– by Erik Solbakken, Solbakken Chartered Accountants –
When I get asked for tax advice, in most situations I normally respond with a question of my own: “It really depends; what’s your Life Plan?”
The focus of the conversation then quickly moves away from the immediate tax savings to what the person is really trying to accomplish. As shocking as it may sound, sometimes the right solution is the one that ends up costing more tax! The real question is … What’s your Life Plan?
A favourite saying of mine is “failing to plan is planning to fail.” If you were on a road trip and didn’t know where you wanted to get to, it would quickly become a confusing situation. I know, I know, Chevy Chase had a plan and look what happened to his “Family Vacation!” The real point is knowing where you want to go so that when you have to make decisions along the way you can opt for choices that support your Life Plan.
For the business owner, I like to think of the Life Plan as being supported by four other plans: Business, Wealth, Retirement and Estate. For the individual, simply replace Business Plan with Employment Plan and you’re there. Now, depending on what your Life Plan is, each of these four plans need to be in alignment to help you get to where you’re going. Everything you do affects everything you do: it’s all connected. The key, however, is making sure you know what the plan is. Where are you going?
One very useful exercise I’ve followed over the years is writing down what my plans are. I review this with my family to ensure we’re all on the same page, then call it a plan for the year. What are our goals for growing the business? How much vacation time do we want to take? What are we going to invest in? When do we want to retire and how much will we need? As the year progresses and changes happen we adjust accordingly to support our Life Plan.
An example of where planning is critical is with debt financing. Financial institutions lend money based on your ability to pay. This generally requires you to provide them with copies of your income tax assessments for at least two years. This is where showing a higher income and paying more income tax may make sense so you can get that home or vacation property.
What amazes me the most is how much of the plan actually comes true every year. It is an exercise that I have come to not only enjoy, but have found it absolutely necessary to achieving our family’s Life Plan.
To quote the A-Team’s Hannibal Smith: “I love it when a plan comes together.”
For more information visit www.solbakken.ca.
