5 Ways for Entrepreneurs to Maximize Wealth and Minimize Taxes

 Here is a short checklist of tax planning and wealth management ideas all entrepreneurs should consider regardless of the life phase of their business: 

1.       Identify and implement income deferral opportunities.

Do you need all of the income your business currently generates to cover your expenses?  If not, have you incorporated your business? If you have incorporated your business, have you incorporated a separate corporation which is used solely for investing purposes?  Depending on your circumstances, with the correct corporate structure you may be able to defer a significant amount of income tax each year leaving you with more money to invest.

2.       Plan for the sale of your business.

Whether you want to sell you business in the next couple of years or 20 years from now, the sooner you start planning for it, the greater the opportunity you will have to reduce or eliminate the potential income taxes on a sale.  Did you know that each shareholder of an incorporated business can generate tax savings of almost $200,000 when a business is sold? If the share ownership of a business is ideally structured, one may be able to sell a business and pay little or even no income tax.

3.       Identify income splitting opportunities.

There are bona fide techniques accepted by the Canada Revenue Agency that provide the opportunity for individuals to split income.  Have you ever thought about loaning your spouse or child money to invest?  These prescribed rate loans can be set up with interest rates as low as 1% and they allow your spouse or child to earn investment income that otherwise would have been taxed in your hands.  Also, if you have a child who is attending university or college, you can pay him or her upwards of $50,000 from your business with little or no tax.

4.       Use an integrated approach to your finances with a single professional taking the reins. 

When your professional advisors (e.g. accountant, lawyer, investment advisor, insurance broker, banker, etc.) do not consult with each other, there are often negative consequences including tax inefficiencies, duplication of services and issues that are not addressed in a timely manner. 

Often your trusted accountant acts as the “cog” in your “wheel of wealth”.  An accountant can develop an overall financial plan that integrates all the financial aspects of your life and organizes all your advisors into a cohesive financial unit.  This professional can:

·         review your investment statements and discuss them with your investment advisor to ensure your investments are aligned with your objectives;
·         discuss various income tax minimization strategies with your investment advisor so that you are not paying any unnecessary taxes;
·         review your insurance policies and discuss your coverage with your broker to determine whether there may be duplication or areas of exposure;
·         consult with your lawyer to ensure that your wills are properly drafted to reflect your particular situation. 

This approach has been very refreshing for our wealth management clients.

5.       Ensure your interest is tax deductible.

Interest can be tax deductible or non-tax deductible.  The former will reduce your taxes, the latter will simply reduce your bank account.  There are ways to take non-deductible interest, such as interest on your mortgage, and convert it to deductible interest.  In order for interest to be deductible, the loan obtained must be used for an income earning purpose.  So, for example, if you hold investments personally and you also have a mortgage, consider selling the investments, using the funds to pay down your mortgage, re-obtaining the mortgage and using the money to re-acquire the investments.  By arranging the mortgage in this manner, the interest incurred on the mortgage will be deductible for income tax purposes.  You can also obtain a corporate loan and use the funds to pay back a shareholder loan or pay out retained earnings or capital.  The interest on these loans would be deductible for tax purposes.

While these concepts should be considered by the entrepreneur, each person’s circumstances and situation is unique and therefore should be discussed with your professional advisor before being implemented.


Aaron Schechter, CPA, CA, is a Taxation Partner with Cunningham LLP, Chartered Professional Accountants and can be reached at aaron@cunninghamca.com or: 416-496-1051x309.  www.cunninghamca.com