Heading into tax season there is a common question on many a Mortgage Broker’s (and agent’s) mind:

To be (inc.) or not to be (inc.)?

2017 was the year that the federal government basically laid the smackdown on everyone who has ever suggested being INC. ‘isn’t worth the hassle’. When the Fed tinkers, and tens of thousands of intelligent INC individuals stand up and fight, clearly there must be ‘advantages’… that many Brokers are needlessly missing out on.

‘Advantages’ is in quotes for good reason. While the factually informed may view the benefits of incorporation as too great, the literally informed — the actual individuals out there running their own business through the high highs, the low lows, the bright times, and the darkest of dark times — know better. Those of us with no EI safety net, no pension plans, no maternity leave, etc. — you and I — we know better.

Whether you are, or (sadly) are not incorporated, the conversations about tweaking, or massively changing your corporate structure are pretty much on hold right now. Our accountants are waiting more clearly defined guidelines as to exactly what is changing and what is not.

Yet while we wait to see how things shake out, there is no doubt that many of the benefits of having an INC structure will still be intact, and they certainly are for the 2017 tax year. Come 2018 things may look a little different. There may be some small wins and some small losses, but the win column will still be longer for 99% of those who are INC.

This post is not meant to provide guidance on your own structure but to give you a list of conversation starters with your current accountant — or perhaps a prospective new one depending on the sort of answers yours has offered in years past. You may have to work your way through a few to find one who who truly provides detailed answers to the question of getting yourself incorporated, instead of breezy blow-offs, such as ‘when you make 200K per year’ or ‘when you aren’t spending all the money you make’.

Such responses are a clear indicator of a lazy mind. And you need to fire that person.

Like the Mortgage Broker’s role, an accountant’s role is to be your trusted advisor, an expert. It is their job to offer us alternative approaches. It is their job to be creative! You know… exactly the way we operate in our own profession: professionally and in constant search of superior options for our clients.

Do you realize the role your accountant can and should be playing in your life?

A quality accountant is so much more than simply a conduit to CRA. A quality accountant is a cornerstone in the foundation of your financial future.

Your accountant plays a significant role in your wealth-planning strategy — specifically just how much of your wealth is siphoned off to the government –— and they hold control over just how many extra years of your life you will have to work, or not have to work, depending upon their wisdom and your own.

Does your accountant realize the role they are playing in your life?

Does your accountant completely understand your investment and retirement goals?

Is your accountant meeting with you and your financial planner to ensure that your corporate structure and investment holdings structure aligns with those goals?

Do you actually know what your own goals are?

Is the conversation around incorporation short and cursory? Or is it far reaching? Are they asking if you have teens who could be working in your company for special events? Are they asking if you have adult children in school not currently earning, and explaining the power of a family trust? Are they asking if you have other adults in your family that do not have significant income and could benefit from compensation through a family trust?

Has the suggestion of a holding company for investment purposes ever arisen?

Have you walked through the differences in taxation on your specific income when using dividend tax rates vs. sole proprietor tax rates?

To the above question I am certain the answer is ‘no’ in 90% or more of cases. Seriously, have you taken last year’s tax return, and asked for the specific tax differences had you been INC and drawn dividends, and potentially split some income with family members?

In one recent case the client’s net commission income was $70,000 and the savings lost by failing to INC in 2016 amounted to $6,500.00. That is a massive difference at that income level; $6,500.00 is a big deal at any income level.

Have you calculated what you are paying in CPP against what you may or may not recover?

***I have done the math, and CPP is not at all a winning investment, and once again the beauty of being INC is that you can in fact effectively opt out of CPP and instead invest in an actual asset that you can pass on to a surviving partner, children, charity, etc.

Have you looked at the power of whole life insurance policies held inside a corporation as an investment vehicle?

Have you considered the limited liability factor depending on the nature of what you do for a living?

Have you considered the significant psychological benefit derived from operating your business like a real business, drawing a consistent wage and leaving the extra earnings behind for a rainy day, or moving those earnings into what I like to call your ‘grown up piggy bank’ — your new holding company’s bank account?

Have you considered the recent steps the federal government took against corporate structures are a clear signal that perhaps you should have been incorporated long ago?

If you feel like you need to convince your accountant that you should be incorporated, it’s more likely you need to find another accountant. In particular, if you have been earning in excess of $100,000 per year, have a spouse earning less than $30,000 and/or have children 18 or older also earning less than $30,000 — you really should have pressed the issue — time to start pressing.

Ask questions, lots of them.

Get specific detailed answers to each and every one of them.

Thanks

Dustan Woodhouse