Salary, dividends and a retirement plan beyond your business

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you really have one or two choices. You want to pay the government or you want to pay your family. I mean, those are really the two choices. I've been doing this since April 1991 and I think in all that time, so it's what 30 34 years, I've met five people that were set up perfectly that there was nothing that I could add. So, there's five people in almost 35 years that were set up perfectly. What everyone wants to have happen is, well, I'm paying my corporate taxes over here. I want to be able to take all my money out because I already paid taxes and I want to be able to keep my money and transfer it to my personal pocket. That's what everyone wants to happen. Unfortunately, we got Revenue Canada in the middle there as the roadblock.

So, this can't happen. Well, there's actually a kind of a I'm just going to refer to as a workaround. The reality is the odds of having cancer today is one out of two. The odds if there is uh you and your partner in in a business, the odds of you having a critical illness is 55%. When you're mountain climbing, the objective is not only to get to the top, but to be able to come down safely. And what most business owners don't plan for is how do I come down? How do I sell my business? How do I transfer my business to my kids? You're not only buying these products with physical cash, you're also purchasing this with your health. And as an example, last week I had a 20-year-old who just wanted to take out insurance and she just got declined at 20 years old because she just developed diabetes.

So in anything you do, it's always time value of money. When's the best time to start? Yesterday. Welcome to another episode of Beyond the Bottom Line. I'm your host, Joey Lon. This show is about pulling back the curtains on how the ultra wealthy actually protect and grow their money without the gatekeeping and the complexity. Each week I sit down with elite experts with working with top business owners and wealthy families to reveal practical strategies that business owners can use right now to keep more of what they earn and pay less in taxes legally. So we got another treat for Canadian business owners this week. My guest today is none other than Rick Mastinger, a CFP with 30 years of experience known for simplifying complex strategies into what he calls the napkin cell. So, we're going to dive into that.

Uh, we're also going to dive into how Canadian business owners can actually protect both their business and their family while getting corporate contribution back tax-free in their pockets. So, this is going to be a good one. Welcome to the show, Rick. Thank you very much for inviting me. Awesome, Rick. So you've been a CFP right for over 30 years like we've talked earlier and you were sharing that your story started much earlier with a family tragedy that shaped your entire approach to financial planning. Can you tell us about your grandfather and how that experience um led you to now want to help people make sure that they are also prepared for unexpected moments in their lives? Well, back in the 1930s, um, my grandfather had six children and obviously was married. He went in for surgery.

Uh, and he was coming out, they were wheeling him out uh from the hospital like to to leave the hospital. And all of a sudden, he told my grandmother that he wasn't uh feeling well. And what ended up happening is he had a blood clot that went uh into his heart and he he passed away suddenly. Wasn't expected. So now back in the 1930s was my grandmother with six kids and no money to take care of themselves. So uh my the two uh eldest uh sons, my uncles had to drop out of school to take over the family business. um very rough on the entire family uh financially, the loss as well. And I just heard stories growing up of what life is like when you're not prepared for the unexpected. So during my career, I I originally started off in in banking.

Um but I wanted to get more involved in helping individuals than uh than doing the cor the corporate banking thing. So this led to my calling and I know it sounds corny um but to go into the life insurance industry just so I can you know help uh prepare families for the unexpected and making sure that at the very least financially that they could uh not only survive but they can thrive as well. That's interesting. And how did that shape your approach right over the those past decades of you helping families and business owners? What did you what did you realize that most families and business owners don't know about that type of protection? Um, I find there's a general knowledge there. Um, but there's not really, how do I want to put this? The sophisticated knowledge of what insurance can do.

Cuz most people will view insurance as a a product or as a transaction. they're not really taking a look at what the uh the tax act allows you to do and take advantage of. So that that I find that even with accountants, they've got a basic knowledge of our industry, but a lot of times we find we have to educate the accountant as well, which isn't a problem, but it's we like getting the accountant on side. Understood. Yeah. Yeah. So you're saying basically that that insurance there's two side to that that you're helping those families or business owners. It's on the the fiscal side, right? So on as a tool to reduce taxes and as a tool to protect them in case of unexpected events, right? So you're saying that both of that goes into the benefits of that?

Yeah. I mean, you're going to end up I mean, you really have one of two choices with your with your business. And even if you don't have a business, you really have one of two choices. Do you want to pay the government or do you want to pay your family? I mean, those are really the two choices. And most people I know want to take care of their family. So you might as well take advantage, do the planning that you need to do in order to make sure that your family's taken care of that there's an effective wealth transfer uh you know once you know the first generation passes away and know a lot of people are looking to create generational wealth not only for their kids but their grandkids and the kids of the grandkids.

So if you plan properly, you can, you know, you can transfer wealth quite effectively. And I know that you're meeting quite a lot of business owners on a weekly basis, if not daily basis. What's the percentage of them that don't have that types of structure in place to protect themsel from taxes and also from unexpected events? What would you say is the percentage of people that has it or don't have it? and perhaps even people that that have it but maybe not set up properly. Well, well, I I wouldn't even say percentage. Um, so I I've been doing this since April 1991 and I think in all that time, so it's what 30 34 years I've met five people that were set up perfectly that there was nothing that I could add. Five people. So there is five people in almost 35 years that were set up perfectly.

That's crazy. Why? Why is that the case? Uh, part of it is lack of knowledge. Part of it is they don't care. Uh, part of it is they're working with accountants that are really bookkeepers, but they're not planning uh or they're not giving the proper advice. Yeah. Uh, and it's the old head in the sand. If I don't worry about it, uh, you know, I pretend it's not there, it's not not going to be an issue. Yeah. Yeah. I was saying on another show because again I'm a business owner myself and I think as business owners, right, you're a lot more offenseoriented, right? You're and you're less defenseoriented, meaning that you're willing to take risks and you're willing to endure endure not having certain things in place to uh be more risk-free, right? Until a certain thing happened in your life or in your business that now perhaps it's even too late to do that.

Um, so that's that's how I see and I think a way that you can trigger those business owners or someone to take action on that I think it's a lot to do with the the tax advantages that a lot of business owners don't know even exist through c certain insurance product that are structured properly. So how how can a business owner today in 2025 in Canada withdraw corporate funds taxfree if they would like to do that? Yeah, I mean there are a number of different strategies that are available for individuals. Um, but one strategy that I like to to share is a way to combine the protection with the ability to get money out of the carrier or pardon me out of your company tax-free. Okay. So I mean I have something uh available that I can share with you if I can share my screen if that would be okay.

Yeah, please do. Okay. So here we are. Left hand side is your company. Mhm. Okay. Right hand side is your personal pocket. Okay. Got it. So in Canada when you take money out of your company, what are the two ways? I'm going to let you be be you can be my client. Okay. And this is this is how how I would I would talk talk to a business owner. Okay. When you're taking money out of your when you're taking money out of your corporation. Okay. Yeah. There's only two ways to do it that everyone knows of. What are they? Salary or dividends. Okay. Salary or dividends. Yes sir. The challenge though is that before you get the money into your personal pocket, there's a little roadblock in place. And that roadblock is called CRA. Now, I'm old school.

I sometimes interchange this with Revenue Canada, but we'll call it the CRA. Okay? So, when the money hits this roadblock, for all intents and purposes, they take 50% and 50% is left to you. Okay? This is the way life works. Okay. Yeah. Now, what does everyone want to have happen? What everyone wants to have happen is, well, I'm paying my corporate taxes over here. I want to be able to take all my money out because I already paid taxes and I want to be able to keep my money and transfer it to my personal pocket. That's what everyone wants to happen. Yeah. Unfortunately, we got Revenue Canada in the middle there as the roadblock. So, this can't happen. Well, there's actually a kind of a I'm just going to refer to as a workaround. Yeah.

And this is, you know, this is how it works. So, here you've got again your company. Yeah. You've got Revenue Canada sitting here as as a roadblock. Yeah. Well, what we're going to do now is we're going to introduce another roadblock and we're going to place that in front of the CRA. And for right now, just for all intents and purposes, I'm just going to call this a financial instrument. Okay? So, you've got your corporation, you got a roadblock, a financial instrument. That roadblock is supposed to be for revenue in front of Revenue Canada. and you got Revenue Canada as a roadblock before your personal pocket. It's fairly straightforward. Yep. So, what's gonna happen or how we're going to get around this is twofold. One, there's money that's going to be transferred from your corporation into this financial instrument.

You're also going to be making deposits personally. Yep. Into this financial instrument. So this financial instrument is going to be shared ownership between you the shareholder of the business as well as the business. Y and there's going to be a co-pay into this particular financial instrument both corporately and personally. Okay. Okay. Now the kicker to this everyone goes okay it sounds too good to be true. What's the catch? Exactly. I was going to ask. Okay. The catch is you're going to have to make deposits for a minimum of 15 years. It can be less, but you'll understand a little bit later on as I go through this why it's 15 years or plus. Okay. Okay. So, as we do this, okay, just continue on. Don't want to make the make it too busy. As you make deposits between year 0 and year 15, there are a couple things that can happen.

Okay. Okay. Number one, you can pass away prematurely. If you pass away prematurely, what's going to happen is the financial instrument is going to pay your corporation tax-free money either the greater of the total deposits or 25% of the face amount of the product. Okay. Okay. Now the other thing that can possibly happen between year zero and year 15 is you can have a health issue. Yeah, you can have a heart attack, stroke, cancer as well as about another 20 plus yeah different uh health issues. Okay. If that happens, the full face amount of the financial instrument is paid tax-free into the business. Now, this money can be used if you're alive for the health issue. This money can be used to go to the states, bypass the Canadian health system, you want to go to Europe, that's fine.

If uh you pass away prematurely, money can be used to pay capital gains, whatever or whatever else the family needs. Okay. Okay. So the the reality of what some people do from a tax point of view is after year 15 what happens is you can now surrender the contract. And when you surrender the contract, 100% of both the corporate and personal contributions get transferred from this financial instrument into your personal pocket and we're bypassing the CRA. Okay, so this is kind of a neat way if nothing happens in the interm and you no longer need the contract then you can cancel it and all the deposits that the corporation made now flows to you taxfree. Understood. So it's basically a way to your retained earnings that you're putting in your company um after 10 years 15 years if you're doing it properly you can basically get them back fully taxfree.

Is that correct? Correct. So essentially uh if you've got funding like one one of the challenges that I find with business owners um they think it's it's worthwhile uh keeping their money in their business because their accountant has told them uh to keep the money uh in the company. You don't have to pay tax unnecessarily. But eventually what happens once uh all monies that are kept within the corporation if it's not used to generate uh active business income it's referred to as passive income and that's charged or at the top tax rate of uh 50.2%. And once you get over the threshold of $50,000 in passive income now you start to grind away at the small business deduction. M so rather than you know you think you're you're making 10% on a on a mutual fund or or a stock reality if it's corporately held you're earning half of that.

So rather than give your money to the government uh you can now uh bypass that put it into something like this and actually reduce your overall tax situation. Understood. Yeah, that's pretty clear. So Rick, that's what you just showed us. Is that what you refer as the the napkin cell? So explaining that big complicated context very simply. Yeah. It's trying to share with someone an idea without actual numbers. Yeah. So you usually usually at this point in my conversations I go would you like to see some numerical examples on how the how this actually works? Yeah. Understood. Understood. Yeah. That's very good. And uh I know to to what I was saying earlier, why why do you think that again because I I waited for the longest time to implement some sort of like tax strategy in my business as well?

And to the fact of what I was saying earlier of always wanted to play offense, right? What's your thought about the offense and defense play that business owners kind of have that dilemma all the time? And I'm sure I'm not the only one that thinks like that. Um what's what's your what's your opinion on that? Well, business o owners are used to hustling and like you mentioned always on offense. I like to use an analogy of mountain climbing. Okay. Okay. So, when you're mountain climbing, what's the objective? Get out the top of the mountain. Okay. That's only half the story, though. When you're mountain climbing, the objective is not only to get to the top, but to be able to come down safely. And what most business owners don't plan for is how do I come down?

How do I sell my business? How do I transfer my business to my kids? Uh how do I distribute the wealth from my business to my children or, you know, to another family member? um even even retirement planning for the general population. They're all focused on RRSPs, rate of return, fees, all things like that. But the purpose of retirement planning is to generate a retirement income. It's not meant to be a million dollars in your RRSP as an example. It's meant to the winner of the game is the one who generates the highest retirement income, not the one who builds the pile up the money the most. H that's so good. Yeah. And business owners tend to take that same approach. They're so focused on building is that if they don't plan early enough, they're not going to be able to take out as much as they wish to do.

And that that's what they're working for is that at the end of the day that they and their family have enough money to live off from even being at retirement uh to do the things that they want to do that they work so hard for. H that's so good. I've never thought about it this way, right? It's not about getting to the top. It's about also finding a way to make sure you come down, right? Because you're not just going to be at the top for the rest of your life. You're going to want to enjoy whatever you've built. Um and you're saying that the the earlier you start the better in that early you start your betting just from a time value point of money. It it work it works the same way cuz just to use RSP as an example cuz most people understand RSPs.

Yeah. You can have a million dollar in your RRSP. Yeah, I can have $750,000, but because of the way I'm set up, I can generate a higher retirement income of 750 than you can at at a million. Now, you don't understand that how that can be possible, but that's what I share with my clients on how to do those types of things. Okay, got it. Yeah, that makes sense. And the strategy you're talking, does it always have to involve insurance? uh depending on what you talk talk about it could be insurance. I mean one of the other strategies that I use for business owners who have existing RRSPs something that I I I think is is is really a no-brainer is to uh look at having a uh corporate pension plan for themselves or an indiv individual pension plan because you'll be able to put more money away uh than you can under traditional RRSP.

It's one of the advantages that are available uh to you as a business owner. You might as well take advantage of all the rules that are in your favor. Yeah. No, for sure. Um and that just made me thought about this as well. Like again, this sounds great. And I think if if business owners watching this, they're probably like, "Yeah, of course I would like to have that." Now the question becomes when when is the moment or like what what qualifies me as a business owner that okay I'm ready to implement something like that and I'm actually going to get a return because at the end of the day we want a return on investment on time and on money, right? So when's the right time um or the the the the size of the business if that's a good qualifier that you should definitely like you not doing this is hurting you more than you actually doing it right now.

Well, for the idea that I just shared with you, that's really designed for people um I guess between 35 and 55, okay? Where where where the numbers really work. Um the earlier you start, the less the funding has to be. It's the same thing like an RSP. And I I hate going back to that, but that's tends to be where most people's knowledge level lies. um you know the earlier you start the bigger the bang at the back end just simple math time value of money. Yeah. So okay from a c from a cash flow point of view is you know to do this is you're not using all your money for living. So if you're putting money aside you don't need it all. Um you're starting to invest money within the corporation. There are a number of things that you should be doing to, you know, to, you know, to to generate more money.

Simply keeping your money there, um, isn't really going to help. Uh, you might as well have it working for you. I mean, ideally speaking, in any planning situation that you do, you really have three buckets that you can put money into. There's the taxable bucket, which what Revenue Canada loves, or CRA. Sorry, I'm going back old school. um you know that's you know your GIC's your bonds you know your stocks etc anything that taxable then you're in the tax deferred area um you know where insurance come comes into place and then you're in the t you know move money into the tax-free zone or the tax-free bucket where right now in Canada it's really only a TFSA and your principal residence so wherever we can take money from a taxful environment and put it in a tax deferred environment we're better off.

If we could take money from a tax deferred environment and put it in a uh tax-free environment, we're better off. So, if business owners are focused on reducing tax the vehicles that we use, you know, you're better off, you know, when you're being taxed at 50% anyway, a corporate tax environment, you're better off tax sheltering the money. That makes sense. Yeah. So the three buckets, there's the taxable bucket, there's the tax deferred, and then there there's the tax-free. Yes. And these are these are the three options that business owners have whenever they want to keep their money, right? Keep their retained earnings. Correct. Yeah. I mean, some business owners are going to need money for expansion and do other things, but we're talking about funds that, you know, are just really kept aside like, I don't know how to use it.

I've been told by my accountant, don't take it out. So looking at that type of money that's available within the business, that's when you should start doing some planning. And even for a more effective form of wealth transfer, like sometimes I run into to business owners who go, Rick, I'm, you know, I've got more money than I need. I've got enough money to pay my capital gains tax when my wife and I pass away. I don't need to use uh insurance as a tax-free wealth transfer vehicle. And I use another analogy for that. So Joey, do you like cars? I do. Okay. What is your dream vehicle? It's a good question. I would say I love the 911 Turbo S. Okay. And to put that on the road, how much does it cost? We're in Canadian dollars.

Probably we're probably up in the three three 400 mark. Okay, let's call it 400 for argument sake. Okay. Now, let's assume for argument sake you got $10 million sitting in a bank account. Yeah. Okay. So, you have more than enough money to pay for the $400,000 for your car. Yep. Okay. My dealership, I'll sell you the car for 120,000. So, do you want to buy the the vehicle at 400,000 at at the first dealership or you want to come to my dealership and spend 120? I like a deal. Okay. So, obviously you spend the 120. Why? Why the 120 and not the 400? You've got 10 million sitting in the bank. Why do you want to buy it for 120 when you got it for 400? You always want to pay less for the same value.

Okay, that's how insurance works. when you want to pay capital gains tax. So rather you got that to me well instead if you have $5 million sitting in stocks or you know $5 million sitting in bonds or whatever the case or even just cash. Okay. When you use insurance to pay let's say your your tax liability is a million dollars. Okay. to use insurance to pay that particular tax. You may only spend three $400,000 to net the million to pay re to pay revenue Canada. The excess funds can be earmarked to do the fund things per se. So if you can spend 400,000 300 400,000 to get a million or have you know 5 million for or use money from from bonds or stock and have to keep it uh aside or keep it aside.

If you're in stocks market goes up and down you may not have the value. Why spend the full million from those assets when you can only only need to spend3 $400,000? doesn't make sense. Same thing. That's why I use a car analogy. Yeah. Is that you have the money, but you'll take the deal. So, why wouldn't you use insurance that the money is guaranteed up front and you can spend your money on other things? And if we break that down further just for again understanding that and decomplexify the nature of that is it because is it because of the tax savings that makes it such a deal or what why in in the case of like the difference between 120 and 400 why the 280 difference where does that come from that I just used as the analogy for the cars if I'm looking for capital gain if I'm looking for capital gains gains the you know depending on the insurance that you purchase there's a numbers way of designing the product that usually and why I say I think an earlier question you asked when do you start you start now why is you let the value of the insurance grow over time and you don't have and you don't necessarily have to pay for it forever either yeah there are products out there that uh you can pay in 10 years and it's done and over with or 20 years done and over with or 5 years and it's done and over with and the value and the values continue to And one of the other aspects of using corporate health life insurance is money builds taxfree within the product that you can use at any time.

So it can also be uh another uh store of cash for yourself. So all you're really doing is you're transferring money from your corporation in one type of asset whether it be a stock, bond, mutual fund, and you're tra and you're transferring it into a different asset class. And we're going to call that tax preferred corporate life insurance. Okay. Okay. No, that makes sense. And u now just in terms of like making it tactical uh cuz that's that's the goal of this channel. I want to make sure I can remove the gatekeeping and remove the complexity and show that it it is available for for anybody that wants to do it. But now like okay, I see the benefits. I see that it makes sense. Um what's what's the next steps? How how does how does that strategy like how do I ask for this strategy to be implemented?

Do I need to go see a financial planner? Does is my accountant able to do that for me? Where do I go to help me implement that stuff? Well, you would, you know, first talk to someone like myself, the financial planner. So, it has to be a financial planner, right? A a financial planner. Um, I mean, there are different words for it. I mean they're the only per people that can legally in Canada call themselves financial planners are people with a certified financial planner designation per say CFP CFP. Uh you can go to an insurance agent. Um but there are a number of insurance agents that uh don't specialize in dealing with business owners. They're more of the what I would refer to as the family market. Like the basic things I've you know I've got a mortgage, I've got a couple kids and do various things.

Um but people like myself uh come with a team of people. Uh we have access to our own accountants, our own lawyers. Uh we can meet with the business owners accountants and go over things to make sure we're placing the insurance in the uh in the right spot. Uh whether it be in the operating company or the holding company, depending on what the individual uh wants to do or how they're set up. uh we're more than happy to work with uh work with accountants uh as well. But the key to this is to start as early as possible because when you're dealing with insurance products uh in particular, you're not only buying these products with physical cash, you're also purchasing this with your health. And as an example, last week I had a 20-year-old who just wanted to take out uh insurance uh close to a million dollars simply protect uh their their health.

Yeah. Okay. And they can convert it later on into something more permanent. the type of vehicles that we're referring to. And she just got declined at 20 years old because she just uh developed diabetes and they're postponing it to wait to see if it's stable uh what medication she's on, etc. So, she went to do the right thing to protect her insurability, but even at 20 years old, she stop, you know, she got declined and that's on her that's on her permanent record, too. So, that's crazy. In anything you do, it's always time value of money. When when's the best time to start? Yesterday. I don't know. Other than yesterday, it's today. Yeah. No, that's a good point you brought up. So, because you pay with your money, but also with your health. So, the healthier you are, the better deal you'll get.

Yeah. Is that what I'm saying? Is that what I'm saying? Yes. You may you may like some of these ideas and go, they're great. But if you've got a health problem, the the solutions are off the table. H yeah, that's that's very good. And and most most people don't consider that at all. Yeah. They're nothing's going to happen to me. Uh I'm invincible. And I usually ask them, uh how many people do you know that uh you know, your family's friends that have cancer? Mhm. Okay. Yeah. Um why are all the hospitals loaded up? Why are they always busy? Okay. Yeah. It's, you know, sort of my grandfather's situation. Okay. Unexpected event. Okay. That's why you need to prepare for, you know, the eventualities that are going to happen. Sometimes it's sooner, sometimes it's later.

Yeah, that's very insightful. Bit of a personal story. I got diagnosed at 16 of a lymphoma. Played hockey all my life. Was stop shape all my life. And all of a sudden the day uh one day I'll just wake up got a big ball in my neck two years of chemo now I'm diabetic right I've got all that stuff and perhaps now will cost me a lot of money I'm probably wouldn't be even insurable in that case I'm sure there's other options there's yeah for people who have an existing health issue there are options available so it's not like oh I've got diabetes or I've had a heart attack you know There are way there are ways around doing a number of things. I think it's more of a calling for people that are healthy right now and never nothing ever happened to them cuz I was that person before and I'm sure a lot of people were are like that until it happens, right?

And then you're like, "Ah, maybe I should have taken advantage of that before." So, I totally get your point. Yeah. Very insightful. I'm dealing with a business owner now. Um, but he'd had an a car accident uh a year ago and actually speaking to him this morning at the time of uh of this taping and uh he's having all sorts of health issues and I told him, "Yeah, I know you want to do the insurance, but you're you're not stable enough for an insurance carrier to take a look at you right now." Yeah. Exactly. No. And I think one one common theme that I'm seeing as well talking to a bunch of experts like you in Canada in the US is that I'm noticing a lot of business owners and again like like myself uh we are under teamed if that's a word right like we rely on a few people that to do a lot of stuff that perhaps are not necessarily qualified like a again the CPA analogy of a lot of business owners rely on their CPA for everything right in terms of legal taxes bookkeeping and stuff like that and and and a CPA will always play safe with you because they don't have the understanding of a financial planner like you that would know all the risks and all the things you can do that a c a CPA don't have the qualification for that.

So, um what what would be like a checklist to make it insightful for the viewers like a a checklist of questions to ask um either their account, their team if they have a financial advisor, a financial or the person even asking you if they're going to meet you to make sure you're qualified and make sure you're actually the right person that can implement these strategies for you. What will be like a few questions to ask to figure out if that person can help me with reducing my taxes and also helping with my protection? accountants, lawyers, certified financial planners, we each have our own niche. Yeah. Okay. So, as as you mentioned earlier, having a team of people that you can trust and you can go to is usually the best way of doing it. I mean, the accountant's job is to say, get you to pay less amount of tax today.

That's his job. That's what every, you know, business owner asks his accountant. I don't want to pay tax today. Okay. Well, one of the strategies that I see that that have been going on is a lot of business owners take dividends in lie of salary. That used to be a good strategy, but because of the change in the marginal tax rates, the difference between uh being taxed on dividends versus salary isn't isn't that different. It may be depending on where you're four or five points difference. But if you're not taking salary, you're losing out on CPP. You're losing out on the ability to uh create room for your RRSPs. You're losing out room to uh to uh create a pension plan for yourself. Uh from a lending point of view, you want to go to the bank and get an operating line or a capital loan.

Uh bankers don't like seeing dividends. They like seeing cash flow. They like seeing salary. Yeah. So with working with someone like myself and the accountant, we can usually establish what the proper mix is for for the business owner. So they could they can take advantage of both. Yeah. So the proper mix of salary, dividends, and and let's say distributions would count as dividends, I would imagine. Yeah. Um and then what to put in some sort of a taxfree vehicle like an insurance policy, anything like that. or a certified financial planner can help with that. Usually when you meet with someone like myself, most of the time or the first meeting should be spent on finding out about your life and what what your real challenge is, you know, what's important to you. Is it wealth distribution?

Is it um you know, I'm getting hammered uh by my passive income? Yeah, right. That's where most of the time should be spent on at least in the first meeting. Not product. product is the very end. The product is the solution to the the challenges of the business owner. Time most of the time should be spent talking to the business owner to find out what's important to them and what they want to do. I mean, I' I've met business owners that have been the complete opposite where they said, "Uh, Rick, my business is worth $50 million. Okay, my share is 25. My son does this for a living. My daughter does that for a living. They both do very well. Let's say for argument's sake, the government comes in and takes 24 of my 25 million.

Each of my kids gets 500,000. Is that not enough? Some business owners have that mentality. That's fine. Now, with this particular gentleman, I joked around and I said, "Can I be adopted?" So, but you know, you know, but I knew him well enough well enough to do that. But that's why it's very important for when you're having the first discussion with someone is the person taking the time to understand what you want, not what they want, what you want and what's important to you to see if what they have can help you solve the, you know, solve, you know, your particular issue. It's not that, oh, here's an insurance contract that does all these nice wonderful things. It's like what's the benefit of having this going to be in solving your particular issue. That's a very good point.

I think I'm just going to say that again because I think that's a very good takeaway I'm taking from that is a a a good barometer to see if the person actually can help you or not. If if they ask if they take the first meeting to talk about your personal life and and your current situation and if someone's trying to push a product right away on the first call, like that's that's the difference between an probably an an insurance salesperson just try to have one product and sell that to you and compared to a real planner, right? A financial planner, financial consultant that really needs to do a diagnostic like a doctor of your situation. And then if if if we cannot help you, it's that they're not going to help you. I think that's a great way to uh to locate if you're in the right hands or not.

Yeah. I mean, I I usually tell my clients first meeting, go, if I can help you, I'll tell you so. If I can't help you, I'll tell you so as well. You know, you're busy as a business owner. I'm busy as as well. Okay. Let's non Smith's words, you know. Yeah, that's really good. Um you you said earlier so you shared the whole napkin strategy of explaining the concept which I think is was super insightful. Um now is there any case study with like numbers that you can share obviously keeping the person anonymous but that made a dramatic difference for for a client uh for a business owner specifically using this thing. I can yeah I I can uh share something with just to go through some uh go through some numbers. So let me share my screen again.

Okay. So in order to keep the names of people anonymous, I'm just going to call this for female Jame Armstrong Armstrong developers. All right. So I'm just going to go through this slowly. If I go through this too fast or something's not clear, please stop me and let me know. Okay. So, this is just what I'm going to refer to as an illustration or just putting some numbers beside things. So, here we have Jane, female, 40 years old. This health priorities is just a product name. Um, just like a Toyota Corolla, uh, Honda Civic, just a product name. Means nothing to to to you. Means something to me, but not to you. Okay. Health benefit. This is I'm going to refer to as return a premium rider and this is where it comes into play the 15 years that after you know after 10 years you can get 50% of your money out at 100 plus or pardon me at 15 years plus you can get 100% out.

That's why what's what's the catch? 15 years. So in this example the coverage amount is a million. The total funding for this is $18,460. Okay. Okay. So that's that there. Coverage is up to age 75. Again, coverage amount, the uh funding and the coverage duration. The percentage breakouts uh in this example for Jane is a 40year-old. 61% is paid by the corporation and 39 40% is paid by the shareholder. Now if people uh are going to their individual, their insurance person that they work to, you have to be very very careful. Most people want the company to pay the bulk of the coverage. You know, I want the company to pay 90%, I only want to put out of my own pocket 10%. The challenge with this though, in order to pass muster with the CRA, this has to be at market value.

And a lot of the insurance carriers out there try or will allow um the person sitting in my side of the desk to change these percentages. There's only one company that I know of that will shows the actual market rate, which is what the CRA is looking at. So these numbers, these percentages are uh based at market rate. So usually the earlier an individual starts this, the more the company actually uh pays for the higher percentage that they pay for. And actually, if there's a slight health condition uh in a life insurance policy, the person would be what we call rated or they'd have to pay an extra premium on top of the original funding. With this type of plan, it actually works in your favor because the company gets to pay more. Okay. Just just some minor minor details of, you know, I'm get getting a little bit too far into the trees here.

No, that's good. Okay. So dispersement from this percentage point of view, company puts out $11,000. Individual is the shareholder puts puts out $7,000. Okay. Again, here's a breakout. Company dispersement versus the shareholder total dispersement all the way through to age 75. Okay. Now, what the company pays for is the insurance amount. And I might as well tell people what this particular product is. This is known as critical illness coverage. So critical illness pays for about 25 26 different conditions and it's it's the major thing major illnesses uh again heart attacks for cancer and another 22 23 coverages. Okay. So the company and the shareholder both own this particular contract. The critical illness coverage is for a million dollars. So if something happens in the first year, they have a heart attack and survive, million dollars is paid taxree into the company.

If the individual passes away prematurely, remember I said 25% of the face amount or the total amount of dispersements is paid out. So the total amount of dispersements gets greater than 250 at around year 14. So the company actually pays for the critical illness insurance and the death benefit from the critical illness insurance. A shareholder pays for the health benefit. The health benefit is what I'm going to call a return of premium rider on the contract. So let's try to explain this uh in a little easier to understand language. You drive a car, correct? Yep. Okay. You are required to carry car insurance, correct? Yep. Yep. Okay. If you were offered an option that within the insurance your car insurance policy that after 15 years if you didn't have an accident and you never made a claim on your car insurance policy if you can get all your money back would you choose it?

It'll be a great deal. Okay. This is kind of the same thing. The health benefit is that return of premium rider. So starting in the fourth year and beyond, you start if you surrender the contract, you start to get some money back. And why I said 15 years originally, that's the catch. That's when you get the 100%. Now, you don't have to necessarily be working for the full 15 years. You can slow down. You can come in one day a week. you can uh be be doing other things depending on where it's held at the opco or the holdco level. You can you can do different things but essentially this is the time frame to get 100% back. Okay. Okay. So this example we have the company putting in 60% of the critical illness policy and we have the shareholder putting in 40%.

Again I'm rounding numbers. Okay. Y upon once one of these three events, there's going to be a non- taxable benefit. So at age 65, if you have suffer a critical illness and you survive, a million dollars is paid tax-free into uh company. Okay. Okay. If you happen to pass away at age 65, the total premiums that were actually put into the plan was $461,500. That amount of money goes into uh to the company taxfree. If however, and this is why people look at this from a tax perspective, if nothing happens to them, and after all everyone's invol vulnerable, nothing's ever going to happen to them. Okay? um the $461,000 which represents uh 15 years at 11 grand. So let's call it 60% of this. So let's say what what does that work out to 260 270,000 uh from the corporation that put into this everything now flows into the shareholders pocket taxfree.

So it's what both the shareholder put in and what the company put in. So another way of looking at this, sorry, is that in this example, there's always going to be a paycheck. Whether you have a critical illness, the check is going to be made out to the company. If the person if the shareholder passes away prematurely, the company is going to receive the death benefit. If however the person survives and then they cancel the contract you still get paid money is now going to you the shareholder and that's how you get money out of the contract taxree. Sorry I'm just skipping along here. Um that's really insightful. Okay. Now one of the questions that I sometimes get from uh the business owner is I'm just getting my money back. I'm not really earning a rate of return.

Yep. Technically, you're correct. Yep. But if you look at some of the math, okay, what if we took that money and we put it into an alternative investment, what XY Z fund or whatever the case may be. So, if we take the company's premium of 228 and the shareholders premium in this example is 19650. I changed it a little bit. I went into a second example. Y that was actually for uh a male. I'm just trying to see what I did here. I think also maybe 50 years old. Okay. Um but what happens? Here's my dividend of 228. So I'm instead of taking my paying for the critical illness plan. I'm going to take this and I'm going to invest the money. Pay my tax on the money. The amount net of tax is 11915.

I add the 11915 to 19,000. So I got 31,000. 31. Okay. So, I'm taking the equivalent of what the company would have paid on the critical illness plan and what I would have paid for the return of premium rider. And I'm just going to invest the money. In order to receive at age 65 the same amount of money that you would have returned just by cancelling the policy, you would have actually had to make a rate of return of about 7.8%. Yeah. And the reason the reason it works this way is simply because you're getting money out of the company taxfree. Got it? So this is what I actually use to sort of say or if I have to talk to an accountant, here are some examples of how to use it. Now, I cannot stress enough.

We started off our conversation with what happened with my grandfather. Yeah. Okay. The reality is the odds of having cancer today is one out of two. Okay. The odds if there is uh you and your partner in in a business, the odds of you having a critical illness is 55%. Okay. So, you're protected in case something happens healthwise. You mentioned earlier uh in your younger days you had lymphoma. Okay. 2018, August 2018, I decided to carry some furniture down the stairs. Okay. My foot hit the edge of the step and instead of going down one, I went down two. Went down the flight of stairs. And if you're into sports and you ever seen the athletes with their legs go like that? Yeah. I did that. So, I tore my patella tendon completely off my kneecap.

Okay. Okay. Had emergency surgery. I was in the hospital from Sunday through Thursday. I was in a full leg cast or or brace for two months. I wasn't in uh my own bed for four months. Hm. I didn't go to work for 6 months. Now, why do I bring this up? During my recovery, especially for the first two months, I did not care about work. My life was spent getting through the day. I was not on the computer. I was not watching Tik Toks. I was just lying there. Okay. Yeah. My concerns for the day were bathing and how to go to the washroom. Okay. Yeah. Most business owners I talked to, oh, I'll drag myself in. I'll do I'll do all this stuff. I'll do this. If you're really sick, if you're really hurt, you are not running your business.

So, to have the protection from the critical illness plan can be very important to you. You can use it to pay loans. use it. You can use it to hire a manager to run the business while you while you recoup. Yeah. Okay. You can use this to pay whatever bills you need to pay. Okay. The idea is, God forbid you should have that type of illness that you need to focus on getting better. Your priorities change really fast. So in this example to combine protection with the ability to reduce taxes because it's not sitting in a taxable vehicle within the company and at the end of the day if nothing happens to be able to pull all the money out that you put in tax-free and have the advantage of doing that which in my napkin sale I showed that's what everyone wants to do.

Yeah, we're checking off a couple boxes here of things that this particular uh idea can accomplish. Huh. Now, Rick, honestly, I want to just for that, I want to thank you cuz honestly, I've never seen that concept that well illustrated to a business owner that perhaps don't have the same vocabulary as a financial planner, someone that spent years or 30 years in school, right? Learning about that or in the field. So, I think that is amazing. The old KISS principal Yeah, keep it simple. No, and and it's I hope I hope that business owners are going to see the value into because um I know that when I first started my business and I know a lot of people don't even know that and I didn't it's not that information is not easily accessible and I think that's what we're trying to do putting that out there and trying to see make business owners realize what they can do and how they can prevent all those stories that we've just talked about in the past hour.

Um, so I think that was very very well illustrated and um, and what I what I take away the most is the fact that there is a benefit for that particular product you talked about. I'm sure there's a ton others as well you can use, but the critical illness, there is a benefit whatever happens, right? Whether you don't die, whether you die or whether you get a health, there's always going to be a paycheck. Yeah. Exactly. And hope hopefully it's it's the last one where the person gets the money out of the company taxfree. That's really good. That's really good. Um let me ask you this. After 30 years of doing this right in the industry, what's the one thing about business owner financial planning that most business owners completely misunderstand? That's that that's actually a tough question.

It's more of I'd need for planning. Your accountant only understands what they are trained to do. So with the tax act, that's what they do. Some understand, but I would say the majority of them don't understand our industry and how it works. So the lack of planning, the ability to start planning coming down the mountain as soon as possible to make, you know, to make the funding less to the ability to actually get uh these type of vehicles uh to to use these solutions. It's it's really to to starting early. And I understand why that why they don't. They're they're running their business and they're wear they're wearing 20 different hats. They don't have the time, but you know, you make time to go to the doctor to get your physical exam. You need to have a financial exam.

Okay? And a financial planner is going to be totally different than your accountant. We work together. A lot of times people like myself will act as the quarterback and we'll generate business for the accountant. will generate business for the lawyer, but we tend to be the the quarterback and take a more holistic approach on how we look at at your situation. That's really good. That's really good. Do you have a couple myths you want to bust out that you think a lot of business owners think about either planning corporate money, saving taxes? What What would be those myths if you were to bust out a couple of those? I I mean, I think I touched on a couple of them. um keeping money in the business. Okay, you're losing 50% of tax because it's passive income and if you do really well on passive income, you're going to reduce your small business tax.

Um so keeping money in the business without trying to tax shelter, such a big one, you know, that that that that that's a huge one. Uh the uh salary versus dividends, you know, they've heard, you know, from the past just do dividends. um you're hurting yourself from a retirement planning point of view and you're taking one of the options off the table to really reduce your corporate taxes uh by not having room to create an individual pension plan. Yeah, that's really good. I think what you said, the first one is is such a big one that you hear. I don't know why it's that spread around about, oh, you got to keep that in the business or whatever. Maybe it's the accountant that shares that a lot. But again, I think it's that's where having other people that are smarter than you or more successful than you, they can tell you what's the right way to do it, right?

And it's often times not keeping that in your account. Yep. That's good. Rick, thank you for uh coming on the show. I think that was really really insightful and um I think you're the first one that actually arrived with some um designs and and some creative way to explain and illustrate the concepts which I think it's very important to simplify it. So that was that was really good and I just want to take a moment to appreciate you and what you're doing. I think that's going to be very valuable to a lot of business owners out there. Well, thank you very much for inviting me again. That's good. Rick, before you go, I want to hit you with the recurring segment that I like to ask to all uh guests coming on and I call the legacy question, which is if the episode were to outlive you, right, which I hope it will, what's the one lesson about protection tax savings that business owners in Canada would need to remember?

Start planning early. Don't don't wait till you're 65 70 years old. Yeah, that's good. I think that's a very recurring theme with all the stories we've shared today. If that don't that doesn't wake you up a little bit, I don't know what will, but uh that's amazing, Rick. So, all right, Rick. Well, thank you for your time and again, I just want to thank the viewer as well. If you make it, if you made it up until this point of this episode, I want to appreciate you. And all I'm asking is that you subscribe to the channel. There's going to be a guest, an expert like that coming on every Monday to help us remove the gatekeeping and and decomplexify that the most financial the most efficient financial strategies are available for business owners out there.

Just got to go get it. So, thank you for your time. Subscribe and I'll see you on the other