Andrew holds many professional certifications, including the Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), Chartered Life Underwriter (CLU), Chartered Strategic Wealth Professional (CSWP), Chartered Investment Manager (CIM), Financial Management Advisor (FMA), Certified Senior Advisor (CSA), and is a Fellow of the Canadian Securities Institute (FCSI).
Introduction: The Value of a Coach
“Another financial planning book,” you may be thinking. “What value will this be to me?”
The shelves of your local library and bookstore are already filled with every imaginable book on finances: budgeting, business planning, investments, retirement planning, tax planning, planning your estate, how to save money, best practices for businesses, and more. What value could one more provide?
The truth is, this book is unlike any other you've encountered. Whereas most other books provide copious amounts of information and detail about financial topics, very few provide concise, targeted, and pragmatic guidance with a boots-on-the-ground perspective from a team that's “been there, done that.”
And even fewer are written for you, the incorporated professional.
This book aims to change all that. From whether and when you should make the decision to incorporate, to the proper place of insurance in your financial plan, to how and where to invest and how to keep the taxman at bay, to the use of trusts and charitable donations, what you're holding is a complete, yet concise, guide to everything that matters in your financial life as an incorporated professional.
I wrote this book because I saw a gap in the advice that's available to people like you. Together with my business partner, we've built a very successful financial planning practice serving the needs of incorporated professionals, and now is my time to give back.
In our practice, I see a lot of misconceptions and even mistakes that need course-correcting. These blunders happen because people don't have a reliable and accessible source of the guidance they need—and, I would argue, deserve—for organizing and managing their financial lives as incorporated professionals.
As you're reading along, think of this book as your own financial planning coach. Like any good coach, the book will help you look at your current state of affairs, and then provide direction to enhance the results you're getting—now and in the future. Working through the ideas in this book may involve some unlearning on your part, whether that's related to how and where you invest or the way you think about how to accomplish the goals you have for yourself and your business.
My only request is that you enter with an open mind, ready to discard some rules of thumb that you may have heard for decades but, in reality, don't work for you and your situation.
Chapter 1 Incorporation 101
If you're reading this and you're not incorporated, you need to call your financial planner right now and ask them why they haven't recommended that you incorporate. One of my best friends is a very successful family doctor in Ontario. We made sure that as of day 1 in his career—before he'd even received his first Ontario Health Insurance Plan (OHIP) payment—his medical professional corporation was set up and properly structured. Over the course of his career, this single move has saved him hundreds of thousands of tax dollars. So if you're a practicing professional, and you're not incorporated, why not?
What You'll Get Out of This Chapter
This chapter covers the basics of incorporating for the professional and business owner, including a review of the process and costs to incorporate, as well as the likely benefits. We also review when incorporation may not be beneficial, and how buying a house meshes with your corporate structure.
In this chapter, you'll learn about shareholder loans, the lifetime capital gains exemption, how a corporation can provide creditor protection, and what to do with your corporation when you transition into and through retirement.
Why Incorporate?
Here's the answer: the rationale for incorporation is the difference between paying income taxes at your personal rate, which can be as high as 53.53% (Ontario's highest marginal rate in 2020 after $220,000 of income), or your corporate small business deduction (SBD) rate of 12.2% (Ontario's combined federal and provincial tax rate). But in addition to the (potentially substantial) tax benefits of incorporation, you will also get increased flexibility in choosing the government programs in which to participate and invest.
A good financial planner should acknowledge that they have absolutely no control of the markets. While we do all try our best to spot trends and mispricings, in some form or fashion, we are always riding along with the ebbs and flows of market movements.
Taxes, in contrast, we have complete control over (within the rules and parameters of the tax code). Taxes are factual, they are mathematics, they are “known knowns.” This means that we can master and control them. While we cannot avoid them, we have the ability to plan and mitigate some taxes. In our financial lives, our focus should be on controlling the controllable—and the corporation is a powerful tool that allows us to control our tax bill.
What Does It Cost to Incorporate?
Setting up your professional corporation using a lawyer should cost you less than $2,000—and less than $1,000 if you take a do-it-yourself approach. Organizing the corporation—issuing shares and creating by-laws and shareholder agreements, for example—can drive up costs, but keep in mind that you can deduct up to $3,000 of costs related to incorporation. And while it's possible to incorporate using a DIY approach, consulting with a professional can help ensure that you're set up appropriately from the get-go.1
To be frank, however, I view the cost of incorporation essentially as a “sunk cost” (a cost you have already incurred and cannot recover), as you will likely incur these organizational costs at some point in your career—the only question is when.
Also, in my conversations I always stress that you shouldn't be fooled by the myth that higher legal costs will produce better outcomes for your corporation. Incorporating is simple. The only “trick” to watch out for is ensuring you create enough classes of shareholders at the outset so your spouse (or future spouse) and/or your kids (or future kids) can all have shares—they each need to have a letter in front of their shares (Class A, Class B, and so on) so the corporation can pay them different amounts, if you like. That's the (only) “secret sauce” for your Articles of Incorporation. (With that said, if this issue has to be fixed later on, it can be, but your legal costs may be much higher.)
In general, your yearly corporate accounting fees might be in the range of $1,000–2,500/year, and ongoing maintenance fees could be as high as $500 (with a lawyer) or $150 (if you file yourself). These fees can be much higher if there is significant active and passive income. Additionally, each year, you'll need to renew the certificate of authorization, and you'll also need to keep the corporation's minute book up to date.
What's the Process to Incorporate?
(If you're already incorporated, skip ahead to the section “How Does Purchasing a Home Fit into My Incorporation Timeline?”)
We all know time is money, and addressing the added complexity of a corporation will take some of your valuable personal time. The good news, however, is that most of this extra time commitment is required only once, during the initial stages of incorporation.
The following is the basic process to incorporate.