As a business owner or incorporated professional, you face several stark realities in planning for your retirement. You are operating in a hostile environment with an aggressive tax regime which is geared toward wealth expropriation. This has created challenges for wealth creation, management and preservation.
Fortunately, there are planning strategies and corporate structures that you can deploy, to address these challenges, reduce your tax burden, and build and preserve your hard-earned wealth.
Adrift Without a Pension
Most business owners and incorporated professionals do not have defined benefit pensions plans, leaving them to fight on their own, to build up equity in their corporations/practices, and hope to one day sell or monetize the business to fund their retirement.
Lawyers, for example, are often reluctant to admit that they do not have pensions. For many, “the inability to even consider retirement is very real these days as the profession gets squeezed by a number of competing forces generally acting negatively on their financial statements,” says Jennifer Brown in “Retirement: Dare to Dream,” Canadian Lawyer.
The same goes for many highly-skilled professionals who choose consulting/contracting as their preferred work engagement. Incorporated professionals who are consultants may feel adrift or left out, compared to their peers with defined benefit pensions in the public service.
“Even if you’re now in your 60s, it’s not too late to get the kind of gold-plated, bullet-proof pension – albeit a scaled-down version commensurate with the reduced years of contributions – that most of the public sector enjoy,” – Jonathan Chevreau, The Globe & Mail.
Complex Adverse Tax Changes
To complicate matters, the barrage of complex adverse tax changes directly impacts you like a wealth reduction plan, with potential tripwires, landmines and compliance concerns.
If you are a Canadian physician or dentist, due to your skills and training, you likely entered your practice at 30+ years, with significant debt from education and equipment costs, and have some unique retirement planning challenges. (CMA Brief, Small Business Perspectives of Physician Medical Practices in Canada). See Tax Rx for Incorporated Medical/Dental Professionals
Succession Planning or Exit Strategy
A good chunk of your life’s work, wealth and sweat equity may be locked up in you company. You may already have an exit strategy or path to liquidity.
Things to consider:
- Is there a market for your business and how will you assess the value of the transaction?
- Have you identified a succession candidate?
- Will the sale of your business be to a strategic or a financial buyer?
- Will the transaction be pursuant to an asset sale or a share sale?
- Is there a management group that would want to buy you out (management buyout/MBO)
- Is a family buyout planned?
- Are there non-strategic, non-operating, investment or life insurance assets in the corporation that will need to be addressed, to purify the corporation prior to sale?
- How will you strategically optimize the tax consequences of such decisions?
Creditor Protection & Risk Management
Unforeseen liability can throw a monkey wrench into your retirement plans. In the event of litigation, is the lion’s share of your wealth safely beyond the reach of your creditors?
Are there key executives that are integral to the success of the business? Perhaps key person insurance, golden handcuffs or an enhanced pension/benefits package is in order.
Franchisors are finding it increasingly difficult and costly to comply with shifting standards and regulations.
“There are discussions about whether the franchise model is still worth pursuing because of the increasing burden of regulation and the growing complexity of disclosure,” Jennifer Dolman, a partner at Osler, underlines. “There’s a lot of rethinking going on.”(Jennifer Dolman, “The Future of Franchising in Canada” – L’Expert.)
You are the key person and expert, so you need to remain focused on building and operating your business rather than scrambling to coordinate your various legal and financial advisors.
Strategic Wealth Management Solutions
Fortunately there are planning strategies and corporate structures that you can deploy, to address many of these challenges, reduce your tax burden, and build and preserve your hard-earned wealth.
An experienced advisor can coordinate with other professionals to help facilitate tax, trust & estate planning solutions so you can retire well.