The Value of Advice

Client Case Study

Dentist Age 47 & Spouse is Age 46 and they have 2 children under the age of 18

Practice had annual Gross Revenue of $1.2M and annual Net Revenue of $350,000, after operating expenses, but before they paid themselves.

 Current Strategy

• Accountant was paying the Dentist a T4 Salary of $150,000 in order to maximize RRSPs

• Accountant was paying the Spouse a T4 Salary of $50,000 in order to maximize CPP. Spouse worked at least 20 hours per week in the Practice

• Annual Retained Earnings was $125,000

• Contributing $22,500 into Spouse’s RRSP annually and $2,500 for each child for a total of $5,000 into a RESP for the children

• Cash Flow Analysis determined that they needed $100,000 per year ($8,400/month) for lifestyle expenses since the mortgage was paid off

Recommended Strategy

• Based upon client’s current level of Registered Assets, we recommended that we eliminate their T4 Salaries and pay each of them in Dividends – Spouse qualified given weekly hours worked

• Based on this new payment structure of T5 Dividends, they will no longer be required to contribute to CPP, which will save them approximately $8,600 or more each year

• Recommended that they stop contributing to their RRSP’s as they had enough registered investments and keep the money inside the Dentistry Professional Corporation (DPC) in order to build a Pension Plan that would produce a tax-free paycheque in retirement

• Recommended they start a Corporate Insured Retirement Program (CIRP), earmarking $50K per year for 20 years

Outcome

• Restructuring how they paid themselves increased the annual Corporate Retained Earnings by an additional $30K per year and so now they had $155K per year in retained earnings

• The CIRP pension plan would produce a tax-free retirement paycheque of $186,000 per year starting at Age 71 for 20 years – while alive they will receive $3.72M in tax-free money

• Reduced their overall estate tax bill by an additional $2.8M – less money sent to Ottawa

• Their overall net estate value for their beneficiaries increased by $4.2M