There are many strategies to help you save on taxes. Your accountant, lawyer and other professionals will all have good recommendations, but they are working independently so their advice may not be coordinated. For example, some short-term tactics may run counter to long-term objectives, or vice-versa.
Our financial planners* can play a key role to help coordinate your tax strategy, grounding it in your financial plan. They often work with a dentist’s accountant and other advisors to help achieve this. With a plan in place, everyone understands your financial goals and timelines, and based on that, we can collectively recommend ways to help you save on tax.
Pay yourself wisely
Salary? Dividends? There are advantages and disadvantages to both depending on where you are in your career. A mixture is often a good choice, but ultimately the most tax-efficient solution will be based on factors included in your financial plan. You will be paying tax on any income you receive, so it’s important to only take as much as you need to support your lifestyle—there’s no reason to pay tax on income before you need it.
Create a tax-efficient corporate structure
Many dentists generate earnings beyond what they need to support their lifestyle. If this money is invested in your corporation it will earn interest, and over $50,000 of passive income will trigger a clawback to the small business deduction. You can structure your business, which may include a sister or holding company, to help shelter retained earnings.
Take advantage of insurance
Life insurance is a simple and tax efficient way to transfer wealth from one generation to the next. Our financial planners can help determine insurance solutions for your specific needs, including strategies to help you manage retained earnings within your corporation.
Avoid surprises by planning ahead
We have seen cases where dentists are hit with enormous tax bills because they structured their companies incorrectly, or withdrew income in ways that were not deemed legitimate by the CRA. It’s especially important to plan appropriately as you approach the transition phase of your career.
Withdraw cash tax-efficiently
You spend a lifetime accumulating assets. When you retire, cash starts flowing the other way so you will want to reduce as much tax as you can. Your financial plan will coordinate withdrawals from registered and non-registered plans, CPP, OAS and other sources for maximum tax efficiency.
Reduce tax for your heirs
There are several strategies available, such as permanent insurance plans, trusts, and corporate structure options. A well-constructed estate plan will also help ensure that your after-tax assets are distributed fairly among your heirs. Your financial planner will monitor the value of your estate annually and recommend adjustments when necessary. An advantage of investing with CDSPI is that we offer segregated funds, which means that a death benefit payment goes directly to your beneficiaries, bypassing probate.
An Accountant’s View:
“Collaboration is your best option.”
I strongly encourage dentists to work with a financial planner from CDSPI Advisory Services* because they know your business. A financial plan provides a clear understanding of goals, and the steps to meet them. This paves the way to develop effective tax strategies such as structuring your practice and accessing low tax brackets. As for a dentist’s estate, the benefits of tax planning are greatly reduced if not impossible without a sound financial plan.
Lachlan MacPherson, CPA, CA
Partner, Business Advisory Services
No matter how well your plan is constructed, things will inevitably change. Personal circumstances, market behaviour, changing legislation, and other factors can all affect the taxes you pay. This is why it’s especially important to have a financial planner overseeing your needs. We’ll help you stay true to the plan while integrating all tax-saving strategies.
Contact us to discuss a coordinated strategy to save on tax or call 1.800.561.9401 if you have any questions.
* Advisory services are provided by licensed advisors at CDSPI Advisory Services Inc. Restrictions may apply to advisory services in certain jurisdictions.