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Posts from the ‘Wealth Accumulation’ Category

Private Corporations Dodge a Bullet with the 2018 Federal Budget

The Liberal Government’s Federal Budget was delivered by Finance Minister, Bill Morneau, on February 27, 2018.  There had been much concern and speculation about the direction the budget would take with respect to the taxation of private corporations.  This was due to a release of the Department of Finance in July 2017 which contained private corporation tax proposals which addressed areas of concern to the government involving, among other things, business owners holding passive investments inside of their corporation.  There was speculation that if these proposals were implemented the effective tax rate on investment income earned by a private corporation and distributed to its shareholders could increase astronomically.  Thankfully, the concerns voiced by business and professional groups following the July proposals were effective in moderating the government’s actions.

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Preparing your Heirs for Wealth

If you think your heirs are not quite old enough or prepared enough to discuss the wealth they will inherit on your death, you’re not alone. Unfortunately though, this way of thinking can leave your beneficiaries in a decision-making vacuum: an unnecessary predicament which can be avoided by facing your own mortality and making a plan.

If you have a will in place, great. A will, however, is only a fundamental first step, not a comprehensive plan, point out authors of the 2017 Wealth Transfer Report from RBC Wealth Management.

“One generation’s success at building wealth does not ensure the next generation’s ability to manage wealth responsibly, or provide effective stewardship for the future,” they write. “Knowing the value (alone) does little to prepare inheritors for managing the considerable responsibilities of wealth.” Overall, the report’s authors say the number of inheritors who’ve been prepared hovers at just one in three. Read more »

Life Insurance and the Capital Dividend Account

Many business owners are unaware that corporate owned life insurance combined with the Capital Dividend Account (CDA) provides an opportunity to distribute corporate surplus on the death of a shareholder to the surviving shareholders or family members tax-free.

Income earned by a corporation and then distributed to a shareholder is subject to tax integration which results in the total tax paid between the two being approximately the same as if the shareholder earned the income directly. Integration also means that if a corporation is in receipt of funds which it received tax-free, then those funds should be tax free when distributed to the shareholder.

The Capital Dividend Account is a notional account which tracks these particular tax-free amounts accumulated by the corporation. It is not shown in accounting records or financial statements of the corporation.  If there is a balance in the CDA it may be shown in the notes section of the financial statements for information purposes only.

Generally, the tax-free amounts referred to, are the non-taxable portions of capital gains received by the corporation and the death benefit proceeds of life insurance policies where the corporation is the beneficiary. Read more »

A Lifetime Gift for Your Grandchildren

The Cascading Life Insurance Strategy

If you are a grandparent wishing to provide an asset for your grandchildren without compromising your own financial security you may want to consider an estate planning application known as cascading life insurance.

How does the Cascading Life Insurance Strategy work?

  • The grandparent would purchase an insurance policy on his or her grandchild and funds the policy to create significant cash value;
  • The grandparent would own the policy and name their adult child as contingent owner and primary beneficiary;
  • The cost of life insurance is lowest at younger ages, allowing the grandparent to establish a plan that allows the cash value in the policy to grow tax deferred;

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