3 Considerations for Your Surplus Assets.

Written by: Sunil Heda, CPA

If you have surplus cash accumulating in your company, you may be wondering whether to retain or withdraw the funds.  There are a number of ways to protect your hard-earned wealth, and things to consider before you take action.

If you haven't already done so, have a comprehensive financial plan prepared for you. If it is determined that there are surplus assets that you are unlikely to need during your lifetime, even under very conservative assumptions, consider these options to protect them from high taxes and creditors.


Lifetime gifts

If you have surplus assets that you will definitely not need during retirement, or if you are planning on providing funds to your children or grandchildren, then it probably does not make sense to continue exposing the income from these surplus assets to your high marginal tax rate.

Instead, consider giving some of these surplus funds to family members now, either directly or through a trust if you do not want the children to have control of these assets.  There will be no attribution on any investment income earned on the gifted funds if the child is 18 or older and no attribution on capital gains if the child is under 18.  In the case of a trust, it is important that the trust be properly structured to avoid that attribution rules.  If you are concerned about direct gifts to your children, then lending funds to a family trust and providing you children with only the income earned on the lent funds is another strategy to consider, as you can call the loan principal back any time.


Tax-exempt life insurance

To avoid exposing income from surplus assets that you know will be passed on to your heirs, consult your insurance advisor about putting these highly taxed (typically interest-bearing) assets into a tax-exempt life insurance policy where the investment income can grow on a tax-free basis.  This way, tax on the income earned on these surplus assets that would normally be paid to the Canada Revenue Agency (CRA) could instead be paid to your beneficiaries in the form of a tax-free death benefit.  If needed, you could access the investment account within the life insurance policy either directly or through tax-free policy loans, which could be repaid after death with part of the death benefit.


Charitable giving

Donating some of your surplus assets to charitable organizations assets to charitable organizations can help create a charitable legacy, while providing some tax relief.  Recent tax changes also make it more attractive to donate publicly listed securities such as shares that have appreciated in value.  Now, when you donate certain publicly listed securities in-kind to a qualified charity, your capital gain on the disposition may be exempt from tax.


Source: The VOICE, Markham's Exclusive Business Magazine, 2015 Spring Issue. Page 16

Author/Written by: Sunil Heda, CPA, is an Investment & Wealth Advisor with RBC Dominion Securities Inc. Member CIPF. This article is for information purposes only.  Please consult with a professional advisor before taking any action based on information in this article.  Reach Sunil at sunil.heda@rbc.com

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