How to properly manage a company's profits?
THE SITUATION
Alexandre is 28 years old and holds the position of general manager for the family business which has been manufacturing and distributing medical products for many years. He is the father of two young daughters and has been married to Stéphanie for 2 years.
With the health measures put in place since the start of the pandemic, the family company saw its turnover explode and Alexandre received exponentially higher remuneration than the previous year. Several projects were launched and its sources of income multiplied. In 18 months, he received more than $1 million in compensation, his lifestyle is no longer the same and concerns have accumulated:
- Should I deposit this money into my personal bank account?
- In a business account?
- Should I incorporate?
- Do I have to pay tax on the entire amount? If yes, how much? How?
- Can I use this money to renovate my home?
- Can a financial planner* help me?
- Is my bank representative the best person to support me?
- Should I invest in a registered education savings plan for my children?
- How can I protect my family in the event of death or accident?
Faced with all his questions, he decided to contact the office to meet an advisor and find out about the services offered by a private wealth management firm. Following an initial, rather informal discussion followed by an in-person meeting, Alexandre’s expectations and concerns were clearly understood.
Objectives
He wants to deposit his money safely while he makes informed decisions, pay only his fair share of taxes and put in place a complete financial plan to plan his next projects.
The key figures
Balance sheet as of January 1, 2020
Assets Bank account: $4,500 Main residence: $380,000 Car: $23,000
Liabilities Student loan: $12,500 Line of credit: $2,700 Mortgage: $305,000
Net worth: $87,300
Summary as of September 24, 2021
Assets Bank account: $25,000 TFSA: $75,500 Main residence: $420,000 Car: $20,000 “Gestion Alexandre Inc” shares: $1,100,000
Liabilities Mortgage: $287,000
Net worth: $1,353,500
Our solutions and results
Once the funds were safely deposited in a private management account, we established the next actions. Thanks to a complete analysis of his situation and faced with the challenge of rapid growth in his income, we supported Alexandre in setting up his personal and business financial structure. An office meeting with a trusted tax professional was arranged to open his management company and set the table for his next tax return. This support allowed him to defer an amount of $310,000 in taxes and to fully understand the advantages of incorporating.
Its various ambitions were then clearly established, projected over time and put on paper as part of a comprehensive financial plan. This plan now offers him an overview of his financial assets and confirms the feasibility of his projects. He now feels confident in hiring a contractor to begin work on his home, he is proud to have maximized the RESP for his daughters’ future studies and he perfectly understands the proposed financial plan. The money held in his company was invested in a private management portfolio, which generates deferred capital gains and a small amount of eligible dividends, to offer him better tax treatment on the gains.
His feeling of confidence reassures him and allows him to focus his energy on the family company so that it reaches new heights. Alexandre thinks big and his projects pile up quickly. Frequent communications, quality advice and regular updating of one’s financial situation are at the heart of our business relationship.
