Thousands of Canadians use private corporations to run businesses, manage family finances or operate professional practices as doctors, lawyers or accountants. However, many of these business owners are missing out on opportunities to optimize their finances.

In this blog post, we share five financial planning tools for business owners that can help you protect your loved ones and grow your wealth.

  1. Critical illness insurance

According to the Canadian Cancer Society, approximately 1 in 2 Canadians will develop cancer during their lifetime. If you have the misfortune of developing cancer or another serious health condition, critical illness (CI) insurance can serve as a safety net by providing a tax-free, lump-sum payout to help cover the extra expenses you may face.

CI insurance can be beneficial for anyone. However, as the owner of a private corporation, you may be able to reap additional benefits through shared ownership of CI insurance and additional return of premium (ROP) coverage. With this strategy, your corporation receives the CI benefit payout if you fall seriously ill while you receive a potentially tax-advantaged ROP payout if the policy is cancelled or expires. Read a more detailed explanation here about how the strategy works and how you can benefit.

  1. Disability insurance

While CI insurance provides a lump-sum cash payment in the event of a health disaster, disability insurance offers complementary support by providing you with ongoing monthly payments if you become unable to work due to injury or illness. Disability insurance is crucial to ensure that you aren’t forced to burn through your savings or investments if you face a long-term disability.

Many Canadians have some level of disability insurance through their employer’s group benefits program, but for high income earners this coverage often falls well short of their needs (in this situation, individual top-ups are recommended). As a business owner, it is up to you to obtain your own disability insurance if you do not also have an employer who provides it, and securing this coverage is critical to protecting your financial well-being.

  1. Buy/sell agreement

If you share ownership of your corporation with business partners or other shareholders, have you considered the financial and operational challenges that could arise if one of you dies or falls seriously ill? The upheaval resulting from a sad situation like this can be exacerbated if you do not have a plan in place for managing and funding changes in ownership.

A buy/sell agreement can help you mitigate this risk and protect the long-term viability of your business by implementing clear guidelines and funding mechanisms. There are various ways to structure such agreements, and you can learn more about different tax-efficient approaches to funding them here. The bottom line is that having a buy/sell agreement will strengthen your business and provide valuable peace of mind.

  1. Life insurance

Participating life insurance is a powerful financial tool for growing your wealth and ensuring your loved ones will be provided for after you die. As a business owner, you can boost these benefits by purchasing corporate-owned life insurance.

This approach allows you to pay the insurance premiums with pre-tax dollars. While the corporate-owned policy will be subject to taxes at the time of your death, its cash value component will have benefited from tax-free compound growth up to that point. In addition, some or all of the policy’s death benefit can paid out to your loved ones tax free, depending on how old you are when you die.

  1. Living trust

A living trust (or inter vivos trust) can offer valuable opportunities for tax and succession planning. Using a living trust involves placing property – such as shares in your corporation or other assets – in the trust and appointing a trustee. The trustee can manage the assets within the trust if you become incapable of doing so yourself (e.g. due to illness or injury) or upon your death.

For a business owner, a living trust offers several key benefits. For example, it can help avoid both the time and cost of probate when ownership of your business is transferred to a beneficiary when you die. This can help ensure a smooth succession and minimize the financial impact. In addition, the details of a living trust generally remain private, whereas the details of a will become public.

At Rubach Wealth, we help business owners like you identify and implement financial planning tools that put you, your loved ones and your corporation in a better financial position. To have a conversation about how you can best make use of these tools, contact us at (647) 349-7070.