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Holistic Approach to Managing Wealth



Tax Saving Opportunities

A common oversight in tax planning is having tunnel vision on the taxable entity – individual, corporation, trust, etc. – without consideration of the broader structures it is integrated with.

Where multiple taxable entities are present, significant additional tax savings can often be realized by integrating the various entities into overall tax planning.

Examples where tax savings can be achieved through integrated planning:

  • A shareholder can take income as a dividend from a corporation that has passive income. Passive income in a corporation creates a Refundable Dividend Tax that is refunded when taxable dividends are paid to an individual shareholder. By rerouting dividend income through a company that has Refundable Dividend Tax on Hand, versus an active corporate entity (with no RDTOH), tax savings can be achieved.
  • If a corporation has capital losses, and a corporate shareholder has investments with capital gains, the shareholder can roll the investments into the corporation prior to disposition and then dispose of the investment in the corporation. This will trigger the capital gains that can be offset against the capital losses in the corporation.
  • Business owners who have significant personal investment capital (tax paid) but are still paying themselves significant salaries and bonuses can achieve tax savings by reducing their salaries and leaving more income in the corporation to be taxed at the lower business tax rates and then investing these dollars in an investment corporation. The Liberal government has discussed measures to reduce the ability to defer active income in a corporation. The business owner can also strip dollars out of the corporate entity tax-free by rolling investment assets into a holding company and be taking out cash for consumption up to the tax cost of the assets rolled in.
  • Trust structures can be added as shareholders of corporate entities thereby enhancing the income-splitting opportunities between family members. These have been reduced by 2016 tax changes.The use of a family trust can also provide the ability to access the $836,000 Small Business Capital Gains Exemption of beneficiaries of the trust on the sale of shares of an active business.

Taking a step back to see the big picture and understand all the variables that can be included in an integrated tax plan can result in significant tax saving opportunities. Structuring the flow of income for the integrated whole, rather than just a single taxable entity, will allow you to reduce your overall tax bill.

Family. Wealth. Harmony.®

Covenant Family Wealth Advisors' certified financial advisors and business succession planning experts help guide families through the technical and emotional aspects of managing wealth, estate planning and business succession. Our experienced financial management team uses a Christian perspective that is rarely found in traditional financial planning, and we work closely with you to develop a personal Holistic Stewardship Plan that encompasses financial planning, estate planning, family business transition and philanthropy.

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