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By Julie Cazzin, with Allan Norman
Accountants, lawyers and financial planners will all give you different advice when you’re deciding whether to incorporate. Here’s a road map to decide whether incorporation is worth it for you
By Julie Cazzin, with Allan Norman
Q: How can incorporating help me shelter investment income? And at what point do I know if incorporating is worth it for me? — Maria S.
FP ANSWERS: Maria, if you were to ask an accountant, lawyer and a financial planner when to incorporate, you’d get three different answers for three very different reasons.
From a pure investment point of view, the best time to incorporate is after you have maximized all your available registered retirement savings plan (RRSP) contribution room and possibly your tax-free savings account (TFSA), which I’ll explain later.
The advantages of investing inside your corporation include: an initial deferral of tax so you have more money to invest, the ability to pay yourself dividends at a future date, income splitting with a spouse after you turn age 65 (if you have a spouse and different classes of shares), and possibly some estate planning and other cost savings benefits as well.
Consider this example of an Ontario resident at the top marginal tax rate. If they retain $100,000 in their corporation, it will pay corporate tax of 12.2 per cent if it qualifies for the small business tax rate, leaving $87,800 to invest in the corporation. Conversely, if they drew $100,000 as salary, they would only be left with $46,470 after tax to invest personally, assuming they are not contributing to an RRSP.
Having an extra $41,330 to invest in your corporation sounds good, and it is, but you will have to pay tax at a rate very close to the highest marginal tax rate in your province on any realized interest, dividends and capital gains.
When you pay tax on your distributions, you lose the compound growth on that amount. For instance, if you earn $2,000 in interest, you will lose about $1,000 to tax, so the taxation of distributions can be a significant hurdle to overcome in your corporation.
Now, it’s not all bad news since there are refund mechanisms and nominal accounts, which your accountant will refer to, that allow you to recapture some of the tax paid when you finally sell an investment and make a dividend payment to yourself.
Because of the taxation of distributions, you’ll want your investments to be as tax efficient as possible. Investments earning interest are the least tax efficient, dividend-oriented investments are better, and investments that allow you to defer capital gains are the best. Of course, you have to be comfortable with the investment risk you are taking, and interest-oriented investments tend to be the safer investments while equities tend to be the most volatile or risky.
This is the reason I suggested holding off incorporating until you have maximized your RRSPs and possibly your TFSAs. If you are going to hold investments that generate interest or dividends, investing in the RRSP first is likely the better option.
Tax expert Jamie Golombek provides the supporting math in his research paper that shows the RRSP-first strategy is best, unless you are an aggressive investor, investing only for capital gains.
Finally, remember you will have to pay tax when you draw the money from your corporation, although as a dividend, it is not taxed as heavily as income drawn from a registered retirement income fund (RRIF).
Maria, incorporating and investing in your corporation will add complications and opportunities. My suggestion is to model this out with your planner or accountant so you can see the implications today and in the future. Once you see that, you will be in a much better position to make a good decision.
Allan Norman, M.Sc., CFP, CIM, RWM, is both a fee-only certified financial planner with Atlantis Financial Inc. and a fully licensed investment adviser with Aligned Capital Partners Inc. He can be reached at www.atlantisfinancial.ca or alnorman@atlantisfinancial.ca . This commentary is provided as a general source of information and is intended for Canadian residents only.
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Everton are searching for third-party investment in order to push through a protracted takeover by 777 Partners.
The Miami-based firm agreed a deal to buy the Toffees from majority owner Farhad Moshiri in September, but are yet to gain approval from the Premier League.
On Monday, Bloomberg reported the club’s main financial adviser Deloitte has been seeking fresh funding from sports-focused investors and lenders to get 777’s deal over the line.
BBC Sport has been told this is “standard practice contingency planning” and the process may identify other potential lenders to 777.
Sources close to British-Iranian businessman Moshiri have told BBC Sport they remain “working on completing the deal with 777”.
It is understood there are no other parties waiting in the wings to takeover should the takeover fall through and the focus is fully on 777.
The Americans have so far loaned £180m to Everton for day-to-day operational costs, which will be turned into equity once the deal is completed, but repaying money owed to MSP Sports Capital, whose deal collapsed in August, remains a stumbling block.
777 says it can stump up the £158m that is owed to MSP Sports Capital and once that is settled, it is felt the deal should be completed soon after.
Currently sitting in sixth on Forbes’ Real-Time Billionaires List, Berkshire Hathaway co-founder, chairman and CEO Warren Buffett is a first-rate example of an investor who stuck to his core financial beliefs early in life to become not only a success but a once-in-a-lifetime inspiration to those who followed in his footsteps.
One of the most trusted investors for decades, the 93-year-old Buffett isn’t shy to pontificate on his investment philosophy, which is centered around value investing, buying stocks at less than their intrinsic value and holding them for the long term.
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He’s also quite vocal on investments he deems worthless. And one of those is Bitcoin.
Over the past decade, it’s been clear that the crypto craze isn’t something Buffett wants any part of. He described Bitcoin as “probably rat poison squared” back in 2018.
“In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending,” Buffett said in 2018. And his stance hasn’t wavered since. According to Benzinga, Buffett believes that cryptocurrencies aren’t a viable or valuable investment.
“Now if you told me you own all of the Bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything,” Buffett said at the Berkshire Hathaway annual shareholder meeting in 2022.
Although the Oracle of Omaha has his misgivings about the unpredictable investment, does that mean crypto is doomed as an investment? Not necessarily.
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Bitcoin bulls argue that while it’s not government-issued, cryptocurrency is as fungible, divisible, secure and portable as fiat currency and gold. Because they occupy a digital space, cryptocurrencies are decentralized, scarce and durable. They can last as long as they can be stored.
Crypto boosters continue to predict massive growth in the coin’s value. Earlier this year, SkyBridge Capital founder and former White House director of communications Anthony Scaramucci told reporters that Bitcoin could exceed $170,000 by mid-2025, and Ark Invest CEO Cathie Wood predicts Bitcoin will hit $1.48 million by 2030, according to Fortune.
“They really don’t understand the concept and the whole history of money,” Scaramucci said of crypto critics like Buffett on a recent episode of Jason Raznick’s “The Raz Report.” Because we place a value on “traditional” currency, it is essentially worthless compared with the transparent and trustworthy digital Bitcoin, Scaramucci said.
Currently trading around the $66,000 mark, Bitcoin is up nearly 50% in 2024. This means it’s massively outperforming most indexes this year, including the S&P 500, which is up about 6% in 2024.
Although Berkshire Hathaway has invested heavily in Bitcoin-related Brazilian fintech company Nu Holdings, which has its own cryptocurrency called Nucoin, it’s possible Buffett will never come around fully to crypto, despite its recent surge in value. It’s contrary to the reliable investment strategy that has served him very well for decades.
“The urge to participate in something where it looks like easy money is a human instinct which has been unleashed,” Buffett said. “People love the idea of getting rich quick, and I don’t blame them … It’s so human, and once unleashed you can’t put it back in the bottle.”
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This article originally appeared on GOBankingRates.com: Warren Buffett Predicts ‘Bad Ending’ for Bitcoin — Is It a Doomed Investment?
(Bloomberg) — Ping An Insurance (Group) Co.’s profit dropped 4.3% in the first quarter as stock-market declines and falling bond yields eroded investment returns.
Net income fell to 36.7 billion yuan ($5 billion) in the three months ended March 31, from 38.4 billion yuan a year earlier, the Shenzhen-based company said in a filing to the Hong Kong stock exchange Tuesday.
Operating profit, which strips out one-time items and short-term investment volatility, fell 3%.
China’s stock market rout at the start of the year and lower bond yields have weighed on insurers’ investment returns. They hurt profit even as more customers seek to buy savings products. Co-Chief Executive Officer Michael Guo said last month that profitability will recover after a 23% drop in net income last year.
“China’s macroeconomy gradually recovered in the first three months of 2024, but there were still challenges,” the company said in a statement, citing weak domestic demand. “In response to volatile capital markets and declining treasury yields, Ping An continued to pursue long-term returns through cycles via value investing.”
Read More: Ping An Trust Wins First Court Ruling Over Delayed Trust Product
Net investment yield of insurance funds dropped to 3%, the statement said, down from 3.1% a year earlier. Real estate investments fell to 4.2% of the 4.9 trillion yuan portfolio, from 4.6% the year earlier.
The CSI 300 Index slumped as much 7.3% this year through the start of February, before government intervention fueled a rally.
New business value, which gauges the profitability of new life policies sold, rose 21% in the first quarter. That followed a 36% jump last year as the company’s efforts to improve the productivity of life agents started to bear fruit. NBV per agent jumped 56% from a year earlier, the statement said.
Ping An shares rose 3% to HK$33.00 in Hong Kong trading on Tuesday, trimming the year’s loss to 6.7%.
(Updates with company comment in fifth paragraph, more details afterwards)
©2024 Bloomberg L.P.
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