Strategies to Optimize Savings and Minimize Liabilities
Tax Impacts Every Aspect of your Financial Life
We believe managing your tax exposure is one of the most effective methods of making your money work for you.
Our team understands and identifies proactive strategies to help minimize current and ongoing income taxation. We consider the tax implications in all facets of the wealth planning and asset allocation process and partner with our client’s tax advisors to help preserve and grow their wealth.
Not all income is taxed the same; income from your investments can come in various forms, the most common of which include interest, dividends, and capital gains. These income types are taxed differently by the Canada Revenue Agency. For example, like wages, interest income typically earned on such investments as Guaranteed Investment Certificates (GICs) or savings deposit accounts is taxed at an individual’s highest marginal tax rate, making it the least efficient form of investment income. By contrast, dividends paid on stocks issued by eligible Canadian corporations receive more favorable tax treatment, since this type of income benefits from the federal dividend tax credit. In other words, dividend income is more tax-efficient than interest income, which ultimately means that investors in dividend-paying investments keep more of what they earn after taxes. Capital gains materialize when you sell your investment for a higher price than what you paid for it. This difference is recognized as taxable income. As highlighted in the chart below, like dividend income, capital gains also receive relatively favorable tax treatment, since only half of the capital gain is subject to taxation. Dividends and capital gains are typically earned on equity investments.
At Bilyk Financial, we can recommend potential tax strategies that may suit your situation. These include:
- Different forms of income splitting, such as a family trust or spousal loan at the Canada Revenue Agency (CRA) prescribed interest rate
- Tax-efficient investment vehicles
- Investing in registered accounts, such as Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs) or Registered Education Savings Plans (RESPs)
- Different forms of charitable giving
- Distribution of assets between your accounts
- Approaches for transferring wealth to beneficiaries
- Potential structures, such as holding companies and insurance
- With a team approach, we can assist in determining which options may help you reach your goals.
Many entrepreneurs who have built successful companies are concerned about business succession as they get older. They often want to see the family business passed to the next generation but believe this cannot be done without paying significant capital gains tax. We can reduce the tax with advance planning. We assist with business succession planning by:
- Meeting with the client to determine the facts and circumstances, reviewing the personal tax position of the owners and the circumstances surrounding the company, and estimating the company’s worth;
- Obtaining a third-party valuation of the business;
- Developing a plan for transferring the family business to the next generation (which may involve an estate freeze, the use of trusts, and, where appropriate, working with life insurance professionals) or positioning the business for sale in a tax efficient manner;
- Working closely with counsel to implement the plan and assist in any tax filings that may be required; and,
- Once the plan is in place, we can monitor it year by year and adjust the plan for changing circumstances, personal objectives, and changing tax laws.
Money spent on taxes today or in the future generally reduces investment portfolios – sometimes substantially. Our team has decades of experience in anticipating and helping to minimize taxes. We will work to construct a coordinated plan to manage, reduce or eliminate as many tax burdens to a portfolio as prudently possible, including current and future.
Serving clients across Canada including: Edmonton, Calgary, Toronto, Vancouver, Winnipeg, Saskatoon, Kelowna, Ottawa and surrounding areas.
Tax planning is a proactive way to ensure you are not overpaying taxes while aligning your financial decisions with your long-term goals. It helps you identify opportunities to reduce your taxable income through deductions, credits, and tax-advantaged accounts like RRSPs or TFSAs. Beyond saving money, tax planning ensures compliance with current tax laws, reducing the risk of audits or penalties. Effective planning can also help you prepare for future milestones like retirement, business transitions, or leaving a legacy for your family.
High-net-worth individuals face unique tax challenges, such as higher tax brackets, estate taxes, and complex investment portfolios. Tax planning can mitigate these challenges by employing strategies like income splitting, deferring taxes through trusts, and leveraging charitable giving for tax credits. Additionally, careful estate tax planning can help preserve wealth for future generations by minimizing estate taxes and probate fees. By optimizing the structure of your investments and businesses, you can reduce tax exposure while ensuring steady financial growth.
Business owners have access to a range of tax-saving strategies tailored to their specific needs. Incorporating the right business structure, such as a corporation, can provide opportunities to defer taxes or take advantage of lower corporate tax rates. Implementing tax-efficient compensation plans, like dividends versus salary, can reduce personal tax burdens. Utilizing tax credits for innovation, hiring, or capital investments can lower your overall tax liability. Additionally, proper planning for asset depreciation and business expense deductions ensures you’re maximizing tax benefits year-round.
Tax laws evolve regularly due to new legislation or updates to existing rules. These changes can impact how income, investments, or estates are taxed. For instance, shifts in capital gains tax rates or new deductions could create opportunities for savings, while eliminating deductions could increase liabilities. Staying ahead of these changes is crucial to maintaining an effective tax strategy. We continuously monitor these developments and adjust your tax plan to ensure compliance and optimize your financial outcomes.
Tax preparation is the process of gathering and filing your tax returns to meet government deadlines. It’s a reactive approach that focuses on accuracy and compliance. Tax planning, on the other hand, is a proactive, year-round process aimed at minimizing your tax burden. It involves analyzing your income, investments, and expenses to identify strategies like deferring income, utilizing tax-advantaged accounts, or restructuring your financial assets. While tax preparation is about meeting immediate obligations, tax planning is about creating long-term savings and building a solid financial future.
Estate taxes can erode a significant portion of the wealth you wish to pass on to your heirs, but careful planning can mitigate this impact. One strategy is to make use of tax-exempt gifts during your lifetime, which not only reduces your estate size but also provides your heirs with immediate financial support. Additionally, establishing trusts can be an effective way to transfer assets in a tax-efficient manner. Irrevocable trusts, for example, remove assets from your taxable estate while providing control over how those assets are managed and distributed. Utilizing strategies like charitable giving can also reduce the taxable value of your estate, while simultaneously supporting causes you care about. Charitable remainder trusts allow you to transfer assets to charity while retaining an income stream during your lifetime, and the remaining funds go to the charity upon your passing. Collaborating with an estate planning professional can help you navigate the various strategies available, ensuring your estate is structured in a way that minimizes taxes and aligns with your long-term goals for wealth transfer.
For business owners, optimizing tax efficiency involves structuring the business in a way that minimizes the overall tax liability while maintaining flexibility for growth and succession planning. One way to do this is through the use of holding companies, which allow for income splitting and the deferral of taxes on corporate earnings. By holding investments and income within a separate corporation, you can access tax advantages such as preferential tax rates on dividends or capital gains. Additionally, incorporating your business can provide opportunities for deducting expenses like office supplies, equipment, and even certain compensation or benefits for employees. Tax-efficient compensation strategies, such as paying yourself in dividends rather than salary, can also help lower personal tax liability. When it comes to selling or transferring a business, using estate freezes or family trusts allows you to lock in the current value of the business for tax purposes, while future growth can be transferred to heirs with minimal tax consequences. A comprehensive tax plan for your business ensures you can take advantage of every available opportunity to reduce taxes while planning for long-term success and wealth transfer.
Tax laws are subject to change, and it’s important to stay ahead of potential shifts that could impact your wealth. One strategy to protect your wealth is by utilizing tax-deferred growth opportunities, such as pensions, retirement savings accounts, or tax-efficient investment vehicles. These accounts allow you to defer taxes on the growth of your assets until retirement or a future date when you may be in a lower tax bracket. Another strategy is to engage in regular tax planning, ensuring that your financial portfolio remains adaptable to changing tax environments. By working with tax professionals, you can implement more advanced techniques such as income splitting, tax deferral strategies, and trust planning to protect your wealth. Diversification of assets, including offshore investments or real estate in jurisdictions with favorable tax treatment, can also mitigate the impact of tax changes. Furthermore, philanthropic strategies like charitable giving, including establishing foundations or donor-advised funds, not only allow you to support causes that are meaningful to you but also reduce your taxable estate. Staying proactive in managing your tax exposure ensures that your wealth is safeguarded, no matter how tax laws evolve.