Tax saving & wealth building New Year’s resolutions

Video Transcript: Tax saving & wealth building New Year’s resolutions

Let’s talk about New Year’s resolutions that will help you save taxes, build wealth, and protect your legacy.

I’m George Dube, Saving the world from tax one bow tie at a time®.

January is our traditional month for resolutions getting stronger, focusing on family, building new habits, but I’d like to give you a few more resolutions to choose from that will help you keep more money in your pocket and create momentum for your future goals. So let’s get started.

Resolution 1: Turn “bad” debt into “good” debt

Your first resolution, turn your bad debt into good debt.

In other words, make the non-deductible, debt deductible.

With this strategy, over time you can turn debt that you have in your home, the non-deductible or bad debt, into good debt. You can then use this good debt in your real estate business or other business or investment activities. Therefore, making it deductible. There are some gotchas in implementing this strategy, so reach out to find out more.

Resolution 2: Use other people’s money to pay your taxes

Resolution number two, use other people’s money to pay your taxes.

What?

You can use someone else’s money to pay your taxes. Why, yes you can. You can in fact use OPM to not only pay your taxes, but also build intergenerational wealth. This strategy is not a do-it-yourself project. You’re going to need a professional team of accounting, insurance, and finance advisors to implement this advanced planning.

I talk in depth about this strategy in a series of videos that I’ve linked here. They’re longer videos, but well worth the watch.

Resolution 3: Pay your kids to save taxes

Note: There are now further restrictions due to enacted tax rule changes which will decrease, but not eliminate, the benefits.

Resolution number three. So your kids may in particular like this and it deals with paying your kids or your spouse, in some cases, to save taxes. But how, you might ask? With something I like to call a Bow Tie Trust. The trust allows business owners, medical professionals, and real estate investors to split income with their children and spouse.

A number of years ago, the federal government implemented rules to effectively limit income splitting. However, with the Bow Tie Trust, you can gain some of this flexibility back. Yes, you’ll end up giving up a little control to save more taxes and there are issues with interest deductibility now in the trust, but it can be well worth it. There are also practical issues with increased interest rates, but advantages still may exist. Check out the video I linked here or in the description below for more details of the Bow Tie Trust.

Resolution 4: Review your structure

Resolution number four. Ask yourself, have I outgrown my structure or is my structure too complex for where I am now? It is always good to review the structure you have with your accounting and legal team to make sure it is still doing what you need and taking you where you need to go. Do you need a family trust? Do you need to amalgamate companies, create a new company, set up a Bow Tie Trust, bring in a new shareholder. I recommend having this conversation at least once a year. Often it only takes a couple of minutes, but it’s a powerful couple of minutes.

Resolution 5: Do a remuneration analysis

Resolution number five. Do a remuneration analysis. This is a fancy way of asking yourself, am I getting paid the right way? Review with your accountant how and what you are receiving for salary, bonus dividends, temporary loans, and so on. And check out the new rules relating to CPP. Your accounting team can do an analysis to see what can work for you. It may make more sense to avoid the escalating CPP costs and effectively create your own retirement plan.

Resolution 6: Start retirement and legacy planning

Resolution number six. No matter your age, it’s never too soon to start retirement and legacy planning. I go into depth on estate planning for real estate investors in this video that I’ve linked here and I talk about estate planning for medical professionals in this video linked here. My best advice for this resolution is to get started.

Now I’m placing more and more emphasis on retirement and legacy planning while working with our clients. I’m seeing too many scenarios where I think real estate investors and medical professionals or other business owners where they’re going to face an unpleasant realization after retirement. Their income levels decrease dramatically without a planned decrease in living costs or unrealistic expectations of how much retirement will cost and what they’ll have to sacrifice. By starting now, we can avoid this very difficult scenario.

Resolution 7: Plan for tax-free capital dividends

Resolution seven. Plan for tax-free capital dividends. What does this mean? In English, companies have a capital dividend account with Revenue Canada, a CDA account. This is a special corporate tax account that gives shareholders designated capital dividends tax free. Essentially, whenever a company generates a capital gain, 50% is subject to capital gains tax. The non-taxable proportion of the total capital gain is added to the capital dividend account. This money can then be distributed to shareholders like you. Generally speaking, the CDA increases by 50% of any capital gains a company makes and on the other side it decreases 50% for any capital losses. So we have to be careful in triggering losses. The timing of it, we may, we may want to ensure we have enough in the CDA and the CDA gets paid out prior to triggering those losses.

Again, this takes some planning with the accounting team and the investing team and also will involve your legal team. Effectively, we’re going to file tax elections with Revenue Canada and there’s going to be some legal documents to support the claim and your lawyer’s going to do up these resolutions and Canada Revenue Agency wants this material prior to paying out the CDA. So it’s not quite as simple as writing the check and sending off some paperwork to Revenue Canada. It needs a little pre-planning.