Marilyn deRooy-Pearson - Paying Too Much Tax: A Business Owners Guide to Corporate Structures & Saving Tax

PAYING TOO MUCH
TAX

Library and Archives Canada Cataloguing in Publication

DeRooy-Pearson, Marilyn, 1957-, author

Paying too much tax : a business owners guide to corporate structures and saving tax / Marilyn deRooy-Pearson.

Issued in print and electronic formats.

ISBN 978-1-77141-116-5 (pbk.).--ISBN 978-1-77141-117-2 (html)

1. Family-owned business enterprises--Canada. 2. Family-owned business enterprises--Taxation--Canada. 3. Tax planning--Canada. I. Title.

A business owners guide to
corporate structures and saving tax

Marilyn deRooy-Pearson

First Published in Canada 2015 by Influence Publishing

Copyright Marilyn deRooy-Pearson

All rights reserved. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording or otherwise) without the prior written permission of the publisher. This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out, or otherwise circulated without the publishers prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

Cover Designer: Trista Baldwin

Portrait and Cover Photographer: Randal Kurt Photography

Senior Editor: Sue Kehoe

Assistant Editor: Nina Shoroplova

Production Editor: Jennifer Kaleta

Typeset: Greg Salisbury

DISCLAIMER: This book is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible.

All comments related to taxation are general in nature and are based on 2014 Canadian tax legislation for Canadian residents, which is subject to change. Persons who are not residents of Canada or those who are resident in Canada but are citizens of another country may be subject to different tax rules. They may also be subject to taxes levied by jurisdictions other than Canada. In addition, this book contemplates the application of tax laws in common law provinces and, therefore, not in the Province of Quebec.

Once more, the Parke family story and the characters named in this book are fictitious. They are a compilation of stories from the many businesses my company and I have helped with tax planning over the years.

The tax-related information contained in this book is current as of December 31, 2014.

This book is dedicated to my amazing children, Vanessa and Zach. You are my pride and joy! You are my inspiration! Your love has given me the strength to be the best that I can be.

This book is amazing! I work in the financial industry and it wasnt until I read this book that the whole financial planning process came together for me. And I have read a lot of financial planning material. Generally speaking, books either get too detailed and leave me overwhelmedor too simple and leave me unsatisfied. Weaving Lucys story into the book made theoretical concepts easily accessible and concrete. I felt that as a business owner myself, I could take actions to improve my business immediately.

Carl Brodie, Obisidian Advisory Group Inc.

This informative book is a must read for the business owner. Save tax, manage risk, and enhance your estate through the alignment of ownership, business, and family. Marilyn deRooy-Pearson brings her wealth of knowledge and technical expertise to help you gain a detailed understanding of the importance of an integrated approach to financial, tax, and estate planning. In her words, STOP THE TAX LEAKAGE.

Gordon P. Johnson, BA, CFP, President, Caris Financial Corp., Author of the Amazon #1 bestseller Turn Your Mortgage Into a Pension

If it were not for Krystine McInnis my book would not have been written and I would not have met the infallible Julie Salisbury. Thank you, Krystine.

To Julie, your vision is empowering and your dedication to be the best that you can be is invaluable.

To Ron Voyer and Richard Crosson, thank you for believing in me, for your support when I needed it most. My life, Vanessas, and Zachs changed for the better because of you. Thank you.

To John Pearson, my husband, thank you for your support through my journey of writing this book. It means more than you know.

To my Mom, because of you, I have learned that I can climb every mountain. Thank you.

To the team at Influence Publishing, thank you for your patience, and support in getting my book to print!

Many business owners live with an uneasy feeling that there is something wrong with their financial wellbeing, but they just cant put their finger on it. They have accountants, lawyers, and investment and insurance advisors, so what are they missing?

Everything. Typically, each advisor, whether it is the accountant, lawyer, or other, works in isolation of the others, in independent silos. Although the business owner has trusted advisors who provide solid advice in their areas of expertise, there is little if no collaboration of planning among advisors. That causes uneasiness for the business owner.

This book is about alignment of ownership, business, and family. It is about minimizing tax leakage through effective corporate structures. It is about maximizing the hard-earned money of business owners to enjoy during their lifetimes. It is about leaving a legacy.

Family businesses make up a large portion of the Canadian economic and social landscape and the federal Government of Canada has recognized their positive impact on our economy. They have developed several tax incentives for family businesses. For example, the enhanced capital gains exemption for qualifying small businesses was to stimulate the creation of new businesses and the expansion of existing ones. The exemption originated at $20,000 in 1985, grew to $50,000 in 1986, and increased to $500,000 in 1988 as a result of the Federal Governments 1987 tax reform initiative. The enhanced capital gains exemption has since increased to $800,000 for 2014 and is indexed thereafter for inflation.

The Federal Governments initial objectives for the enhanced lifetime capital gains exemption included a desire to:

promote economic growth and job creation by facilitating productive investment,

increase participation by individuals in equity markets by providing incentives for risk taking and entrepreneurship,

provide increased financing for Canadian corporations and, in particular, small businesses, and

provide retirement income security for farmers and small business owners.

It appears that the Department of Finance has met its goal when you look at the current statistics according to Jennifer Halyk: Approximately half of the Canadian workforce is employed by a family enterprise, and Canadian family enterprises create between 45 to 60 percent of [Canadas] Gross Domestic Product (GDP). (Research Matters in the Family Enterprise Field: Where Theory and Practise Meet, Sauder School of Business, UBC Business Family Centre, October 3, 2012.)

A lot of what this book is about is not sexy or exciting, but it does bring government-sanctioned opportunities, rules, and regulations to the forefront. The business owner will be informed; learn how to increase tax efficiencies; get clarity and peace of mind.