Incorporated professional

Anil, a periodontist, has been a client for more than 20 years. Dedicated to his work, he remains single. While he enjoys travel and woodworking – making chess sets with inlay boards, in particular – he hasn’t spent much time doing either in the last number of years, having moved into the city to be closer to his father’s long term residence. Anil, an only child, was solely responsible for his parents’ care both of whom had failing health. 

When we first started working with Anil, we:

• Established all the tax-advantaged accounts possible for him to be able to accumulate savings for his retirement. As a business-owner, Anil did not have a pension plan and had to fund his retirement himself.

• As a single person, some of the usual mechanisms to reduce the tax burden were not available to Anil: he had no spouse with whom he could share his income by making her a shareholder of his corporation or for whom to establish separate Spousal RRSP and TFSA accounts. 

• As a medical professional, Anil was entitled to incorporate his practice and leave excess funds in his corporation. The profits earned by the company are taxed at a lower rate than if the funds had all been immediately paid out as salary – he would still have to pay the tax on the profits, but not until they are paid out to him. Leaving the funds in the company provides a larger pool of capital to invest, until such time as the profits and income earned thereon, are paid out, and then taxed in Anil’s hands. 

• Secured generous Long Term Disability insurance for Anil. As a single person with parents in failing health, Anil’s safety-net was minimal, and he needed to ensure that he would have sufficient income coming in, if he was unable to work.

• Anil also decided to buy key person insurance that would cover the ongoing operating expenses of his practice, should he be disabled and not able to generate revenue for the business. 

By the time Anil reached his late 40s/early 50s we were encouraging Anil to start thinking about his succession plan and ensure his corporate structure was organized to ensure any sale would be tax-efficient. With no strong views on a succession plan, Anil continued to work in his practice but back problems had him contemplating working fewer hours.

After five or so years of raising the succession issue, Anil finally agreed it was time to take a closer look at his corporate structure so that when he eventually sold it, it would qualify for the Enhanced Capital Gains Exemption (“ECGE”). The timing turned out to be somewhat fortunate because some of the requirements to qualify for the ECGE have a two-year qualification period. Anil received a serious diagnosis that would shorten his working life. His illness meant he would not be able to maintain a full workload for an extended period, nor did he want to.

With the diagnosis, Anil wanted to travel more and take some time for his hobby. Even though his original plan had been to keep practicing for several more years, he was ready having taken the steps to prepare his practice for sale. The tax savings derived from the ECGE provided extra cushion for Anil, should he need additional care or incur other un-planned expenses in his retirement years, as a result of the diagnosis.