative to starting up your own venture is to buy an existing business that has survived its initial growth period. CIBC estimates that approximately 30% of all business owners will exit their business in the next five years due to the average age of this demographic. This number is expected to jump to 50% in the next ten years. Here are just some of the benefits of acquiring a business rather than starting from scratch:
- There is less risk if proper due diligence is done
- There will be an established market for the business' service or product
- You will acquire the previous owner's property or location
- Years of advertising are already in place and public awareness has been created
- Credit and relationships with suppliers has been established
- Immediate cash flow is almost a given
- Financing will be easier due to a more predictable revenue stream
- You have the option to work with a pre-existing, knowledgeable staff
- You can draw on the experience of the former owner
- You may be able to to get assets at their depreciated value rather than buying all new
Of course there are potential downsides; the business may be struggling or may have cultivated a negative reputation among customers or staff. You may have to pay for goodwill or the future cash generating ability of the business, something you would not have to do if you started your own. However, if the earnings are proven to be reasonably stable and predictable, paying for goodwill should be worth it.
So whether you start your own business or buy one, each will require risk, money and hard work. But either course of action can have significant rewards in the annual revenue stream and/or a valuable asset to sell when you decide to put your feet up and retire or move on to the next promising venture.
By the way, Steve Martin's second suggestion when the tax man comes collecting was to simply tell him, "I forgot to pay the taxes." Personally, I don't recommend this.
 CIBC In Focus, Inadequate Business Succession Planning—A Growing Macroeconomic Risk
MRSB Group will be a proud sponsor and participant in The Georgetown Conference this fall. Partner Everett Roche shares his thoughts on this important event.
It might not be a topic that is consistently on your radar, but the state of Atlantic Canada's rural communities has garnered enough concern to warrant attention from some of the region's brightest minds, including scholars and business leaders. MRSB Group is excited to take part in and support The Georgetown Conference, Rural Redefined, a promising initiative taking place in Prince Edward Island this fall that will address the crucial issues affecting Atlantic Canada's rural communities. With so many economic challenges facing rural areas, this three-day conference is all about embracing the spirit of these places, challenging the myths surrounding their global viability and empowering local leaders to enact positive change. Local businesses, community leaders, artists and everyday citizens will converge and engage in meaningful conversations about our rural communities and what can be done to give them a positive boost in these rapidly changing and unpredictable times.
As an Island owned and operated professional services group, we have partnered with many individuals and businesses in rural Atlantic Canada, helping them to achieve their goals. During the past three decades we have gained a deep understanding of the challenges they face including aging local demographics and an ever-accelerating pace of technological advancement. Despite the fact that challenges do exist, my mindset is one of abundance versus scarcity. The next ten years will be a period of unprecedented opportunity and a new era of entrepreneurship. As large bureaucracies collapse in the coming decade, tens of thousands of new, agile startups will drive technology-based growth.
I am confident that the exchanges and insights shared during The Georgetown Conference will result in new actions and strategies, empowering business owners, community groups and especially our future entrepreneurs to take crucial steps toward change. As an event sponsor, MRSB Group is excited to be part of the solution and supports the proactive, results-oriented approach being embraced by all involved. As the partner in charge of MRSB Consulting Services, I will be taking part as a conference participant and hope to come away with creative new business ideas and contacts. MRSB Consulting Services Business Development Officer, Stacey Evans will also be present for the many keynote addresses and panel discussions the conference has to offer. I am confident that the issues raised and lessons learned will be applicable to our work as we continue to serve clients across Atlantic Canada and in Europe.
I would like to congratulate the organizers of this event and the community of Georgetown, which truly stands for all that is rural Atlantic Canada; a proud heritage, proximity to the riches of the Atlantic coast and a prime opportunity for revitalization at a time of emerging possibilities. We would also like to give our sincere congratulations to event co-chairs Wade McLaughlin, John Bragg and Paul MacNeill, three local leaders whose knowledge of both Island communities and the Canadian landscape at large are sure to bring wise insights to The Georgetown Conference. I suggest we think global, think abundance and most importantly, think about growing new entrepreneurs in our unique corner of the globe.
As small businesses grow, one of the most common questions owners are faced with is, "Should I incorporate?" There are a number of advantages and disadvantages associated with taking this step, which generally depend on the entrepreneur's individual preferences and current situation. The Globe & Mail last year published an informative article on the pros and cons of incorporation, which include added costs, potential tax benefits and liability issues. And yet, making the important decision to turn your company from a sole proprietorship into a corporation can depend as much on the type of business you run as on how much profit you bring in each year.
Before you jump in and decide that it's high time you joined the multitude of incorporated businesses out there, ask yourself a few questions that will help determine whether this really is the best choice for you.
What type of business are you operating and are there liability risks?
If you run a services-oriented company where there is the potential for your clients to hold you in breach of contract, the liability protection that comes with incorporating is probably worth the extra money you will spend doing so. Especially if you feel that you cannot afford to put your personal assets at risk for the sake of the business. Remember that under Canadian law, a corporation can acquire assets, be sued, enter into debt and commit a crime - just like an individual! However, the benefit of limited liability that comes with incorporation might be deemed irrelevant if your company is unable to secure a loan and the lending institution insists on personal guarantees from you, the owner.
How much revenue does the business bring in and are you able to income split?
One of the commonly assumed perks of incorporating your business is that you as the owner will be eligible for significant tax planning benefits. The truth of the matter is - that depends. There may be specific rules governing your business or profession that will determine whether you are eligible for tax savings. For example, the ability to split income with a spouse or adult child is one of the main benefits of incorporating, but professionals (e.g. lawyers, dentists) need to be aware of who is authorized to hold shares of a professional corporation; some provinces allow family members to hold shares, while others only allow members of the profession. Also, you should ask yourself if there is enough income to allow for splitting and will the tax savings outweigh the costs relating to incorporation? Another consideration is whether you are spending everything you make personally or are able to leave some of the earnings in the company, thus taking advantage of lower corporate tax rates. The Government of Canada recommends that business owners seek the advice of a lawyer or accountant to thoroughly assess the potential tax advantages incorporation can (or cannot) offer your business.
Do the financial and borrowing demands of your business warrant incorporation?
Now let's talk a bit about the costs associated with owner-operated businesses versus incorporated ones. The start-up and licensing fees associated with sole proprietorships are substantially lower than corporations, so this is a fairly straightforward tick against incorporation if you are just starting out as a business owner. However, corporations usually have an easier time raising capital than sole proprietorships, since incorporated businesses can typically borrow at a lower interest rate. In general, financial and lending institutions view corporations as less risky than other types of business so accessing funds may be easier. Of course, if you choose to incorporate you will likely require the services of a lawyer, accountant or both, so this is another cost to keep in mind.
These are just some of the issues to think about before you make the decision to incorporate your business. Whichever route you decide to take, doing your research and understanding the ins and outs of the process are crucial first steps. And remember, if you decide that now isn't the right time, it's possible that next year will be.