Martin Maretzki, B.Comm (Hons.), CHS, CLU
This isn't the type of BOSS that likely comes to mind. I use this as an acronym for Business Owner Success Strategy. What do I mean by "The B.O.S.S."?
Well, you may be a small business owner or an incorporated Professional (Dentist, Doctor, Lawyer etc) who has become quite successful to the point that the corporation is generating more revenue than what's required to run the business or has retained earnings sitting idle. This "surplus" is typically held inside the corporation and invested in a variety of ways but each has tax implications:
- Interest – Generated from GIC's, high interest savings accounts etc, are taxable at the highest marginal corporate rate. Although this is "safe" money, there is no tax incentive for earning interest income. It's very inefficient.
- Dividends – The corp pays a refundable dividend tax at the rate of 38.33% on portfolio dividends
- Capital Gains – Half of the capital gain is taxed as regular investment income to the corp.
Although dividends and capital gains (stocks) may seem attractive from a tax perspective, these holdings also have risk. With equities, you could win big or you could lose everything! With fixed income investing, you have better safety of capital but the rates of return are very low and the taxation is very high. Is there another strategy that the business owner can use? Well yes, the B.O.S.S. involves the corporate implementation of a Participating Whole Life Insurance Policy on the life of the owner. The owner will pay less tax and keep more money, significantly reducing the impact on the owner's wealth accumulation.
Participating Life Insurance has a cash value that grows exempt from tax within the policy. (In fact, the product is so effective in this manner, that the government actually legislates limits on how much can be deposited into these types of policies). If required, the owner can access this cash from the policy in a number of ways. Let me give you an example of one. I recently had a client who was in the process of purchasing another building for his business. Rather than going through the credit checklist process with the bank and putting up collateral, he was able to access a loan from his own policy for the down payment on the building. He called me up, and I was able to get him a cheque within a few days! He really was his own banker. There are other ways to access cash values even later on if these funds are required in a pinch or if a additional income is desired to enhance retirement living.
Implementing a Participating Whole Life policy is an excellent Business Owner Success Strategy since it allows inefficient tax unfriendly assets to be repositioned into a tax friendly asset class (Whole Life) that is SAFE and has excellent long term returns. It's a COMPONENT to the overall corporate portfolio. Also, the accumulated cash values are VESTED which provides security against downside potential on other riskier investments outside of the policy. Finally, on the death of the business owner, the actual growing Insurance Benefit of the policy is paid out tax free which grows the business owners estate in later years and also takes care of final taxes so that the estate can transfer to the people they love without liquidating assets. Tax free accumulation! Tax free distribution! Safety of Capital! All are inherent in the B.O.S.S..
If you love your family, and have an opposite love for taxes, then I'd be happy to introduce you to the B.O.S.S. - martin@axizfinancial.com.
