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Brittney Case Study – Client without Advisors

In another post I went through a case study with a client who is working with other advisors that have little communication between them.

In this case study my client “Brittney” hasn’t worked with any other advisors or done any prior planning.

By the way, names and numbers have been changed to protect the innocent. (obviously)

She is a perfect example of a business owner that was relying solely on the advice of her accountant and didn’t have any other advisors that she worked with.

Brittney was married to Matt and had two children – Braden and Natalie

CLICK HERE to see a visual representation.

Also, this is going to get a LITTLE technical.

Bear with us here – we tried to make it as simple as possible!

Here’s what she had at the beginning of us working together;

Legal – Prior

  • ABC Co. (100% shares owned by Brittney)
  • XYZ Co. (100% shares owned by Brittney)
  • JBL Co. (100% shares owned by Brittney)
  • 123 Alberta LTD. (100% shares owned by Brittney)

Investments – Prior

  • Investment portfolio of around $500,000 between her corporation and personally owned

Insurance – Prior

Brittney owned real estate in 123 AB LTD. that she leased out to both ACB Co. and XYZ Co.

They were both profitable companies that she had hired directors for, and they oversaw most day to day operations of the companies.

JBL Co. operated across Canada and had no real estate that it required.

123 AB LTD. was just a corporation that held the real estate for the other two companies that operated out of it.

After discussions with Brittney we discovered the following goals:

  1. She was going to be buying another property and starting another business that would operate out of it. She wanted to know what corporation to place it in and how to structure it in the most tax efficient manner
  2. 123 AB LTD. had to pay GST on the lease payments from the operating companies – she wanted to eliminate this
  3. Her companies were already worth roughly $1.5MM – she wanted tax strategies to allow her to pass down the future growth of her companies to her children
  4. Natalie worked in the companies with her, however, Braden did not – she wanted to pass her companies down to Natalie but still provide an inheritance for Braden
  5. Brittney wanted the flexibility of selling off certain companies and passing down other companies to her children as she chose while still maintaining a high degree of tax efficiencies
  6. She also wanted to ensure she had enough income during retirement – and wanted strategies to extract as many retained earnings as possible in the most tax efficient manner possible

This is what we recommended:

Legal

Create wills, PA’s and trust documents for estate and succession planning to ensure her wishes are carried out

Perform a corporate restructure of existing companies for the following benefits:

This new structure would allow Brittney to ‘freeze’ the current tax liability of her companies.

All future growth would be allocated to her family trust which could be distributed to beneficiaries at the choice of the trustee’s.

We also connected 123 AB LTD. via skinny shares to all her operating companies which would allow her to sell of those shares and claim her capital gains exemption upon sale.

This would allow her to sell all her real estate if she chose to and pay very little tax upon the sale.

This structure would also allow her to multiply the LCGE if she chose.

If she decided to sell all her companies instead of passing them down to her children, she could allocate shares to her children or husband and upon sale they could claim their own personal LCGE.

This also gave me her a structure where she could actively purify her companies on an ongoing basis – any redundant cash left over could be paid up to her family trust and distributed to Invest Co. via inter-corporate dividends.

We also discovered a provision in the Income Tax Act (ITA) that would allow for an elimination of the GST on the lease payments to 123 AB LTD.

Investments

  • Continue to work with investment advisor

Her current advisor had been doing a great job and had a good relationship with Brittney – we wanted that relationship to continue.

Insurance

The jointly owned CI strategy would allow Brittney to transfer over $330,000 into her personal account tax-free after 15 years.

This would incredibly assist in her retirement planning and give her the protection of a critical illness policy over the next 15 years in the amount of $1,000,000.

The life insurance gave her many different options and flexibility over her lifetime.

She could use it during retirement to supplement her income if she chose or use it to leave behind a larger estate to her heirs in a much more tax efficient manner than leaving cash in a corporation and passing down shares.

It would also allow her to pass down shares to Natalie and liquid cash to Braden as to equalize her estate between her two children.

Summary

There was an overwhelming amount of tax efficiencies that we were able to find for her via the various disciplines we employ.

If her business continues to grow as expected she will save millions in taxes via the strategies we implemented.

Most of these strategies cannot be done after the fact and planning needs to be done as soon as possible to ensure you’re taking advantage of every tax savings possible.

But more importantly than all that, we were able to help her achieve all her goals with her business and family.

NOW!

I know that was probably quite a bit to take in and a lot of it may not make sense to you right now.

I hope that this gives you an idea that proper financial planning for business owners is more than just a mutual fund selection at your local bank.

I will encourage you to schedule a free 30-minute strategy session with me.

What this session will highlight is:

  1. If you have unforeseen liabilities threatening your future
  2. How you can be more efficient with your finances and save on taxes
  3. How you can receive maximum after-tax value from your company if/when you sell
  4. How you can pass down your business to your family without sacrificing your goals
  5. If your planning has something missing from it

So please schedule a session and I look forward to exploring how we can help you.

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