Fifteen years ago we hired a man to come in with a Cat to help us with some landscaping. An acre of dirt and a couple of big machines turned our little plot in to a 10,000 square foot sandbox for a few days. There is something about the smell of freshly churned soil that stirs something more than the earth.
In the mix of things, we had the Cat operator dig a large area for a garden, which we later backfilled with topsoil, peat moss, sand, and compost. It was expensive, especially under the stress of having just bought a new home.
When a friend came over for a house-warming visit, she saw the size of our garden plot (25 feet by 100 feet) and all the various mounds of topsoil that we had yet to mix, and she gasped: "You're crazy! You have a second job out there and it will take you years to get enough potatoes to pay for it."
I did a little quick math yesterday and figured we have pulled out about 5,000 pounds of potatoes from the garden over the last 15 years. This is in addition to the thousand or more pounds of carrots and gazillions of raspberries and beans and peas and turnips and other delightful treasures from the ground.
It was never about the potatoes. Looking at the value of that produce in comparison to the cost of the machinery and dirt is a favourable comparison, but this doesn't take into account the hard labour camp we've had in our backyard every summer for the past decade and a half.
It was about the smell of dirt. And more than that, it was about the look in a teenage daughter's eye as she sits at a picnic table, exhausted and covered from head to toe in sweat and soil. She rubs the dirt off a freshly harvested carrot, and holding it by the lush greens on the fat end she finds the sweetness that comes from the ground.
A moment later, noting my appreciative grin, she throws the carrot at my head.
That other harvest
After decades in your own company garden, so to speak, you may have decided that the excess funds in your corporation are your nest egg, either for retirement, or perhaps for your estate. At this point, you have already determined that there is no short or medium term use for these funds, so you need to think longer term.
Today we look at some retirement solutions for those funds, and next week we will focus on estate solutions.
Some possible strategies for retirement are:
Dividends: Accumulate excess assets in your corporation and pay dividends in retirement when you may be taxed personally at a lower rate.
Salary: Pay yourself sufficient salaries and/or bonuses during your working years to allow you to maximize your RRSP contributions or to establish an IPP using past service credit.
Corporate insured retirement plan: (This is very cool).
Your corporation applies for a permanent insurance policy that allows it to invest deposits in excess of the costs of the life insurance. The invested funds grow on a tax-sheltered basis.
When funds are required for retirement, the cash surrender value of the policy may be used by your corporation as collateral for a tax-free loan to you. The funds borrowed are then used to provide retirement income.
Upon your eventual death, the non-taxable death benefit is paid to your corporation, which creates a Capital Dividend Account (CDA) credit in the amount of the insurance proceeds in excess of the policy's adjusted cost. Insurance proceeds may then be used to repay the loan.
Your corporation then uses the proceeds from the life insurance (and any other capital) less the funds used to repay the loan to pay a dividend to your estate, the majority of which would be a tax-free dividend as a result of the CDA credit.
Is this cool or what?
Retirement compensation arrangement (RCA): Your corporation may deposit funds into an RCA. Your corporation gets to deduct the amount contributed to the RCA when calculating its taxable income. This is a complex arrangement which could be a whole article on its own.
Individual pension plan (IPP): Your corporation may contribute to an IPP for your benefit. Your corporation can deduct the contributions, and the funds in the IPP grow tax-sheltered until you withdraw them in retirement. Like a regular company pension, the funds you receive in retirement from the IPP are taxable at that time. This could also be an article all its own.
As you approach the autumn of your productive life, if you make sure the harvest is planned, you should do alright.
This article is not to be considered personal legal or tax advice. Due to the complexity of integrating your corporate and personal goals, it is essential that you involve the appropriate professionals in order to get this right.
Mark Ryan is an advisor in Prince George with RBC Wealth Management, Dominion Securities, and can be reached at [email protected].
