When talking to prospective patients or engaged in consultations you probably spend a lot of time clarifying what you do. People see NDs because they’ve heard good things about the profession, or have a friend who had good results.
Regardless of the positive feedback, there’s still some confusion about what role an ND can play in a patient’s overall health. When it comes to your own financial health and well-being, there may be some confusion too. You didn’t study all those years to become a financial whiz, but like many health issues, it’s important to set a goal and develop a plan for a healthy financial future. If you’re a little confused about retirement planning, you’re not alone.

Traditionally, we are most familiar with the Registered Plan (RRSP), Defined Contribution Plan, Defined Benefit Pension Plan, and Group Retirement Savings Plan. The most recent addition to deferred income plans is the Pooled Registered Pension Plan (PRPP). BC’s PRPP is voluntary and optional. It was implemented to reduce the administrative burden, transfer the fiduciary duty and responsibility from the employer and provide tax and cost savings for employers and self-employed individuals.
When offering a PRPP funds are contributed directly to the pension plan, thereby providing a key cost saving advantage over other plans. There are no payroll taxes, i.e., CPP, EI, and WCB. This plan suits small businesses offering a workplace savings plan.
Incorporated self-employed business owners also have the option for an Individual Pension Plan (IPP). An IPP has features with significant benefits upon retirement. It works like a defined benefit pension. The company pays 100 per cent of the contribution, and the pension plan is funded to provide a defined benefit. The contribution is a tax deductible expense. Administration and management fees are also tax deductible. One strategic advantage for a profitable company is upon retirement of the shareholders: The pension plan may be topped up from the proceeds of the sale of a clinic or practice and the contribution to the plan is tax deductible, thereby reducing the tax payable on sale of the business.

BC is the only province which does not require the company to meet an annual minimum deposit in funding the plan. This type of arrangement is suitable for practitioners over the age of 45, T4 income of $75,000 or greater, with past service or RRSP contribution room.
A June 2014 Conference Board survey found that while many Canadians are saving for retirement, the majority are concerned that they haven’t saved enough. Sixty per cent of respondents felt they haven’t saved enough to comfortably retire. Women and those with lower levels of household income were even less likely to have put money aside. However, there’s some good news in the survey.

A larger number of younger Canadians are beginning to prepare for their financial situation after they stop working. About 34 per cent indicated that planning for retirement is a priority for them, while 24 per cent said that they have made a plan for their eventual retirement. Based on these results, how would you rate your retirement planning confidence on a scale of one to five, if one was the lowest? Are you like some people who find the whole topic very confusing?
What would it take to overcome your fear and finally start investing in your future? Similar to starting a treatment plan, a diet or quitting smoking, it usually takes a shock to your system to make critical behavioural changes. For example, maybe your parents or grandparents had to keep working past their ideal retirement age because they didn’t save enough or suffered investment losses. They’re likely scared and feeling desperate. “That’s not going to be me,” you tell yourself even though you’re afraid it just might be.
Put your money where your emotion is. Before hitting your financial rock-bottom, why not decide to put your money where your emotion is? You can set up a plain and simple saving plan that is so automatic, you won’t even notice you’re saving. One easy option to consider is to contribute to your BCNA retirement savings plan.

Part of the pay-yourself-first concept: Your contributions are made automatically through pre authorized debit plans, so it’s virtually painless. If you don’t have it, you won’t spend it.
Tax savings: Your contributions are tax deductible. This means you’re lowering your taxable income and your contributions can grow, tax-deferred. Employer contributions: Depending on the features of your plan, you may also contribute for your employees. This could provide an incentive for key employees to stay.
Choice of investment options: You may have access to a variety of investment options that have been carefully selected by experts.
Lower investment/No transaction fees: Take advantage of group buying power, lower investment management fees and no front-end, back-end or deferred sales charges.
Speak to an investment advisor: Finding the right fit for your retirement
plan will depend on your company structure, tax deductibility,
marginal tax rate, family assets and net worth.
Home buyer/life-long-learning possibility: You may be able to use
some of your savings, as a first time home buyer, to purchase a
house or return to school.
Portability: You have the option of transferring your plan to another
investment vehicle or savings plan.
Meet your fears head-on: There’s so much information about retirement
saving, that it’s easy to feel overwhelmed and to avoid it. Instead, try to meet your fears head-on. Make regular retirement saving your goal and you’ll end up changing your financial future for the better.

Posted in BCNA Bulletin Articles

The top three critical illnesses affecting Canadians today are cancer, heart attack and stroke. How many of your patients, friends or family members do you know who have been affected by one of these dreaded diseases? Cancer seems to initiate a range of emotional reactions, varying from fear, distress and worry to positivity and triumph. There seems to be a current trend with cancer patients facing the illness with hope and courage and then making the shift from a place of victim to survivor. The statistics speak loudly where two out of five Canadians will develop cancer in their lifetime. In 2013 there were 96,200 new cases of cancer for males and 91,400 new cases of cancer for women. Prostate cancer leading the way for men at 24.5 per cent and dominating the women’s arena is breast cancer at 26.1 per cent. The cancer cases following prostate and breast are lung and colorectal. These types of cancer affect men and women almost equally, at around 13 per cent each. In 2013, the Globe & Mail reached out to their readers asking to share their stories of cancer. They received over 80 replies from cancer survivors. Here is what some had to say: “I expected pain and discomfort during treatment. And I expected fatigue after treatment. But I didn’t expect the amount of pain I’d experience during my treatment, and how severe the level of the pain would be. I was shocked by the time the treatment took (well over a year) and the time it’s taking to heal and get back to feeling normal.” A.P., age 33, Manitoba “The most surprising was that, no matter what, life must go on. Even if your puking and crapping the bed at the same time from chemotherapy, you still have to get up and go pay the Visa bill.” K.F., 57, Alberta It was Dr. Marius Barnard who had addressed financial help for his patients with the introduction of critical insurance in 1983. Dr. Barnard was a renowned heart surgeon in South Africa who had assisted his brother, Dr. Christiaan Barnard, with the first human heart to heart transplant in 1967. It was a young woman, a divorcee mother of three small children, whose circumstance compelled Dr. Barnard to talk to insurance companies. He felt his patient’s financial health was equally important for their physical health to be well. The mother who entered his office was very sick and diagnosed with lung cancer. Dr. Barnard was able to remove the affected lung and she was sent home five days later to recover. He later learned she had returned to work in just three weeks. Two years later this woman was back in his office. This time she looked pale, was extremely exhausted, just skin and bones. He knew she was at a terminal stage. When he asked why she would come in to see him now, in such bad health, she said, “Well doctor I have come straight from work, I need money to feed my children.” Sadly, the mother died. Her children received money from a life insurance policy. However, Dr. Barnard felt if she could have received the insurance money sooner, while alive, it may have given her a much better chance to survive cancer and be with her children. Unfortunately, she had worked herself to death. Dr. Barnard was compelled to approach the insurance industry to address insuring people for when they need it most, while living and managing a critical illness. Critical Illness insurance protection was created over 30 years ago. Today, the need continues to rise. Some are purchasing critical illness through their group plans or buying it individually. However, too many Canadians underestimate the health costs associated with a severe illness. According to a report from Sun Life Insurance nearly half of Canadians facing a major health incident like cancer or stroke are struggling financially. As a result of critical illness, with the loss of family income, not having enough saved and paying for additional expenses not covered by our medical system, the impact can be devestating. People tend to avoid the simple thought of getting a dreaded disease, either because of fear or feeling it won’t happen to them. Critical illness insurance was designed to provide options; take the necessary time to heal, alleviate the worry of paying the bills, fund alternative health treatments and reduce overall financial stress. Statistics from BMO Insurance from Jan 2007- May 2013 show benefits that were paid out; 61 per cent went to males and 39 per cent to females. The youngest being a 24 year old female with a benign brain tumor and the oldest a male, 78, diagnosed with prostate cancer. Total benefits paid out for illnesses were, 62 per cent for cancer, 19 per cent for heart attacks, seven per cent for stroke, three per cent to MS, six per cent “other,” and three per cent coronary bypass. Payout as high as $750,000 went to an investment consultant at age 61 with liver cancer. Credit goes to Dr. Barnard in addressing financial wellness and affordable insurance. Critical illness costs can be affordable. The industry has adopted standard definitions for 24 critical illnesses covered under most plans. For $50,000 of critical illness insurance for a healthy person age 35, with guaranteed premiums for 20 years, the cost is about $30 per month. $50,000 for a 50 year old with guaranteed premiums for 10 years will cost about $60 per month. Good health and good family health history is needed to qualify for personal critical illness insurance.

Published in the BCNA Bulletin 

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, insurance , tax or legal advice. Practitioners must seek their own independent professional advice to discuss their personal circumstances before implementing this type of arrangement.

E&OE/ 2014 SBILLAN Wealth Solutions doing Inc. business as SB Wealth Solutions.

Life and Health insurers often require medical information and attending physician statements (APS) in order to underwrite insurance applications. As an insurance advisor I have received enquiries from ND’s asking about the role and responsibilities as physicians in regard to the APS and also about the process as an individual applying for insurance and giving consent for the release of medical information to the insurance provider.

Insurer’s Perspective

I will describe the insurer’s perspective on the information they require from a physician and explain how it is used in the underwriting process. To begin, the insurance advisor as well as the insurers make every effort to protect client confidentiality while respecting  the client’s personal, financial and medical information. A request for medical information includes a signed consent form which allows the insurance company to share test results with the client’s physician. This will allow your patients to ask for the medical tests and lab results to be sent to their doctor of choice, at no cost to the patient. An insurer is under no obligation to offer this; however most are willing to provide this service.  It is also common practice for the insurance company to advise the client’s physician of any abnormal test result found during the underwriting process, in hoping this will help physicians with the care of their patients.

Physician’s responsibilities

Medical information is collected by a third party service provider, and physicians are paid a reasonable fee for the service. (Fees paid may vary dependent on provider- current schedule “2013 Guide To Fees for uninsured services” an APS fee is $129.45).

Doctors requesting pre-payment must realize they are legally bound to provide the report immediately. The insurance company’s expectation is that an APS should be completed within 2 weeks. The service provider may request the information be faxed or mailed, and can provide physicians with information about the process. An effective way to complete a statement is to list the client’s problems and provide supporting documents of relevant test results.  Example:

CHART

Unless it is requested, you do not need to see your patient. If further information is required, you will be advised. If you feel you need to see your patient, for professional reasons, discuss this with the person asking for the report so that delays can be taken into account.  It is important NDs recognize that failure to complete and offer full disclosure in these statements can have legal ramifications.  Time too is a factor, as in the case of a doctor in Quebec who was charged with delaying medical evidence and on the client’s death was made responsible for the value of life insurance.   With this in mind, a copy of the chart can be as good, if not better, than completing the written report. Physicians play an important role in the insurance application process.

Applying for insurance

What to expect during the underwriting process. There are a number of insurance tests that may be required. These services are covered by the insurance company.

• Paramedical exam:  this is where a health professional will ask health history questions, and they will measure and record applicant’s blood pressure readings and pulse, height and weight and this can be done, at your home, place of work or a medical facility.
• A Medical Exam:  a paramedical questionnaire and full physical exam conducted by a physician. This can be done as a mobile visit or at a fixed facility
• Blood  profile:  health professional collects a few vials of blood using a sterile lab kit,  conditions tested : heart , live function, alcoholism, diabetes, kidney function
• Urinalysis- sample will be tested for nicotine use, drug use, HIV
• Resting ECG:  can be done at home or office- records electrical activity of your  heart
• Stress ECG: test is completed in a fixed facility, monitored by an internist or cardiologist

Insurance can provide peace of mind and financial security to protect you and your loved ones. The application process can take several weeks to complete. To reiterate, delays can be caused by incomplete questions on the application, unfulfilled medical requirements, incorrect contact information, the locating of physicians and medical reports, the forwarding of the APS in a timely manner and possible further medical testing.

I hope this article helps you when you are asked to complete an APS or when going through the process with applying for personal and business insurance.

Sindy Billan

Published in the BCNA Bulletin 

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, insurance , tax or legal advice. Practitioners must seek their own independent professional advice to discuss their personal circumstances before implementing this type of arrangement.

E&OE/ 2014     SBILLAN Wealth Solutions doing Inc. business as SB Wealth Solutions

Still unsure about the differences between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP)? According to Alfred Roissl, a Toronto-based managing director with Desjardins Financial Security Independent Network, it’s all about the tax.

First, let’s review the main features of this tax-free registered savings account:

How much can I put into my TFSA? Starting this year, you can now contribute up to $5,500 a year. Your annual contribution limit will appear on your Notice of Assessment after your tax return has been processed. At the end of the year, any remaining balance will be added to your contribution limit in the following year. One great TFSA advantage is that there usually isn’t a minimum deposit required to open an account, which makes it easy to pay yourself first. And you can easily access your funds if you’re in a tight financial spot. It’s also worth noting that your withdrawals won’t compromise your eligibility to receive federal benefits like the Guaranteed Income Supplement, Employment Insurance or the Canada Child Tax Benefit. Any withdrawals you make can be replaced in the following year.

It’s a great retirement savings tool: If you’ve successfully reached your RRSP contribution limit, continue to make deposits to your TFSA, within your annual limits. Remember, these deposits are tax-free and tax-receipt-free. In other words, deposits you make to a TFSA won’t reduce your taxable income, you won’t receive a tax receipt for your deposits nor will your withdrawals be taxed like an RRSP.

“By contrast,” explains Roissl. “Any deposits you make to an RRSP are deducted dollar for dollar from your taxable income in that tax year. For example, if you make $40,000 a year and contribute $2,000 to an RRSP, the tax on your income would be calculated on $38,000 only. However, any withdrawal you make from your TFSA will be tax-free and the funds are not declared as income.”

Don’t forget to diversify: Consider shaking things up with a little diversification. You can choose investment options like stocks, bonds, mutual funds and guaranteed investment funds (GIFs). Also, you now have the option of borrowing your full contribution limit. However, unlike other investment loans, the interest paid on this loan cannot be used as a tax write-off.

“If you could afford to, contributing to each year’s maximums in both plans would be ideal,” advises Roissl. “Of course, it comes down to finding a balance between creating a strong nest-egg and paying off debts. But, these tax considerations can certainly help you meet your long-term financial goals.”

Planning your retirement Income:  Apply money concepts such as time value of money; invest money wisely to earn interest and appreciate in value. Earning interest and appreciation will maintain the purchasing power of your dollar and contribute to a positive return for retirement income.  Include dollar cost averaging as part of your investment strategy. Dollar cost averaging is used to minimize the overall effect of volatility in the markets. Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over several years, providing insulation against changes in market price. Benefit from investing early; understanding the effect compound interest plays over time can dramatically reduce the stress of catching up for retirement.  Utilize these money concepts along with the tax advantage government incentives to save for your retirement.

2013 Limits: TFSA (total maximum contribution limit 25,500), RRSP (18% of earned income up to a yearly max of $23,820), Canada Pension Plan (max monthly benefit $1012.50), Old Age Security (max monthly benefit $546.07).

BCNA members, their spouses and staff are eligible to savings benefit in the group plan for both RRSPs and TFSAs.

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, in­vestment, tax or related advice. It is recommended to consult independent professional financial advice to discuss personal circumstances before implementing any type of arrangement. Mutual funds are provided by Sindy Billan as a mutual fund representative with Investia Financial Services Inc.  Other eligible products are offered through other regulatory bodies.  Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

E&E/O 2013      SBILLAN Wealth Solutions Inc. doing business as SB Wealth Solutions

As the saying goes, only two things in life are certain: Death and taxes. In respect to taxes, there are ways to reduce payments required upon a death in the family. In Canada, the greatest transfer of wealth will occur over the next several decades as the population ages and the estates of the elderly transition to their heirs. The expected one trillion dollars of accumulated assets is attracting interest. Are heirs prepared to manage large sums of money, real estate and investments? Effective planning can reduce the emotional and financial challenges of a poorly prepared will, or no will at all, the erosion of an estate to taxes, probate fees, legal and accounting costs and the possibility of tarnishing family relationships.

One effective tool to minimize the impact of all these issues upon death would be under the umbrella of an insurance policy.

Employing the benefits offered in a life insurance makes sense to potentially: Reduce the risk of financial ruin to your family or business; protect a business partners’ interest; maximize the value of your estate and transfer wealth to your heirs; reduce a corporate tax bill and protect the value of your business; take advantage of the ability to designate a beneficiary and bypass probate.

Could there be risk of financial loss to your loved ones in the event of an unexpected death? Are others dependent on your ability to generate income? Do you have partners in your business? Does your corporation hold surplus cash, perhaps in a holding company that is not required for day-to-day operations? Are you looking for tax effective strategies to transfer the proceeds of your estate to your heirs?

If you can answer “Yes” to any one of these questions, perhaps a discussion about the use of life insurance should be addressed.

How can personal non-registered assets be transferred to heirs in a tax effective manner? The life insurance strategy is called “Transgenerational Wealth Transfer.” Non-registered assets are subject to annual tax on the growth of the money; an important consideration is the annual taxes and estate taxes upon death. If current assets of non-registered money are not required while living and the intention is to designate these monies to heirs, an opportunity with life insurance can be considered. Purchasing a permanent life insurance policy with the ability to accumulate cash value, allows the growth of the premiums paid into the policy to be tax exempt (within limits). Proceeds of the life insurance go to the beneficiary tax free, maximizing the transfer of wealth to the next generation. The policy can be purchased on the child or grandchild of the owner, allowing wealth from the elder to transfer effectively from one generation to the next.

How does a business transition wealth to heirs through life insurance? The strategy is called a “Corporate Asset Transfer.” When it comes to reducing your tax bill and protecting the value of your business, business owners can significantly increase the after-tax value of their corporation by using the passive assets in their business. How does it work? Let’s use a practitioner as an example: Susan is the Medical Director of her clinic, a private corporation. After 15 years in practice she has generated significant profit and, as a result, her business is thriving and operating smoothly. At age 50 she’s considering her options for succession of the business. Her primary concern is to transfer the business—or proceeds of the business—to her children in a tax effective manner, while enhancing the estate value. She currently has $250K in her corporation’s holding account. The funds are invested conservatively in a balanced fund earning six per cent annual return. Last year when she had factored in the annual tax paid on the investment (corporate tax rate 45 per cent), the net return was 3.3 per cent. Upon death this account would be subject to capital gains taxes and estate fees.

Insurance offers an alternative to reduce corporate tax. Although complex, Susan’s corporation becomes the owner and beneficiary of a $1M life insurance policy on Susan’s life. Over a period of five years the sum of $250K would be invested into the policy, allowing it to grow tax sheltered in an investment suitable to Susan’s risk tolerance. This has the ability to greatly reduce Susan’s corporate tax bill. At time of death the corporation receives the insurance money, then pays out the death benefit minus the Adjusted Cost Basis (all premiums paid minus the cost of the life insurance ) as tax free dividends, through the Capital Dividend Account( CDA). The ACB is paid out as at taxable dividend, benefiting from favorable tax rates.

Who qualifies? This strategy is best suited for practitioners who are incorporated, between the ages of 50-80. As in the example, you will require the business to purchase life. If you don’t already have a policy, you will need to be in good health to qualify for insurance. Your intention is to pass “locked-in” wealth from the business to your heirs. You have surplus cash flow available in your business. Finallly, you’re interested in a tax sheltered, flexible investment to house a portion of your corporate investment.

Critical to the strategy is qualifying for life insurance. During the earning and growth years of a business it would be prudent to purchase a low cost, fixed term, guaranteed, renewable and convertible life insurance policy. Getting insurance in place early preps an ND to utilize this strategy later on in his/her career. Age being another relevant factor in cost, applying earlier is better. As affordability is critical in having this strategy work, effective planning makes sense. Life insurance affords the individual or business with certainty and assurance to deliver their assets to whom they want and when they want, while maintaining control.

Published in the BCNA Bulletin Spring 2013

Insurance concepts and corporate tax strategies can be complex. The information in this article is presented for general knowledge and the content should not be relied upon as containing specific financial, investment, tax or related advice. Practitioners must seek their own independent professional advice to discuss their own personal circumstances before implementing this type of arrangement.

E&OE/2013 SBILLAN Wealth solutions doing business as SB Wealth Solutions sbillan@telus.net; www.sbwealthsolutions.ca

Patients suffering from a severe and prolonged impairment may qualify for a Government of Canada grant program. The Canada Disability Savings Grant (CDSG) is for eligible disabled person 49 years and under. The purpose of the program is to provide financial support and encouragement to assist with retirement savings for someone suffering with a long term disability.

Registered Disability Savings Plan (RDSP) established in 2008 is a long term savings plan for persons with a disability; much like Registered Retirement Saving Plan (RRSP) is used for others. However, the power of grant money makes it exceptional. Just by depositing a $250 GST cheque each year, starting at age 32, could provide over $29,000 in RDSP, by the age of 60.

Unfortunately, 80% of BC beneficiaries, who qualify, have not opened one. One such recent enhancement announced by Jim Flaherty to make the plan more accessible and useful, has been to allow a person who loses his disability credit to keep the plan.

The government matches contributions up to 300%, depending on the family income. The maximum grant available is $3500 each year, up to a lifetime limit of $70,000, and payable up to the age of 49. For example, if a family’s income is less than $85,414 the first $500 contributed each year will receive $3 for every $1, that’s $1500 of grant money. The next $1000 of contribution will receive $2 for every $1, up to $2000 per year. Maximum received of $3500 grant money for the $1500 contribution. Family income over $85,414 will receive $1 for $1 up to $1000 a year. In addition, to receiving free grant money and bonds, the plan has the ability for earnings to accumulate tax-free. The holder of a plan is usually the beneficiary themselves, a legal parent or legal representative. To be eligible for the CDSG one must be 49 years or under, qualify for the Disability Tax Credit, a Canadian resident, have a Social Insurance Number, and make contributions to the RDSP. To encourage savings, contributions, bonds and grants the money must remain in the plan for at least 10 years. Any person or organization can contribute to the RDSP on behalf of the Beneficiary, with written permission from the plan holder.

The government has also recently expanded the opportunity to allow rollover provision where proceeds from a deceased parent’s or grandparent’s RRSP, RRIF or Registered pension plan to a RDSP of a financially dependent child or grandchild with a disability.

Setting up and establishing the plan must be done with one of the participating financial organizations. Not all institutions are offering the RDSP plan. This may be due to the cost of administration and the ongoing expense with the plan. The CRA website lists the participating banks, credit unions, and investment companies.

One significant factor to note is money paid out of the RDSP does not affect the federal benefits such as Canada child tax credit, GST credit, Old Age Security and Employment insurance and social assistance payments.
RDSP offer a great advantage for people with disabilities to protect their savings and enhance their financial income benefits.

Published in the BCNA Bulletin Fall 2012

E&OE/2013 SBILLAN Wealth solutions doing business as SB Wealth Solutions sbillan@telus.net; www.sbwealthsolutions.ca

There are a few money saving strategies that are not commonly discussed. I would like to share two real-life examples that I have recently encountered. One is for business owners and the other is for a family. The first involves insurance protection for a business loan and the second, protecting capital in an estate.

First example, business loan:

It is common for lending institutions to request disability and life insurance protection on business loans and mortgages. Typically, during the application and approval process, creditor insurance is offered. It is a tick of a box to accept, there are a few medical questions, the process is easy and the insurance coverage is almost immediate. However, the hidden cost is overlooked. The entire insurance cost is added to the total cost of the loan, which results in interest being charged on the insurance. Most times, the lending institution does not present alternative strategies.

In this case study, two ND’s decide to form a partnership and open their first clinic. They apply for a business loan of $90,000. The loan is approved with a requirement of disability and life insurance coverage. The lending institution receives absolute assignment to the insurance; meaning if one of the partners become sick, injured, or dies the loan payment would be covered.

The total cost of insurance is $11,000 for this particular 5-year term. The insurance cost is tacked onto the loan, thus, adding insult to injury, interest is also payable on the insurance premium. The interest cost alone on the insurance is over $2,000 for the 5-year term. We looked for an alternative cost-saving and effective solution, which was to apply for personal business loan insurance for the two partners using one of the largest national insurance carriers. The monthly premium to their business, for the insurance, was now about $75; the cost for the 5-year term was about $4,550, providing a saving of 60% in insurance premiums. This is in addition to avoiding $2,000 of interest charges. The combination of saving interest and reducing premiums provided over $8,400 of available money for reinvestment into the business.

The downside to this process is that it does not provide immediate coverage. When applying for individual insurance, a medical history is taken and there may be medical tests required. Considering the possibility of some delay, an extension in time for approval should be expected. This loan insurance application took longer for approval due to health related issues. However, with a little patience and understanding of the process the final approval was received. The final result was still a remarkable savings of over 48%.

Second example, estate planning:

This case study discusses how to preserve the capital of an estate by using life insurance. This strategy is called a back-to-back insured annuity. I find most people are quite surprised to learn that registered accounts such as RRSPs and RIFs are fully taxable at time of death, unless there is a rollover provision to transfer the funds to a surviving spouse or partner.

My client, we will call her Jane, has just turned 71. Jane is retired with a full pension. In addition, she receives CPP and Old Age Security. Therefore, Jane has plenty of income to cover expenses and her lifestyle. She has two daughters and a granddaughter. Her intention is to leave the value of her RRSP to her daughters, as she has enough retirement income to live comfortably. Now at age 71, her RRSP of $130,000 must be converted to a Retirement Income Fund (RIF) and she must start drawing income from this RIF account. This income will be taxable. When Jane passes away the RIF account will be deemed “disposed of” the moment before death and fully taxed at the highest tax bracket of 44%. Therefore, her estate would owe approximately $57,000 in taxes, leaving $73,000 to the beneficiaries, her daughters. The estate would also have to absorb expenses such as probate fees, accounting & legal fees, and executor fees. In order to protect the inheritance for her daughters, the strategy recommended in this situation is to insure Jane for the taxable portion of her estate. This will preserve the capital, cover estate costs and cover funeral expenses. The most cost effective way to achieve this is to purchase a $100,000 life insurance policy that is paid up at age 100, with no more premiums after age 100. Jane has longevity in her family. Therefore, using the RIF account to purchase an Annuity would be the better option as it provides a guaranteed monthly payment for Jane’s remaining lifetime. This annuity will be used to cover the cost of the life insurance. The Term 100 insurance annual premium is $4,141. The annual annuity payment to Jane is $7,981.92, leaving about $1,446.34 after-tax per year. We suggest contributing the $1,446.34 to a Tax-Free Savings Account. If Jane were to pass away at 92, the life insurance value would be $100,000, helping to preserve the value that was in her original RRSP retirement account. She would also have $30,373.14 in Tax-Free Savings. During this time she would have received over $159,638 in annuity payments.

This strategy has now converted Jane’s $130,000 taxable money into a tax-free amount of $130,373.14 for her family at the time of her death.

Published in the BCNA Bulletin Summer 2012

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, in­vestment, tax or related advice. Clients must seek their own independent professional advice to discuss their own personal circumstances before implementing this type of arrangement.

E&OE/2012 SBILLAN Wealth solutions doing business as SB Wealth Solutions

Planning for retirement starts with the basic principle of setting aside money for the future. The concept is simple, however the practice and practicality of applying it, is not easy. There are numerous statistical data reporting that many Canadians are not contributing to their Registered Retirement Savings Plans (RRSP), nor are they taking advantage of the Tax Free Savings Account (TFSA), and those nearing retirement have no formal retirement plan. The government is in the process of introducing yet another new plan. The Pooled Registered Pension Plans objective is to encourage savings for retirement for small business owners and their employees. These pension style savings will be government-regulated, private-sector funds aimed at the small business owner, as an option, to provide retirement savings for the employees of their company, similar in structure to Defined Contribution Plans. Other plans include Defined Benefit Plans, Group Retirements Savings Plans, Individual Pension Plans and Employee Profit Sharing Plans.

Is it any wonder Canadians are confused as to where, what or how to save. Let’s examine the most common individual plans, the RRSP and TFSA.

In building comparisons with the RRSP and the TFSA, I like to demonstrate the analogy to purchasing a vehicle. To establish which vehicle will deliver the better mileage and be the most reliable for you is dependent on a number of factors.

The benefit with contributing to an RRSP is the tax deduction while in higher income earning years. The annual allowable contribution to an RRSP is calculated at 18% of the prior year’s earned income, up to a max $22,400 for 2011. You would have had to earn a salary of $124,722 in 2010 to contribute the maximum for 2011. The tax savings would be $9116.80 at a marginal tax rate of 40.70%. The investment earnings inside the registered plan are tax deferred until age 71, whether it be earned as interest income, dividends or capital gain. At such time, the RRSP must be converted to a RRIF, where money is withdrawn and taxed as income at the marginal tax rate. The premise behind deferring the tax, is that less income will be needed at time of retirement, therefore expecting to pay less tax overall.

Therefore this vehicle could prove better mileage, a higher maximum allowance plus prospect of greater growth, at a reduced tax rate.

The TFSA is a registered savings account plan. To be eligible you must be over 18 yrs of age, a Canadian resident and hold a SIN. Contributions are made with after tax dollars, there is no tax deduction. The annual allowable contribution has been $5000 per year since 2009. The benefit with a TFSA is the investment can grow tax exempt. And more importantly, no tax will be applicable when the money is withdrawn.

TFSA is not income tested, which means that Old Age Security(OAS) and the Guaranteed Income Supplement(GIS) would not be reduced or clawed back if you accumulated a lot of growth within the TFSA and withdrew it at retirement, whereas income from an RRSP/RRIF , pensions or other investments could reduce your OAS /GIS benefits. Therefore, this vehicle could be more reliable, calculating how much income you could expect during retirement.

Most Canadians have a limited amount of money to invest after paying for the essentials in life, food, shelter and clothing. Ideally, one would wish they had the resources to annually max out contributions to the RRSP and the TFSA. If paying less tax overall is the purpose of using either of the vehicles, which then is better?

General factors to consider when a TFSA makes better sense:

1. If you are in a low income bracket, just starting out in your career, have student loan interest deductions or business expenses to write off to reduce your tax obligation, it is better to put your money into a TFSA. This will enable you to accumulate RRSP contribution room which could be used to save future taxes when your income increases.

2. If the investment is for a short term goal, i.e. saving for a vacation, the TFSA will allow you to grow the money, tax exempt and withdraw tax free. You will also be able to contribute all the money withdrawn back to the TFSA the following year.

3. You have been contributing to your RRSP for years now, you are single and you expect your income will continue to be in the higher tax bracket when you reach retirement, therefore invest in the TFSA first.

When an RRSP first, might make better sense:

1. Your marginal tax rate is at or above 30% and the refund cheque (tax savings) could be reinvested into TFSA, RRSP, your practice or pay down debt obligations.

2. You have some money set aside for a down payment on a home which you plan to purchase in the future. It would be wise to invest in the RRSP and take advantage of the tax savings if you are a first time home buyer. The Home Buyers Plan (HBP) allows you to withdraw the RRSP money to buy a home and not pay the tax, however the money will have to be repaid back to your RRSP in equal instalments over 15 years. The HBP allows up to $25,000 to be used.

3. You have been contributing to your RRSP for years now, your spouse has a defined benefit pension, and the new pension splitting rules may lower your tax bracket in retirement and allow you to avoid the OAS claw back. The RRSP with its tax refund may be in your favour.

The most common statement I hear is, “I think I should get an RRSP”.

Remember the RRSP and TFSA are plans; they are vehicles to help you collect your savings for retirement. What is the purpose of your vehicle? Where do you want the vehicle to take you? How fast? How far? What type of fuel will it need? Your vehicles performance will be dependent on the types of investments it runs on. Eligible investments include cash, GIC’s, bonds, stocks, mutual funds, mortgages, ETF’s, certain annuities, and gold, silver bullion.

There is no simple rule or answer to confirm which type of vehicle is better. Both plans have limitations, rules and are subject to penalties for over contributing.

Published in BCNA Bulletin Winter 2011

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, investment, tax or related advice. It is recommended to consult independent financial advice to discuss personal circumstances before implementing any type of arrangement.

Mutual funds provided by Sindy Billan as a mutual fund representative with Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

E&E/O 2011

In this new world, where technology is advancing at an unprecedented pace, social media continues to expand. An immediate response to all forms of communication is expected. Managing change is essential to security and prosperity. Effective financial planning, therefore, becomes an integral part of today’s world as it allows us to manage change in business, daily life, financial obligations, and health, without losing our bearings.

The following article presents scenarios depicting potential business obstacles and challenges, together with possible cost and tax effective solutions to be considered.

David, 35, has been practicing naturopathic medicine as an associate of a clinic for over five years. He has established a solid foundation of committed patients and his practice is growing steadily. The timing is optimal for him to pursue his dream to open a clinic together with Rob, his long time friend and a chiropractic doctor. They played football in high school, attended university as high performance sportspersons and discussed opening an integrated clinic of health care professionals specializing in sports medicine. David and Rob are both married and each is expecting a child—for David, it will be his first, for Rob, his second. David and Rob signed a lease on a location, secured financing of $150,000 and contracted other qualified practitioners who will join as associates of their clinic.

David and Kathy, his wife, are looking forward to exciting changes ahead; however, with change comes risk.

Approaching the lender, it was brought to David and Rob’s attention, that assurance for the debt obligation in the event that either partner succumbed to sickness, injury or death would be required. This could be accomplished with Life & Disability insurance. Rob had purchased personal life and disability insurance, years prior, for himself and his wife. However, David in the early years of his career did not appreciate the value or recognize necessity of insurance. The business partners and their wives all felt it crucial to keep the business debt separate from personal obligations. The solution was to purchase a 10 year term insurance policy on David and Rob whereby the benefit of $150,000 would be paid on the first death. They each purchased a disability policy that would provide a monthly benefit to cover the amortization period of the loan. This proved to be a cost effective plan providing assurance with guaranteed fixed payments. The partners were one another’s beneficiary allowing proceeds to be received tax free. To satisfy the lender, an absolute assignment was established. This stipulates the lender has an interest in the life and disability proceeds. The insurance contract in conjunction with the absolute assignment will protect David, Rob, their business, families as well as the lender. Since insurance was required to satisfy the loan, premiums can be deductible as a business expense.

The process gave David a better understanding of risk management. The due diligence practiced by lender and insurance companies alike proved to be a valuable lesson. David began to ask questions of risk in his own business and personal life. If he were to die, how would Kathy and his new baby be affected financially? Would she have to choose between staying home with their child and going back to work? Would she be at risk of losing the house, or suffer a drastic reduction in lifestyle?

David knows the effectiveness of healing with innovative therapies and alternative treatments. Allowing the body time to heal can reduce the time in rehabilitation and promote better health. However, treatments are costly and time is money lost. Was there a prudent strategy which could provide David and his family with the required monies in the event he became ill or injured? Insurance can provide peace of mind, reduce the possibility of severe financial ruin, give an individual, their family, business and partners an opportunity to gain control and most importantly provide choices. It is important to know what is available in the marketplace as well as the possible deductibility of premiums.

Coverage can be structured so as to protect a business need, such as a Buy/ Sell agreement (where the continuation of the business and the future purchase of shares amongst shareholders is duly funded in the event of death or disability); Key Person coverage (to protect the business from the loss of its most valuable contributors); Business Overhead Protection (which provides reimbursement for business expenses in the event of an owner’s disability); Business Loan Protector (which makes funds available to cover outstanding business loans or loan interest); Critical Illness coverage (which pays a lump sum tax-free benefit upon diagnosis); as well as various personal life and disability insurance plans.

Managing change is essential. There is no time like the present to take control and manage the future. Knowledge, especially as this pertains to effective financial planning, is required in order for us to make sound, educated decisions. This allows us to manage change in all aspects of our business and daily life. As strategies can be complex, it is prudent to always consult an insurance specialist.

Published in BCNA Bulletin Summer 2011

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, investment, tax or related advice. Clients must seek their own independent professional advice to discuss their own personal circumstances before implementing this type of arrangement.

E&E/O 2011

In the early years of a business practice, most of us spend the majority of our time learning to survive. Many naturopathic doctors graduate with extensive student loan debt, must absorb the mandatory costs of setting up a practice, and are often in a position where a line of credit is necessary. I believe it’s essential that individuals in practice develop good business skills to minimize debt and improve clinic operations. Understanding basic business skills and operating as a better business person not only increases productivity and profitability, but allows a person to have fun in the process.

In the famous Aesop’s fable about the goose and the golden egg, an impoverished farmer finds a golden egg in the nest of his goose. This happens consistently every morning making him exceptionally wealthy. Though happy with his newly acquired riches, he wasn’t happy enough and greed soon set in. Hoping to access the gold faster, he kills the goose and is left with nothing. The story’s moral is paralleled with how many of us choose to run our businesses. By that I mean we often put more emphasis on short-term success at the expense of long-term goals. People have a general tendency to focus on doing right (efficiency) rather than doing the right things (effectiveness). There is a not so subtle difference between the two which can radically impact your bottom line. To become successful business people, NDs have to apply effectiveness into their practices.

The first step of effectiveness is developing a budget. Budgeting is key in the structure of a solvent business practice. I recommend that individuals attempt to establish an overall profit plan for periods of less than one year, one year, three years and five years. The shorter the time frame, the greater the detail. Objectives are determined by establishing income goals and expense budgets. Once a budget is established, an individual (or group in a clinic) will have a clearer picture of short and long-term goals.

It’s important to remember that a business is not static. Rather, it’s a dynamic enterprise which requires periodic reviews and revisions—just as a patient protocol does. Creating an expense budget helps a person obtain a clearer understanding of the costs of doing business. For example, it will help you differentiate between fixed and variable expenses as well as reinforcing cost reduction strategies and minimizing fixed expenses.

In business, time is a valuable resource. A written plan can help you direct efforts to reach pre-determined goals. Sound financial management is a necessity for all business people; it will allow you to streamline everyday processes and alleviate some financial pressure. The absence of financial pressure will allow you to successfully conduct the “real” business, health care. As you are the source of business revenue, plan a reasonable amount of income to be reinvested in your practice—it is also important that this be done for proper tax planning. Think ahead! For example, set aside a special account for your HST. On a daily or weekly basis transfer your HST collected into the separate account. When you reconcile your taxes quarterly you will have ready income for CRA.

I also recommend that even young doctors, just starting out, think of their practice as finite. In other words, prepare for the succession of your practice from its inception. Ideally, a succession plan should be in place from the start of the business itself as you never know when it will be needed. Having a plan increases business value in the eyes of future associates, lenders and clients alike.

Self-employed does not necessarily equal self-sacrifice! We are dependent on ourselves for the success of our practice. A businesses future lies solely on the structure you’ve put in place to secure its existence. The planning process is therefore not complete until all facets of risk management have been addressed. How do the issues of disability, a critical illness, retirement or death manifest themselves for a practitioner, their family and their business? Whether a new or seasoned practitioner, it is prudent to address the holistic wellness of your professional practice (e.g., financial planning, insurance, etc.), do it now, and review it annually, much like a business plan. This allows you to plan your business operation for maximum effectiveness and profitability. To take control of your business, enjoying the fruits of your labour, you need to be effective practitioners, making proper choices necessary to ensure your success.

Published in BCNA Bulletin Spring 2011

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, investment, tax or related advice. Clients must seek their own independent professional advice to discuss their own personal circumstances before implementing this type of arrangement.

E&E/O 2011