Tag: Clarity Financial Services

Preparing for the New Year: Setting Goals

Finance|Wealth, Planning, Practice, Practice Metrics & Benchmarks

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Dr. Roxanne Arnal, CFP®

It’s that time of year where we are trying to get everything done – to close out the year before we head into next year with a fresh start.

For the past year, I have had several goals. Some were simple checklist goals, such as reading twelve books. Sounds easy enough, but I haven’t yet achieved it. I have several books that are in the incomplete stage, so there is still time.

Other goals, like forecasting goals, were and weren’t achieved.

And lastly, my dream goals. While they are the hardest to achieve, they are what I had the most success with in 2021.

As a planner, I talk about goals at every juncture. They provide us with the direction we need to build out the plan. Often, I find that the conversation starts with checklist goals, and then we build from there.

Generally, people don’t know, or are unwilling to share, their dream goals without some prodding. But let’s face it, dreams are what get us excited to get out of bed in the morning!

Checklist Goals
Check ListChecklist goals are those that you already know how to do. They are merely items with or without a deadline that you believe you either must do or want to do.

Read twelve books in a year. Paint the house. Host Christmas dinner for the family.

These are generally simple “what” goals. What do I want and/or need to do? Boring, but nonetheless, necessary in order for us to advance.

 

Forecast Goals
These are goals that you think you can do. These are typically based on past performance and outline projections for the New Year.

Most of us are very familiar with forecasting in our businesses. Based on what we accomplished this year, we expect to accomplish 10% more next year. That kind of thing.

In financial planning, we often use forecasting to plan out your retirement needs. Based on how much money you spend on your lifestyle today, we can forecast what your need will be in 20 or 30 years for example.

We make assumptions based on inflation and the rate of return of your investments. We add checklist goals for your contributions to your RRSP and TFSA for example. Then, when you meet with us for follow-ups, we make the necessary adjustments and continue ahead.

Forecasting goals provide us with direction and instructions as to how to proceed. So I often refer to these as “how” goals.

Dream Goals
Do you remember being a young child and dreaming that someday you’d be a firefighter? A teacher? An Olympic ice skater? An astronaut, An Optometrist?

Well maybe not about being an Optometrist, but here you are!

These dreams got you out of bed in the morning and into a classroom to absorb all the knowledge you could. They had you climbing ladders outside your house. They had you training at the gym and spending 20 hours a week at the ice rink.

For some of us, the dreams were vivid and real and pushed us to succeed. For others, they were merely passing by, and we updated them regularly as our interests changed.

At their heart, dream goals cause us to grow. They cause us to seek out new experiences and push us to achieve something more. Dream goals motivate us to get out of bed and charge forward into our day with excitement.

Then life happens. For many of us, we forget how to dream because we are caught in what we thought we are supposed to be doing. We get busy with running through the motions of being a parent, a business owner, a spouse. And we forget to dream.

It’s not that any of these accomplishments are bad. These are all wonderful things, but we often end up getting stuck and don’t grow. Why?

Connecting with Your Why?
That’s exactly it. We forget our WHY. At the core, dream goals are our why. I’m sure you’ve heard it before. Start with WHY.

We need to take the time to find some silence, to shut off the devices and just be in the moment with ourselves and reconnect to our WHY. Why did you want to be a parent? Why do you want to own your business?

I often must prod my clients in the first couple of meetings to uncover their why. To understand what is truly important to them and what they would love to achieve if only given the opportunity.

This is why. Why I do what I do. Why it’s important. It’s about Your WHY.

Prepare for the New Year
I encourage you to take some time this holiday season to connect with yourself. To figure out your why.

When we become present, we are often surprised at what we learn about ourselves. When we reconnect to our why, we often find out we are a lot happier than the motions would indicate. When we define our why, we can create some amazing dream goals.

Set all three types of goals for the New Year. Then give me a call or an email and share them with me. When we share those goals with someone else, we create accountability. And when we create accountability, we increase our chances for success.

My dream goal doesn’t change often. I dream to write my own book and get it published. In 2021, I completed the first draft and shared it with someone who has agreed to co-author with me. It might not have gotten published yet, but we are moving in that direction. It pushes me to grow. To be vulnerable and keeps me connected to my why.

In 2020, I wrote my dream goal as it pertains to my business. I made leaps and bounds in that area in 2021 and continue to build out avenues that open more doors. I didn’t know the how when I wrote this goal, but I continue to remain focused and somehow, the how seems to be unfolding around me.

As one year rolls into the next, I wish you a list of goals. Some that you will check off to show discipline and progress. And then some big, audacious goals that will force you to grow.

When you grow, you live.

I wish you all a year ahead of good health, much laughter, and tremendous growth.

As your Chief Financial Officer, I’m here to help you identify your goals, set your plan in place, monitor and adjust it as the wind changes. I help you manage a team of financial professionals and ensure that you have thought about the potential issues and opportunities.

Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call (780-261-3098) or email (Roxanne@cfspsc.ca) today to start your plan.

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to Empower your Finances.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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The Best Holistic Financial Plan Has Multiple Accounts

Finance|Wealth, Planning, Resources

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Dr. Roxanne Arnal, CFP®

You want to build wealth for your future – a retirement that lies somewhere between now and infinity. For years we were told to aim for a retirement ten years before the standard age 65 to declare that you were successful in your work.

Freedom at any age is fantastic, but retire at 55? The closer I get, the more I think that I will work into my 70’s. Why? Work gives us purpose and now in my second career I find myself rejuvenated and excited. Regardless, building a retirement portfolio should be a checklist goal built on forecasting goals that allow us to achieve our dream goals.

Building a plan involves several assumptions in order to create forecasts. And just like the weatherman, forecasts and assumptions are never completely accurate. Regardless, the planning and forecasting are necessary for us to know what to pack in our suitcase before we leave for that next vacation.

Financial planning is no different. You need to know what types of accounts should be in your suitcase, and what back up plans should exist should you encounter a storm along the way.

How can we plan for a retirement that will occur at some unknown point in the future?
Step one involves understanding where you currently are. First you need CLARITY on your current cash flow and your net worth to build the foundation and appreciate your lifestyle expenses.

Step two is to develop some mid and long term goals. At 25 I wanted to own an optometry practice and retire at 55. At 50, I had already sold that practice and was celebrating that I pulled through a major critical illness that was poised to prevent me from seeing my 49th birthday. Point is, goals change and morph over time and we need to be flexible.

Step three is to forecast what our needs will be in order to reach these goals. How much money do I need to save? What rate of return do I need to achieve? How will tax impact my future withdrawals?

Step four is to understand that what we know today won’t necessarily be what is true tomorrow.

Prepare for the unknown
Yes, yes, YES! Despite that we might like to think we know what our future will bring, the reality is that we can’t control the wind.

Pandemic? Didn’t see that coming. Cancer? Surprised me. Premature death of a partner?

I left the practice, but my ex-partner did pass away prematurely. CRAP HAPPENS people. The best plan needs to address these possibilities to ensure that should the CRAP happen to you, your business, your family, your wealth aren’t all depleted in the process.

But what about taxes?
Now you’re talking my love language! As we live in a socialist and infrastructure rich society, we are all expected to contribute to the greater good.

There were eight tax changes that occurred on January 1, 2020 alone.1  So can you imagine how many tax changes have occurred in the past 20 years? And how many will occur before you turn 65?

When we create your personalized financial plan, we typically do so based on the current tax knowledge. You can quickly see why forecasting for something many years down the road won’t be 100% accurate. Financial plans are not “set it and forget it” plans, they are living documents.

Capital Gains Taxation
On January 1, 2022, Canada will be celebrating 50 years of Capital Gain taxation. And just like a 50 year marriage, things change with time. The inclusion rate alone has changed five times2 and rumors are swirling that we are in for another rate change as part of post-pandemic revenue generation.

Different Money has Different Tax
We’ve spoken before how different accounts are subject to different tax treatment. Same holds true for different forms of income. Essentially, not all money is the same – despite the tax reforms we have seen in the past 5 years to equalize the dollar.

Hedging your Bet
When we forecast we are essentially placing our bet based on our best judgement at the time. I’m betting that despite all factors changing, that I will still create a lifestyle income that will allow me to live my best life. I build in contingencies for inflation, utilize various types of accounts to eliminate and defer taxes, and create a portfolio that will create multiple sources of revenue, including tapping into some of those social programs Canada offers.

I know that my portfolio won’t grow at a consistent year over year rate of return, so I build in strategies to take advantage of buying opportunities, and insulate myself from having to withdraw when markets are down. Sure a capital loss can be offset by a capital gain, but I still don’t want a loss, even if it saves me some tax dollars.

The Best Plan
The best plan is one that is built around a solid investment policy statement that addresses your time horizon, risk tolerance and objectives. One that incorporates various account types and looks at my entire situation: my family, my business, myself.

As your Chief Financial Officer, I’m here to help you set your plan in place, monitor and adjust it as the wind changes. I help you manage a team of financial professionals and ensure that you have thought about the potential issues and opportunities.

Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call (780-261-3098) or email (Roxanne@cfspsc.ca) today to start your plan.

1 https://www.canada.ca/en/department-finance/news/2019/12/list-of-tax-changes-taking-effect-on-january-1-2020.html

  1. Canadian Tax Foundation, Capital Gains Taxation In Canada: History And Potential Reforms, Catherine (Cathie) Brayley, Miller Thomson LLP, Vancouver & Lesley Kim, Gowling WLG, Calgary; https://www.ctf.ca/CTFWEB/EN/Newsletters/Perspectives/2021/3/210304.aspx?_zs=mq1WL1&_zl=DX552

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to Empower your Finances.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Thinking of Investing? Should you Invest Personally or in Your Corporation?

Building Wealth, Finance|Wealth, Resources

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Dr. Roxanne Arnal, CFP®

There is never a quick answer to this question. For today, let’s cover a few of the basic differences between personal and corporate investing.

Are there differences in the types of accounts a person and a corporation can own?

A person over the age 18 typically has access to three types of accounts:

  • A registered retirement account (RRSP). In your saving years, the most common is an RRSP.
  • Since 2009, we also have access to a Tax Free Savings Account (TFSA).
  • Lastly, we have open accounts. These are also referred to as Cash Accounts or Non-Registered Accounts.

For further information on these accounts, please refer to my previous article: RRSP vs TFSA.

A corporation only has access to Open Accounts.

How do contribution dollars differ?

Investing in an RRSP is done with a pre-tax dollar and is a fully tax deferred account.

All other investments are done with an after tax dollar.

Personally, both the RRSP and TFSA account types have contribution maximums.

An Open Account, whether personal or corporate, is funded with after tax dollars and is not subject to any maximum contribution cap.

What is the difference between corporate and personal after tax dollars?

This is where things start to get interesting.

For our discussions, we are assuming that you are the sole owner of your Professional Corporation (PC) and that the dollars you are using to invest in your PC have been generated from Small Business Deduction paid tax dollars.

Let’s assume you live in Ontario and earn $155,000 of taxable employment income. This will place you at a combined federal and provincial marginal tax rate of 41.16% and an approximate average tax rate (ATR) of 28%.

The SBD corporate tax rate in Ontario is 3.2%, and the federal rate is 9.0%, for a combined tax rate of 12.2%.

Therefore, if you take $1,000 from your personal income, you will have $720 to invest. If you keep the $1,000 inside your corporation, you will have $878 to invest.

Why this matters?

Compound interest can be a beautiful thing. The more money you invest in a compounding investment, the more wealth you ultimately create.

Assuming a 5% year over year rate of return, after 20 years with no additional deposits, the personal investment will have grown to $1,910.37 and the corporate investment will be worth $2,329.60. Of course, the tax story isn’t over yet.

On open accounts, all earnings are taxable, and because the Canadian Tax system is so simple (insert very obvious sarcasm), taxation on investment growth varies by the type of income received in that investment (which is of course related to the tax that the investment company has paid before paying you). That being said, interest, dividends, and capital gains are all currently taxed at different rates.

For today, let’s attempt to keep things simple by assuming that 100% of your investment growth is a capital gain and therefore the entire tax bill on the investment in our example won’t be triggered until it is sold in year 20.

The difference in the last column may not seem like much, but what if you took that $1,000 of income amount every month and invested it using the same assumptions over that entire 20 year period? After the 20 years of investing, you have input an additional $37,920 into the corporate investment and have grown your overall investment by nearly an additional $65,000 before taxes.

Now, keep in mind, the net after tax account value in the personal account is ready to spend, while the corporate account value is still locked in the corporation.

In order to get the corporate dollars to your personal bank, you will be subject to personal tax. For simplicity we will assume that you will remove the money from your corporate account as an eligible dividend over a ten year period of time. Using the current Ontario eligible dividend marginal tax rate (after gross up and dividend tax credits) for those with a taxable income of $150,000 at 25.38%, the $323,195 is now $241,168 of spendable cash, for a total spendable cash loss of $37,535.

So does that mean I shouldn’t invest in my corporation?

…Well not so fast! This example made several assumptions, including the massive assumption that the future tax rates will remain the same and that your taxable income in retirement will place you at the same tax rates that you are currently at. I didn’t pick a $155,000 annual employment income amount at random either. For 2021, you earn the maximum RRSP contribution limit of $27,830 when your employment income is above $154,611.

All of these factors matter when we build a holistic plan that involves multiple different accounts and wealth creation strategies to help insulate you from the unknowns of future tax rates and provide for multiple sources of income draw – some taxable and some not.

It is therefore critical that your financial planner review all pieces of your puzzle and strategies to set you up for a future that has considered multiple sources of retirement revenue, possible future tax changes, and estate priorities.

As your Chief Financial Officer, I’m here to help you ask the right questions. I help you manage a team of financial professionals and ensure that you have thought about the potential issues. The more we learn, the more we realize the need to learn more, and yes, another topic for another day!

Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call or email today to start your plan.

 

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to Empower your Finances.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. The values provided here are subject to change and should not be construed as fact. Tax rates illustrated were in effect as of January 1, 2021. Errors and Omissions exempt.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Creating a Professional Corporation

Finance|Wealth, Resources, Tax & Legal Matters

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Dr. Roxanne Arnal, CFP®

Creating a Professional Corporation is a privilege that exists in most provinces in Canada. Many years ago, the tax benefits were obvious. With the tax reforms of the late 2010s, near perfect integration was achieved. Today, creating a professional corporation is no longer a simple decision.

Generally speaking, you should consider incorporation if:

  • You are earning more than you need to cover your expenses.
  • You have reached a financial position to save beyond your TFSA and RRSP.
  • You are taking on an ownership position and creating a business you can sell in the future.

What are the annual obligations of a corporation?

A corporation is a tax entity. Much like you, a person, is a tax entity. As a result, the corporation will need to file an annual tax return and pay taxes on earnings. In addition, the corporation needs to legally file a registry return – essentially to prove that the entity is still alive and confirm that the owners haven’t changed.

How are corporations taxed?

Unlike the graduated personal tax rates, corporate tax rates are fixed. Of course, with exceptions! One such exemption is the Small Business Deduction, where on the first $500,000 of active business taxable income, the corporation is taxed at about 12% depending on your province or territory. For earnings beyond this amount, the tax rate jumps up to the general corporate tax rate, which is about 50% depending on your province or territory. And of course, there are always exceptions.

And then there is passive income, like investment income, which is not eligible for the small business deduction. If you realize passive income greater than $50,000 in any given year, you will also start to chip away at the $500,000 maximum eligible for the small business deduction.

Why this matters?

If you are looking to create your professional corporation for the sole purpose of building your investment portfolio, you will likely be disappointed in the outcome. Like all tax planning strategies, there are pros and cons. Yes, when you take a business dollar and invest, you are investing about $0.88 versus about $0.50 personally at top marginal tax rates. So, from a compounding perspective, you can potentially grow your wealth quicker. The drawback occurs if your passive investment earnings exceed $50,000, on top of the tax integration that occurs when you get the money to your pocket.

Remember, in order to spend this money on fun stuff in your freedom years, you will need to get it out of the corporation. This will either occur by declaring dividends or taking salary. Both of these trigger tax before the money becomes available for your use. Tax integration today has removed many of the original benefits that existed in using this strategy.

What are the benefits of a Professional Corporation (PC)?

A professional corporation offers you another tax planning strategy. At the time of writing, having qualified shares in a PC that you can subsequently sell and utilize the Lifetime Capital Gains Exemption (LCGE) – you have a win that can amount to a tax savings of up to $250,000. Yes Please! Of course, not so fast. There are rules around qualifying for the LCGE too.

From a wealth creation perspective, a corporation provides you with another opportunity to diversify your portfolio by adding choices for your future. We don’t know what the future tax system will be, so having access to many different options will leave you with greater flexibility.

There are of course other advantages. A corporation can own property and insurance policies. It can borrow money and manage expenses.

Setting up a Professional Corporation

Starting a corporation will require the filing of legal documents and applications. A professional corporation has the additional layer of the professional requirements. It is therefore critical that you review your college rules for corporations. These can be different from province to province, and from profession to profession, so be sure you and your lawyer understand the rules that apply to you.

I also recommend that you consult both your tax accountant and your lawyer prior to completing any applications. If you have been in business for several years, there may be assets to transfer into the corporation. If there will be multiple shareholders, as in a group practice, you will want to be sure that the share structure is set correctly and is adaptable for future needs.

Of course, you will also need to speak to your general insurer for both the commercial business coverage and liability coverage.

Lastly, be sure to speak with your financial advisor. As your Chief Financial Officer, I’m here to help you ask the right questions.  I help you manage your team and ensure that you have thought about the potential issues, like shareholder agreements. Ah yes, another topic for another day!

Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call or email today to start your plan.

Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to empower the finances of her former colleagues.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. The values provided here are subject to change and should not be construed as fact. Errors and Omissions exempt.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Changing Landscapes – Selling & Buying a Practice

Buying-Selling A Practice, Practice, Webinar

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Buying & Selling a Practice

The second event of the “Changing Landscapes: Opportunities & Options for Canadian ECPs” will focus on Selling & Buying a Practice and will be held Monday November 1st (7:30 PM Eastern).

The Canadian market has experienced transformational change in the past year.

Major players have had substantial capital injection and new Canadian market entrants are making their play for market share, creating more opportunities and options for Canadian ECPs.

Join leaders and spokespersons from the world of independent optometry supported by B+L and major eye care groups/organizations including IRIS, FYidoctors, Vision Alliance Corporation, OSI/SOI, Eye Recommend and, new to Canada, Specsavers. ROI Corporation, Canada’s leading health practice brokerage will also share their experience.

This event is a must-attend for any practitioner looking to exit their business, start a new practice or formulate a strategic partnership.

Speaker List Includes:

  • Jackie Joachim, Chief Operating Officer, ROI Corporation
  • Dr. Daryan Angle, VP Business Development, IRIS Group
  • Dr. Wes McCann, Central Optometry, ON, Eye Recommend
  • Dr. Michael Naugle, VP Optometric Partnerships, FYidoctors
  • Gord McFarlane, Managing Director of Corporate Development, FYidoctors
  • Dr. Skylar Feltis, YXE Vision Group, SK, OSI Group
  • Dr. Warren Toews, YXE Vision Group, SK, OSI Group
  • Dr. Trevor Miranda, Cowichan Eyecare, BC, Independent Practice
  • Dr. Robert Allaway, Chief Optometry Officer, Vision Alliance Corporation
  • Mike Protopsaltis, Partnerships Director, Specsavers 

The event series will be moderated by Roxanne Arnal, OD and Certified Financial Planner (TM), bringing an informed and unique perspective to the events.

Event registration is now open. Click Here for Details. 

PREMIER SPONSORS

 
SpecSavers  

 

PARTNER & FRIEND SPONSORS FOR THIS EVENT  

 
Digital ECP  

Follow up Events: 

The final event in the series will be held Monday November 8th  7:30 PM (Eastern). 

Career Pathfinders| Making Informed Choices (November 8th)  
Career options and opportunities for both young and experienced ODs have never been greater as new organizations offering unique business models enter the market and established entities respond to the changing environment.
Click Here for Detailed Information.

Registration for the first event Monday October 25th,  “Technology Drivers of Change” is open. 
Click here for detailed information on this event.  

Click here to register for any of the Changing Landscape Events 

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Marginal vs. Average Tax Rate – Say What?

Finance|Wealth, Resources, Tax & Legal Matters

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Tax Burden

Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

 

Dr. Roxanne Arnal, CFP®

The Canadian Tax system is one of the most complicated in the world, so it’s no surprise that several tax terms used may feel unfamiliar and confusing to you.

We’ll start with some of the basics of personal taxation, more specifically tax rates. Personal tax rates in Canada are banded which means you will pay a different percentage of tax on different amounts of your income dollars. Let’s break it down –

Federal Marginal Tax Rates (Federal MTR)

At the time of writing, the federal tax rate on your first $49,020 of taxable income is 15% which means for every $1 of income you earn, you pay 15 cents in federal tax (excluding deductions but we’ll get there!). Band two (income between $49,021-$98,040) increases to 20.5% tax rate which means you will pay an extra 5.5 cents per dollar earned in tax! At the highest level of federal tax every dollar amount earned over $216,512 is taxed at 33%.

Provincial Marginal Tax Rate (Provincial MTR)

This works much the same as the federal MTR, but many provinces and territories in Canada use different income cut offs. For example, if you earned $100,000 depending on your province this would place you in the 11.16% MTR for Ontario, the 10.00% MTR for Alberta, and a whopping 17.5% MRT for Nova Scotia. Curious based on your existing income level? Here’s a super handy chart (LINK MACKENZIE Form)

Combined Marginal Tax Rate (Combined MTR)

Based on the above example, if you earn $100,000 while living in Ontario, your combined marginal tax rate would be 37.16%.

Average Tax Rate (ATR)

This describes the overall average amount of tax you pay. Because of banding and in recognition that higher dollars are subject to higher amounts of taxation, your average tax rate will be less than your MTR. What’s your ATR on $100,000 of earned income? Hold tight, we’re getting there.

Deductions

To make this just a little more confusing, there is also a myriad of tax credits and deductions. These too can be very different federally, and by each province. The basic personal exemption that applies to nearly every tax paying Canadian, for 2021, means you won’t pay any federal tax on the first $13,808 you earn and you won’t pay Ontario provincial tax on the first $10,880. But remember, I said “nearly”. There are exceptions to most of the rules. Federally, the basic personal exemption is subject to a gradual reduction for those earning over $151,978, until it reaches only $12,421 at an income level of $216,511. And then there are different rules provincially. See what I mean by complicated!

An Ontario Example

For illustrative purposes, we are going to assume you earn $100,000 of employment income in Ontario. This table illustrates the actual tax rates from both the federal and Ontario Governments and total tax dollars that apply to each band.

At $100,000 of income, your combined MTR is 37.16% while your average tax rate is 22.8%, or $22,798/$100,000.

A Few Other Notes

There are a large number of federal and provincial tax credits and personal deductions that may apply to you and I encourage you to become at least somewhat familiar with them. Some of the more common ones include: childcare expenses, RRSP deductions, disability tax credits, professional dues deductions, moving expenses, charitable donations, the list goes on and on. You can find these easily on government websites and are not included in our above example.

Why Does it Matter

Knowing your MTR is key to understanding how best to strategize your investments (for example your TFSA, RRSP and non-registered savings contributions), amongst other financial planning components to help support your overall wealth creation and minimize taxation. MTR is used to describe how much income tax you are going to pay on your next dollar of taxable income.

Understanding your ATR will help you plan your cash flow. As per the above example, after income taxes, you have $77,201.35 to spend on your debt repayment, housing, savings, expenses and entertainment.

Have more questions than answers? Educating you is just one piece of being your personal CFO that I offer. Call or email today to start your plan.

These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. The values provided here are subject to change and should not be construed as fact. Errors and Omissions exempt.

Federal Link: All deductions, credits, and expenses – Personal income tax – Canada.ca

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Salary or Dividends?

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

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Dr. Roxanne Arnal, CFP®

The age-old question for corporation owners. Do I take salary or dividends?

First off, congratulations – you are earning enough money in your corporation to pay yourself! If you started your business cold, this is a day to celebrate. If you are fortunate enough to have sufficient profits to support your lifestyle, you are now asking one of the most common tax questions.

And the answer…it depends.

RRSP Contribution Room

The tax deferral benefit of a Registered Retirement Savings Plan is greatest when you expect to be in a lower tax bracket in retirement than the one you are currently in. This isn’t an easy calculation, because you also have to remember that retirement income is not all taxable, and actually, some forms of retirement income can have a greater negative effect than others [think Old Age Security (OAS) Clawback]. And, we really don’t know what the tax rates will be like in the future.

In order to deposit to an RRSP and defer taxation, you need to create RRSP contribution room. RRSP contribution room is created through earned income. Dividends and capital gain sources of revenue are NOT earned income and therefore do not create RRSP contribution room.

There is also an annual cap on the amount of new contribution room you can create in any one year. For 2021, this cap is $27,830, which corresponds to earned income of $154,611.

If you take dividends however, you will not create any RRSP contribution room. And, for good tax and retirement planning, I don’t recommend an all or nothing strategy for any client.

CPP Contributions

The Canada Pension Plan forms part of the basic framework of the Canadian retiree social system. It is designed, along with OAS, to provide Seniors with a base living allowance. I typically use this base as the safety net for my retirees. Everyone, even my super high net worth clients, like having a safety net.

CPP won’t likely make up a large part of your retirement income, but the program also has disability benefits that kick in for those that suffer severe and long-term disabilities preventing gainful employment. An additional top up to your personal income replacement plan.

Salaried income is subject to CPP contributions. For self-employed individuals, you are essentially paying both the employer and employee portions. For 2021, this rate is 5.45% for each side, for a total of 9.9%. I know this sounds like a nearly 10% additional tax hit, but there is a cap on this amount. For salary earned above $61,600, no further CPP contributions are required. Hence, for a salary at the RRSP contribution maximum, CPP accounts for just over 4%.

 Ideal Split

In all reality, most clients benefit from a split between salary and dividend income from their corporations. Finding the right balance between excess lifestyle withdrawals for additional investing vs corporate investing needs to be reviewed on an ongoing basis.

Where lifestyle needs exceed the after-tax income created from an RRSP contribution maximum, $154,611, then I always recommend you pull the excess as dividends.

Let’s look at an example

Say you need $10,000 a month of spendable cash to cover off your mortgage, student loan payments, property taxes, utilities, groceries, and a little fun.

In Summary

There are several factors to consider on a salary or dividend split for those owning professional corporations. Part of it involves a conversation around your goals and retirement dreams. As a family CFO, I review all aspects of these decisions with my clients and work toward creating plans that meet your desires today and your dreams tomorrow.

This article should not be construed as personal financial advice.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Should I invest in a RRSP or a TFSA?

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

Dr. Roxanne Arnal, CFP®

Good question. Let’s start with some general information. What is an RRSP and a TFSA? Both are account types that have been given special tax treatment with the CRA. Both account types, along with open accounts, RESP and RDSP accounts for example, can hold a number of different kinds of investments within them.

RRSP

An RRSP is a Registered Retirement Savings Plan. It was designed to create a personal pension and really came into favor when businesses took a step back from offering those juicy Defined Benefit Pension Plans (DBPP). If you know of anyone who works for the government, chances are they still have a nice DBPP. For the rest of us, it is really our own responsibility to build a retirement nest egg that will allow us to live the lifestyle of our choosing when we no longer want to see patients in the little dark room. (You should also be aware that there are a couple of special withdrawal programs tied to an RRSP, such as the Home Buyers Program (HBP) and the Lifelong Learning Program (LLP). These are topics for another day.)

An RRSP at it’s core is a tax deferral vehicle. It allows you to take some of your income from today, invest it according to the program, and on withdrawal, pay tax at your then current rate. So from a planning perspective, an RRSP works best when you anticipate moving from a current high tax rate to a future lower tax rate.

Of course, there is no way to know what the future tax rates are going to be – so yes, this is a bit of a gamble. But historically, the income tax banding system used in Canada doesn’t change significantly and typically, year over year, they are adjusted for inflation. Planning does require various assumptions, and the future tax regime is one such set of assumptions we use.

TFSA

A TFSA is a Tax Free Savings Account and takes your current after tax money on deposit. In this case however, the investment growth is 100% tax free on withdrawal. Sound enticing? Well it should be! A TFSA works especially well if you are currently in a lower tax bracket and expect to be in a higher tax bracket in the future. And I don’t just mean in retirement.

Contribution Room

Both a TFSA and a RRSP have contribution room maximums that are calculated completely different.

You start to earn TFSA contribution room the year you turn 18 (provided you turned 18 on or after 2009 when the program started). Currently, the annual increase in your contribution room is $6000. Your contribution room continues to grow every year you are alive. When you make contributions, the room for future contributions decreases. When you make a withdrawal, the contribution room is returned to you the following January. This makes TFSA accounts a great place to park money for future large expenses, short and mid term goals. However, their very best use remains for retirement.

The contribution room in a RRSP is based on your annual tax reported income. So if you started filing tax returns at 14, you were already creating a contribution room pool based on 18% of your annual income, up to the annual maximum. Your annual income is defined as regular income and does not include dividend or other investment income. This of course opens up the question for self employed people – do you take salary or dividends? Yup – that’s a topic for another day.

But which one is best?

For most of my clients, we utilize both account types. The split is really dependent on how you create your cash flow, manage your tax strategy and organize your goals.

There are some general tax guidelines, but what you want your money to do for you should always be the most important guiding principle in how you invest. Your goals provide the framework for all the planning work we do together – because at the end of the day, it’s all about you!

If you have any questions, please don’t hesitate to reach out.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Getting a tax refund is exciting, but should it be?

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

Dr. Roxanne Arnal, CFP®

It’s that time of year again – when most of us have had to open up our wallets and make a special contribution to the CRA. As many optometrists receive income in multiple formats such as salary, dividends, and self-employment, we typically find ourselves owing additional taxes at this time of year. But not always.

If you haven’t strategized your annual tax bill well in advance, you may have found yourself with a refund coming your way.

Do you get excited when you hear you are receiving a REFUND? I’d like to challenge you to think differently about this.

Strategize your Tax Bill

What? You mean I can strategize my tax bill? Yes you can! Every year after you file your taxes and receive your notice of assessment from the CRA, I highly recommend that you spend some time with your Certified Financial Planner working out the best strategy for your income draw over the balance of the current tax year.

Adjusting your RRSP contributions is one simple task that everyone should review annually. Reviewing your tax installments is another. Salary and dividend splits need to be reassessed on an ongoing basis. Although your accountant has calculated your tax contributions for the coming year, this does not mean these figures are written in stone. Yes, there are CRA guidelines, but these are based on your tax bill from your previous two years of filing.

Your tax contributions for the year can always be adjusted based on a number of projections that we review in our annual tax meeting. Will your RRSP contributions increase or decrease this year? Have you had your payroll deductions adjusted for variances from the standard table? Do you anticipate placing a hefty medical expense submission on your next tax return? And on that note, do you know that medical expenses are any 12 consecutive months and not tied to the calendar year? Changes to your charitable contributions? Disability tax credit qualification change? Has there been a fundamental shift in taxation that will directly impact you?

We all know these things matter when we submit our paperwork to our accountant annually, but have you taken the time to plan for them earlier in the year and adjusted your tax contributions accordingly?

Why does planning ahead matter?

We all appreciate the social services that Canada offers. If you’ve ever been sick or seriously injured, you recognize the value of our health care system. Pandemic? Well you probably appreciated several of the government programs. Free highway access – yes please. Our social services are part of what makes this country great. But they do come at a cost and our tax system is designed to fund these costs – in one form or another.

So yes, pay your taxes, but don’t go donating extra to the government. When you make installments in excess of your tax bill, you are actually lending the government your money for free. FOR FREE!

With all due respect, if we owe them money, we will be charged interest and penalties. So don’t just ignore those tax installments, but adjust them to make them closer to target.

Do you like getting a tax refund? Well I don’t know about you, but I don’t like lending out my money interest free. Savings accounts might be paying dismally low interest right now, but they are still better than zero and maintaining the control of your own money is directly linked to opportunity flexibility,

Let’s get smarter about our money.

Need help planning your next tax year? Start with your tax return and an understanding of your year ahead – and let’s talk.

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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Asset Protection Analysis

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Roxanne Arnal, Optometrist and Certified Financial Planner© has made her article available in audio format.

Click the play button below to listen.

Dr. Roxanne Arnal, CFP®

My last article addressed your greatest asset and I introduced the concept of an asset protection portfolio. But what is an asset protection portfolio?

Essentially, it’s a plan that outlines how you will manage various risks to your assets.

For example, Professional Liability Coverage manages the risk you carry of causing real or perceived harm to your patients. In our increasingly litigious society, this coverage is vital to ensure that our livelihoods, our businesses, and our personal lives are not ruined due to a possible misjudgment along the way.

Review your Risks

Comprehensive financial planning includes a review of your potential risks and discusses the strategies to manage those risks.

  • Identify the risks that could threaten your financial security.
  • Quantify the risks.
  • Determine if there is some way to mitigate the risks through planning.
  • Transfer the remaining risks that you are unable or unwilling to assume yourself to an insurance company.

For significant life changing events, like premature death or developing a debilitating illness for example, it may be prudent to transfer as much of the financial impact as possible.

Where transfer is not done, you would ultimately assume the financial burden of unexpected, and potentially catastrophic events. This can have a significant impact on your assets – both on you as the asset generating machine, but also on the physical assets themselves.

From a health perspective, given todays ever advancing care, we often survive, what in the past, would have killed us. Both my husband and I are proof of  how advancements in health care save lives, where previously premature death was inevitable.

As a result, it is more important than ever to ensure that we don’t drain our savings in our fight for survival. Transferring risk permits us to adapt to our new situation while maintaining a manageable standard of living for us and our families.

Asset Protection Process

  1. Evaluate the impact of the risk. Consider: would the risk be of:
    • Minor consequence?: Where the potential financial loss is very low, it is likely very manageable within your overall financial situation. Think of smashing your cell phone. Annoying? Yes. Does it create a financial stress on your family? Likely not.
    • Substantial consequence?: Where you would face serious financial difficulties that would lead to a reduction in your standard of living, you will want to ensure you have reviewed risk transfer options.Your inability to work for six months after an accident is one such example.
    • Dire consequence?: Where it would result in significant financial loss that could lead to bankruptcy or the disposition of most assets, you will definitely want to transfer the risk.The everyday example we live here is the risk of malpractice.
  2. Review the probability of the risk occurring in relation to the impact it would create, and allocate premium dollars accordingly. For example, what are the odds of your house catching on fire? There were only 5,951 residential fires in all of Ontario in 2014. The odds of you developing a critical illness? 26% for a non-smoking 35 year old male before the age of 65! (You can review your own risk through the Insure Right Calculator by Manulife.)
  3. Select the appropriate asset protection strategy. There are 4 basic strategies:
    • Risk Avoidance – can you avoid the potential risk? For example, you can avoid the risk of an ice mountain climbing injury by choosing not to ice mountain climb.
    • Risk Reduction – can you reduce the probability of the risk occurring? For example, you can use your seatbelt every time you travel by vehicle.
    • Risk Transfer/Sharing – can you transfer the cost or share the cost of a risk occurrence with another party? For example, you can’t afford substantial time off work and support your family should you suffer a major injury. You may have an emergency fund equal to 3 months of expenses, but it’s highly unlikely you have sufficient savings to cover your needs until age 65. Perhaps a disability income replacement policy would be wise.
    • Risk Retention – for all risks not avoided, reduced or transferred to a third party, you ultimately retain the risk yourself and assume full responsibility for the financial impact it may have. Replace that broken phone? An inconvenience, but it won’t create financial ruin for years to come. Suffer a stroke? Well that’s a different story.

Have you analyzed your areas of risk and how you will handle them? As your personal CFO, I’m here to help you figure it out and explore the different options so you can make smart financial decisions with confidence.

Business risks? Well, that’s a topic for another day.

 

References:

Manulife Insure Right – What’s your Risk? Which references: Critical illness probability based on combined incidence rates for Cancer (“New cases for ICD-03 primary sites of cancer: 2002-2007”) and the Heart and

Stroke Foundation of Canada (“The Growing Burden of Heart Disease and Stroke in Canada, 2003”).

Fire Statistics in Canada, 2005-2014, published by Statistics Canada, September 2017

ROXANNE ARNAL,

Optometrist and Certified Financial Planner

Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS).  She subsequently built a thriving optometric practice in rural Alberta.

Roxanne took the decision in  2012 to leave optometry and become a financial planning professional.  She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.

Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.

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