In this episode, we follow the stories of two distinct investors facing unique challenges. First, meet a plastic surgeon in the high-flying tech-driven world of 1997. With a high-risk tolerance and a flourishing practice, this surgeon believes they can conquer the market. However, as the dot-com bubble looms, they must navigate the fine line between risk and reward, teaching us vital lessons about diversification, leverage, and the challenges of the market. Next, explore the journey of a savvy business owner who sold their company at just the right time, amassing substantial cash. Cautious due to past stock market losses, this investor seeks to protect their newfound wealth. We discuss the delicate balance of risk tolerance, financial independence, and how to construct a portfolio that aligns with individual objectives. Throughout these stories, listeners will gain insights into asset allocation, the psychology of risk, and the importance of rebalancing during market turbulence. To discover principles that will help you make informed investment decisions and steer your financial future toward success, tune in today!   Key Points From This Episode: (0:01:21) Case study one: a plastic surgeon with high-risk tolerance and a successful practice.  (0:02:12) Why they should diversify investments and avoid excessive amounts of risk.  (0:05:10) How human bias plays into decision-making in our first case study.  (0:07:31) An essential lesson from our first case: know your risk tolerance.  (0:11:28) Case study two: an entrepreneur who sold their business and has a significant amount of cash on hand.  (0:12:13) How they should structure their portfolio to safeguard their financial health.  (0:15:55) Benefits of rebalancing and why it is vital, even during a volatile market.  (0:17:59) Closing comments and key takeaways.    Links From Today’s Episode:  https://moneyscope.ca/2024/02/16/ep-7-case-conference-big-decisions-with-real-money/ Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://twitter.com/LoonieDoctor    

Ep. 7 Case Conference: Big decisions with real money

The Money Scope is a weekly limited-run podcast about personal financial decision-making for Canadian professionals. The podcast follows a curriculum deliberately designed to make you a better, more thoughtful financial decision maker.

It is hosted by Benjamin Felix - Portfolio Manager and Head of Research at PWL Capital, and Dr. Mark Soth - the Loonie Doctor. 

The moneyscope.ca site is peppered with photoshopped fun, and each episode page is deliberately designed to be a multi-media curriculum with annotated transcripts, primary source references, and links to relevant materials in our other blog and podcast formats.

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Understanding the implications of the 2024 Federal Budget and its proposed changes to capital gains taxation is crucial for individuals and corporations alike. In today’s episode, we take a deep dive into the Canadian federal budget for 2024 and its impact on capital gains taxation. In our conversation, we discuss the technical details of capital gains taxation and its historical context and offer practical advice for navigating the proposed changes in the 2024 federal budget. We discuss the increase in the capital gains inclusion rate and how these changes will affect individual investors and corporations. Discover the mechanics of capital gains tax in Canada, essential tax planning strategies, the importance of diversified tax exposure, and the concept of capital gains harvesting. Gain insights into the impact of the changes on the retirement plans of incorporated business owners and professionals, the role of optimal compensation in realizing capital gains, and approaches for navigating the proposed changes. Join us as we delve into the complexity of tax planning for incorporated business owners and the importance of long-term projections, personalized advice, and strategic decision-making for realizing a capital gain. Tune in now! Key Points From This Episode: (0:00:00) Overview of the changes and their relevance for Canadian investors.  (0:07:59) How capital gains tax works in Canada and its impact on taxable income.  (0:13:34) Reasons for the variation of capital gains inclusion rates.  (0:18:18) The differences in tax treatment for individuals versus corporations.  (0:22:41) Capital gains in a CCPC, how it works, and the role of a shareholder.  (0:29:36) Implications of the changes on Alternative Minimum Tax (AMT) in Canada.  (0:37:58) Learn about the ‘breakeven horizon’ and essential capital gain considerations.  (0:46:35) Capital gain harvesting and how optimal compensation ties into it.  (0:58:17) Explore the trade-offs of realizing a large capital gain and tax-reducing strategies.  (1:12:30) Hear case studies that illustrate the application of various tax-reducing strategies.  (1:29:56) Impact of capital gains inclusion rates on retirement planning for CCPCs.  (1:37:36) Final takeaways and tax planning recommendations.    Links From Today’s Episode: Meet with PWL Capital:  https://calendly.com/d/3vm-t2j-h3p Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://x.com/LoonieDoctor Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Episode 10 & 11: Case Conference —  https://moneyscope.ca/2024/04/12/ep-10-11-case-conference-corporate-investing-puzzle-pieces/ Episode 13: Optimal Compensation from a CCPC —  https://moneyscope.ca/2024/04/26/episode-13-optimal-compensation-from-a-ccpc/ Rational Reminder: Episode 304 — https://rationalreminder.ca/podcast/304 The Loonie Doctor Calculators — https://www.looniedoctor.ca/canadian-financial-calculators/#tax Realize or Defer Capital Gains Calculator — https://research-tools.pwlcapital.com/research/realize-gain Conquest Planning — https://conquestplanning.com  

Ep 15: Budget 2024: The Capital Gains Inclusion Rate

Business owners often have reservations about paying into the Canada Pension Plan (CPP). Many think they’re getting a bad deal by paying both the employer and the employee portion of the contribution, but can they do better by paying themselves dividends? In the last two episodes, we did an extensive review of how you can compensate yourself as a business owner through a private corporation. Today, we take a deeper look at two of the payroll expense aspects that often come up in discussions with financial planners: CPP and Employment Insurance (EI). If you are self-employed, there are a few things you need to consider, including your decision to pay yourself a salary or take dividends. We discuss that in this episode, as well as whether self-employed business owners are really getting the short end of the stick when it comes to CPP and EI contributions. Tuning in today, you’ll learn about some of the unique features of CPP, how it’s calculated, and the three major risks it offers protection against, plus we walk you through various models to illustrate the consequences of paying yourself dividends versus salary. We also delve into EI for self-employed business owners, the special benefits thereof, models that consider different amounts of income and consumption, and much more. For a comprehensive guide to CPP and EI for self-employed business owners, don’t miss this episode of Money Scope with Benjamin Felix and Dr. Mark Soth!   Key Points From This Episode: (0:00:20) Reasons that today’s topic on CPP and EI is so complex.  (0:04:04) How CPP is calculated: an overview of what you pay and what you receive.  (0:05:59) Whether or not business owners get a bad deal with CPP.  (0:11:34) Viewing CPP as a tax and when paying dividends versus salary is favourable.  (0:17:33) The unique features and benefits of CPP and the risk protection it offers.  (0:25:15) Assessing the value creation and performance of a pension fund like CPP.  (0:30:42) Crunching numbers to calculate a combined CPP benefit for a household.  (0:33:52) Making the comparison between paying CPP and investing in a corporation.  (0:37:23) Tax planning consequences of paying dividends to avoid paying into CPP.  (0:41:16) Various models to illustrate many of the scenarios we covered in this episode. (0:48:36) Why paying into CPP and dying early results in a bad financial outcome.  (0:51:36) Comparing CPP with other corporate and personal investment options.  (0:59:54) Key takeaways on CPP; a chance to buy into a truly inflation-indexed annuity.  (1:01:48) An overview of employment insurance (EI) for self-employed individuals.  (1:05:38) EI special benefits that self-employed business owners can access.  (1:13:55) Insight into EI for incorporated versus non-incorporated business owners.  (1:23:43) Our post-op debrief of today’s episode on CPP and EI!    Links From Today’s Episode: Dr. Mark Soth (The Loonie Doctor) — looniedoctor.ca Dr. Mark on X — twitter.com/LoonieDoctor Benjamin Felix — pwlcapital.com/author/benjamin-felix  Benjamin on X — twitter.com/benjaminwfelix Benjamin on LinkedIn — inkedin.com/in/benjaminwfelix Aravind Sithamparapillai — ironwoodcanada.com/aravind-sithamparapillai Sebastien Betermier — sbetermier.com   Papers Mentioned: ‘Five Examples of Direct Value Creation and Capture in the Pension Fund Industry’ – papers.ssrn.com/sol3/papers.cfm?abstract_id=4616266

Episode 14: CPP & and EI for Business Owners

When it comes to creating an optimal compensation strategy plan, there’s a lot to navigate. And while there may be a plethora of general rules floating around on the internet, each individual’s optimal strategy is ultimately going to be dependent on their unique situation. That is why we’re using today’s conversation to break down the findings of our mental model algorithm. Tuning in you’ll hear a detailed explanation of the five steps for creating an optimal compensation strategy plan, and how to apply them. Find out how to plan your consumption, account for mandatory income, clear out notional accounts, use salary to make up the difference, and utilize salary dollars that aren’t for spending. We also cover key areas, like Canada Child Benefit (CCB) clawbacks, incorporating income splitting when using your salary, and how to pay yourself a salary bonus to bring the corporate active income down. Join us today to learn how you can implement a dynamic salary and dividend strategy for optimal compensation, and much more. There’s a lot to unpack here, so get your note-taking devices ready, and let’s get started!   Key Points From This Episode: (0:05:19) Optimizing integration: general rules and exceptions in different contexts. (0:07:48) The first three steps in our mental model algorithm: planning consumption, accounting for mandatory income, and clearing out notional accounts. (0:15:25) A quick warning on thinking about money in terms of inflation-adjustments, and why it’s important. (0:16:11) How to use capital dividend accounts (CDAs) in different situations and why it’s generally the most useful notional account. (0:28:03) An overview of Eligible Refundable Dividend Tax on Hand (ERDTOH), how to use it, its status as the second most useful notional account, and why it’s considered more useful than CDAs in certain cases. (0:30:58) Important details on Non-eligible Refundable Dividend Tax on Hand (NRDTOH). (0:32:42) Everything you need to know about the General Rate Income Pool (GRIP) in various contexts. (0:41:01) Situations where it may make sense to pay extra dividends and key factors that impact personal tax rates. (0:56:31) A breakdown of the Canada Child Benefit (CCB) clawback versus Notional Account Release, and key factors to consider. (01:03:22) Factoring in RRSP contributions when paying yourself a salary and how to take advantage of them. (01:08:39) How to incorporate income splitting using your salary depending on the situation. (01:13:48) What to do with salary dollars that you won’t take for spending. (01:18:46) Key insights, analysis, and caveats on bonusing down the SBD rate; how to pay yourself a salary bonus to bring the corporate active income down. (01:30:19) Implementing a dynamic strategy of salary and dividends, how it might unfold over time, and examples of analysis that we’ve done. (01:37:19) Our post-op debrief: a review of our mental model algorithm and creating an optimal compensation strategy plan to pay yourself from your corporation.   Links From Today’s Episode: Meet with PWL Capital:  https://calendly.com/d/3vm-t2j-h3p Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://twitter.com/LoonieDoctor Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Corporate to Personal Salary Dividend Optimizer — https://www.looniedoctor.ca/ccpc-income-disperser/  

Episode 13: Optimal Compensation from a CCPC

Whether you’re self-employed or you own a small business, there are many nuances to how you can pay yourself from your business. Our episode today hones in on how we pay ourselves personally from a corporation (along with other key employees, including spouses) and the many intricacies you need to understand when making decisions about this process. While today’s episode may be our most complex and ambitious one to date, we hope it will serve as a useful resource for helping you get the most out of your business. Tuning in, you’ll learn about the benefits and drawbacks of paying yourself with a salary versus dividends, how to optimize your meetings with accountants and financial planners, and much more. We get into key topics such as employee insurance (EI) in different contexts, the benefits of the Canada Pension Plan (CPP), why you need to put together an income smoothing plan, and how to use shareholder loans without consequential missteps. The final portion of our show is dedicated to income splitting, the best ways to go about it, and how to make sure you adhere to Canadian Revenue Agency (CRA) requirements. Today’s episode covers a lot of ground and serves as a useful reference for listeners to return to. Join us today for this expansive conversation and arm yourself with the knowledge you need to get the most out of your corporation!   Key Points From This Episode: (0:02:42) Important disclaimers and exceptions concerning today’s topics. (0:05:37) Common questions on taxation of active business income, personal income, the nuances of tax integration, business expenses, exemptions, and deductibles. (0:19:32) A breakdown of how net active income is taxed, what to do with retained earnings, and navigating the dividend gross-up system.  (0:28:57) Planning for retirement, asset allocation, and determining your time horizon.  (0:34:44) An overview of General Rate Income Pool (GRIP) as a notional account for tax tracking purposes and an example of how GRIP works with active income.  (0:38:03) Looking at tax rates and tax integration as you move through different tax brackets and how rules vary between various jurisdictions in Canada.  (0:56:02) Unpacking what you need to know when it comes to paying yourself a salary and paying employees (including spouses). (01:01:08) Employee Insurance (EI) in different contexts, the distinctions between arm’s length and non-arm’s length employees, and navigating Canada Pension Plan (CPP) payments.  (01:05:18) The many benefits of the Canada Pension Plan (CPP), and why the reservations people have due to it being government-mandated is not unhelpful in this instance.  (01:08:20) Key insights on the Canada employment tax credit when considering the salary versus dividend debate, and how salaries can create other financial planning benefits. (01:16:38) Putting together an income smoothing plan, how to keep yourself in a lower tax bracket over your lifetime, and how to work with a financial planner. (01:25:17) A Breakdown of shareholder loans, how they work, the tax risks involved, and the best ways to use them. (01:27:32) Other ways to get money out of your corporation efficiently, like with your capital dividend account (CDA), and optimal ways to use your CDA. (01:34:25) The concept of income splitting, its benefits, the best strategies for going about this, and how to adhere to Canadian Revenue Agency (CRA) requirements. (01:45:17) A recap of what we covered today and what we have coming up next time.   Links From Today’s Episode: CRA Interpret Bulletins -  https://www.canada.ca/en/revenue-agency/services/forms-publications/current-income-tax-interpretation-bulletins.html Dr. Mark Soth’s Calculators — https://www.looniedoctor.ca/canadian-financial-calculators/ Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://twitter.com/LoonieDoctor Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/  

Episode 12: Paying Yourself as a Canadian Business Owner

Today’s Case Conference episode is a supplement to Episodes 10 and 11 and uses several case studies to examine key subjects such as corporate bloat, tax-efficient retirement planning for high-income earners, the importance of diversifying your asset allocation, and more. For our first case, we take a step-by-step look at the decision to retain earnings in your corporation, and examine why you need to consider using some of that money for things like your personal RRSP and TFSA accounts. Our second case includes a number of examples. Using multiple simulations, we unpack how you could potentially sabotage the benefits of a corporation by letting its passive assets get too big. To wrap things up, we discuss another common temptation: the urge to transform your corporation into a tax-efficient, eligible dividend-generating powerhouse. We cover a lot in today’s episode, so be sure to tune in for a deep dive on everything from addressing corporate bloat to diversifying asset allocation!  Key Points From This Episode: (0:02:16) Our first case study concerning corporations, RRSPs, and TFSAs. (0:08:32) When to use a TFSA and why it will depend on your unique circumstances. (0:11:30) Our second case study on corporate bloat and optimal compensation for tax efficiency.  (0:16:38) Simulations of different combinations of earning and spending using Mark’s optimal corporate compensation algorithm.  (0:19:50) Breaking down tax-efficient retirement planning for high-income earners.  (0:29:06) An example detailing a high earner and their spending, passive income limits, corporate bloat, and tax implications.  (0:35:12) Why it’s so important to be able to measure progress towards your financial goals.  (0:38:12) Strategies for dealing with corporate bloat, tax optimization, and more.  (0:41:41) Our third case study where we examine what happens when you’re overly focused on Canadian dividends and capital gains.  (0:43:43) Why it’s so important to diversify your asset allocation.  (0:50:51) Negotiating fees and how this could be affected by upcoming regulations in 2024.    Links From Today’s Episode: Meet with PWL Capital — https://calendly.com/d/3vm-t2j-h3p Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/ Dr. Mark on X — https://twitter.com/LoonieDoctor Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/  Benjamin on X — https://twitter.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/  

Ep. 7 Case Conference: Big decisions with real money

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