When it comes to building and preserving wealth, many people focus primarily on investments, savings, and income generation. However, one crucial aspect that often gets overlooked is the role of insurance in a comprehensive financial plan. At Smith Rogers Financial, we believe that proper insurance coverage is not just a safety net but a critical component in providing long-term income and securing a conservative and safe asset to support your long-term wealth-building goals.
Understanding the Role of Insurance
Insurance serves as a shield against unforeseen events that could otherwise have devastating effects on your financial stability. The most common types include life insurance, health insurance, and property insurance. In your 20s to 40s, these coverages ensure that you and your loved ones are protected from significant financial losses. By paying a relatively small premium, you transfer the financial risk of events like illness, accidents, or natural disasters to an insurance company, allowing you to focus on growing your wealth without constantly worrying about potential setbacks.
Asset Insurance: Securing What You’ve Built
Once you reach your 50s, however, you likely have lower debt, are earning a higher income, and have built up a portfolio of investments. At this stage, you want to protect the tangible and intangible assets you’ve accumulated over time. This includes everything from your home and vehicles to investments and business holdings. Adequate asset insurance guarantees that, in the event of damage or loss, you are compensated, allowing you to recover and rebuild without significant financial strain. For affluent individuals, specialized insurance policies may be necessary to cover valuable assets like art collections, jewelry, or other significant holdings. Additionally, after using available investment tools like RRSPs and TFSAs to reduce taxable income, you may be looking for other tax-free vehicles to enhance your wealth.
Integrating Insurance into Your Financial Plan
A well-rounded financial plan integrates insurance into every aspect of wealth management. At Smith Rogers Financial, we emphasize the importance of regularly reviewing your insurance coverage to ensure it aligns with your current financial situation and future goals. As your wealth grows, so should your insurance coverage. Life changes such as marriage, having children, or acquiring new assets should trigger a reassessment of your insurance needs.
Moreover, insurance can also play a strategic role in financial planning for life after 60 and for estate planning. Life insurance policies, for instance, can provide cash flow to supplement retirement income, liquidity to cover estate taxes, and increase the wealth that can be transferred tax-free to your heirs with minimal financial burden.
Protect Your Wealth with Smith Rogers Financial
At Smith Rogers Financial, we understand that protecting your wealth is just as important as growing it. Our team of experienced advisors is here to help you assess your insurance needs and integrate comprehensive coverage into your financial plan. Don’t wait until it’s too late—take proactive steps to safeguard your assets today.
Get in touch with one of our advisors to review your current insurance coverage and ensure your wealth is fully protected. Contact us today to schedule your consultation!
On April 16, 2024, the federal government unveiled its budget, featuring several key announcements. Below is an overview of some of several key announcements.
Tax Changes
The capital gains inclusion rate rises from 50% to 66%, effective June 25, 2024, for amounts exceeding $250,000. (Gains up to $250,000 annually for individuals remain at the 50% inclusion rate.)
The LCGE (lifetime capital gains exemption) for qualified property (such as qualified small business corporation shares and qualified farming and fishing properties) increases to $1.25 million. Moreover, certain businesses (excluding professional, financial, and real estate corporations, etc.) will benefit from a reduced inclusion rate of only 1/3 for up to $2 million of LCGE, effectively raising the total exemption to $3.25 million.
The Alternative Minimum Tax (AMT) serves to ensure that individuals with numerous tax-preferred items still contribute a minimum tax amount for the year, preventing them from paying little or no tax. Taxpayers are required to pay the higher of their regular tax or the AMT at the federal level. Budget 2023 proposed amendments to the AMT rules, which are currently in draft form. In Budget 2024, adjustments include:
* Allowing 80% of the charitable donation tax credit when calculating AMT, up from the previously proposed 50%. It’s worth noting that in-kind donations to charity remain subject to a 30% inclusion rate for AMT purposes.
* Additionally, deductions for Guaranteed Income Supplement (GIS), social assistance, and workers’ compensation payments are fully permitted under the AMT, along with complete exemption for Employee Ownership Trusts (EOTs). Certain disallowed credits under the AMT may now be eligible for the AMT carryforward, while AMT exemptions are extended to certain trusts benefiting Indigenous Groups.
Home seekers & Buyers:
The first-time homebuyer’s RRSP withdrawal limit expands from $35,000 to $60,000 under the Home Buyers Plan (HBP), effective for the 2024 and subsequent calendar years, for withdrawals made after April 16, 2024. Additionally, the repayment grace period under the HBP extends temporarily by three years, to five years, allowing eligible home buyers who withdrew from their RRSP between January 1, 2022, and December 31, 2025, up to five years before commencing repayments to their RRSP.
To stimulate the creation of affordable housing, the budget introduces an accelerated capital cost allowance (CCA) and provides relief from interest deductibility limitations for debt incurred to finance the construction of certain purpose-built rental housing.
Entrepreneurs:
Starting January 1, 2025, Canadian entrepreneurs will benefit from a decreased capital gains inclusion rate, halving the current rate. This incentive applies upon the disposition of qualifying shares and is gradually phased in, increasing by increments of $200,000. By January 1, 2034, it will reach a maximum of $2 million. It’s important to note that this incentive operates alongside the Lifetime Capital Gains Exemption (LCGE). To qualify, shares must meet all specified criteria:
* At the time of the sale, they must be shares of a Small Business Corporation (SBC) owned directly by the claimant.
* For the 24 months preceding the sale, they must have been shares of a Canadian Controlled Private Corporation (CCPC) and met the 50% asset test.
* The claimant must have been a founding investor and held the shares for a minimum of 5 years.
* The claimant must have been actively engaged in the business for 5 years prior to the sale.
* Throughout the ownership period, the claimant must directly own more than 10% of the votes and value of the shares.
* The shares must not represent a direct or indirect interest in certain service businesses.
* The shares must have been acquired at fair market value (FMV).
An Employee Ownership Trust (EOT) represents a method of employee ownership whereby a trust holds shares of a corporation on behalf of the company’s employees. EOTs offer a means to facilitate the acquisition of a business by its employees, eliminating the need for direct share purchases. For business proprietors, EOTs present an additional avenue for succession planning.
Various tax incentives are available to promote the use of EOTs in succession planning, including a proposed $10 million exemption on business sales to an EOT, contingent upon specific conditions.
The 2024 Budget Proposal offers further insights into the proposed exemption and its accompanying conditions. To qualify for the $10 million exemption, conditions include:
Ensuring that disposed shares are not part of a professional corporation.
The trust acquiring the shares is not already an EOT or a similar trust with employee beneficiaries, and that, for the 24 months preceding the transfer to an EOT, the shares were owned by the individual claiming the exemption, with over 50% of the corporation’s fair market value assets primarily dedicated to an active business.
Individuals must have been actively engaged in the business on a regular and continuous basis for at least 2 years prior, and 90% of EOT beneficiaries must be Canadian residents after the transfer.
When multiple shareholders sell to an EOT, they must divide the $10 million exemption amongst themselves. Disqualifying events occurring after the sale may affect eligibility. For AMT purposes, a 30% inclusion rate is applied. This applies to qualifying share dispositions between January 1, 2024, and December 31, 2026.
Additional notable initiatives for businesses encompass the Canada Carbon Rebate for Small Business, featuring an automatic refundable tax credit for eligible corporations. To qualify, corporations must file their 2023 tax return by July 15, 2024. Moreover, regarding non-compliance with Information Requests, the CRA holds the authority to issue a ‘notice of non-compliance,’ extending the normal reassessment period until the notice is resolved. Non-compliance incurs a penalty of $50 per day, up to a maximum of $25,000.
Families:
Disability supports deduction proposes to extend deductions for individuals with physical or mental impairments, enabling them to deduct specific expenses facilitating business, employment, or educational pursuits. The Budget 2024 seeks to broaden the list of eligible expenses under specific conditions, including:
Severe and prolonged physical impairments
Impairment in physical or mental functions
Vision impairments
Recognized expenses may include:
The costs of service animals
Eligible for claims under the medical expense tax credit or Disability Supports Deduction
Applicable for expenses incurred in 2024 and beyond.
Other Notable Proposals:
Additional significant proposals outlined in the federal 2024 budget encompass the Canada Child Benefit (CCB), Volunteer Firefighters and Search and Rescue Volunteers Tax Credit, Mineral Exploration Tax Credit, and Qualified Investments for Registered Plans.
If you are concerned about how any of these changes will impact your financial goals please contact us. You may want to explore strategies to spread out capital gains triggered from the sale of your assets, to reduce the overall tax to be paid-we can help you understand how that works and if it makes sense for you.
This has been provided for informational purposes only. And is not intended to provide legal, accounting tax, investment, financial or other advice.
