The Money Scope Podcast Benjamin Felix & Dr. Mark Soth

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/
 

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

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/
 

Accountants and financial advisors offer excellent professional support, but it’s also important to keep yourself informed and understand key tax implications when it comes to managing your corporate account. In today’s episode, we take a closer look at the type of information you should arm yourself with to help you optimize your tax planning and manage your corporate investments efficiently. Tuning in, you’ll learn why personal investing can often be surprisingly tax-efficient, why the biggest challenge is moving money out of the corporation into your personal accounts in a tax-efficient way, and why the best way to achieve this is with a CDA. We break down key aspects of tax drag and tax deferral in corporate investments and what you need to know about tax planning for a corporate account. Our conversation also covers how to use ETFs and corporate class funds for tax deferral within a corporation, why spending and giving are important financial skills that you should practice, how to be a good steward of your wealth, plus a whole lot more. For all the important details on tax planning and how to manage your corporate investments, be sure to tune in for this informative conversation!
 
Key Points From This Episode:
(0:01:27) Managing investments with accountants and financial advisors, keeping yourself informed, and the missteps Ben has seen when onboarding new clients.
(0:04:21) The major buying power that CDAs represent.
(0:05:34) Taxes, investing, and prioritizing a diversified executable investment strategy that suits your goals and risk tolerance.
(0:07:43) An overview of tax drag with corporate investing.
(0:12:41) The active-passive income limit problem and how to avoid it.
(0:14:25) A rundown of corporate tax deferral on investments. 
(0:19:42) Relevant details on tax planning for a corporate account. 
(0:24:31) Navigating more complex products and strategies, like insurance.
(0:34:09) How to use ETFs and corporate class funds for tax deferral within a corporation.
(0:41:19) Asset allocation, location, managing risk, and a reminder to be careful that the downsides don’t exceed your tax savings.
(0:44:08) Advice for avoiding inefficiencies in corporate investing when you have a high income and don’t spend much personally.
(0:46:10) Why spending and giving are important financial skills and why you should prioritize being a good steward of your wealth.
 
Links From Today’s Episode:
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/
HXS ETF vs Conventional S&P 500 ETFs in a Corporation
HXDM ETF For International Exposure in a Corporate Account
HXCN vs ZCN Tax Efficiency in a Private Corporation
Corporate Class Bond ETF (HBB) in a Private Corporation
 

In today’s episode, we delve into the complex topic of investing in Canadian corporations, something that will be deeply relevant to many of our listeners. Given the intricate interplay of investments and taxes within this context, it's crucial for corporate and business owners to grasp the fundamentals. We start off by unpacking key details of what defines a corporation, the intricacies of taxation for Canadian companies, and the nuances of passive income. Our conversation then goes on to cover tax integration, how to navigate its advantages and disadvantages, and what you can do to ensure that you avoid a large tax bump. We also break down the distinction between notional and real accounts, how they are used, tax deferrals, capital gains, and how to implement good insurance and estate planning. Today’s episode covers a lot and makes for excellent reference material. Tune in today for a comprehensive breakdown of everything you need to know when it comes to investing in Canadian corporations!


Key Points From This Episode:
(0:01:01) Investing in Canadian corporations and why it’s such a complex subject.
(0:03:44) Understanding exactly what a corporation is and what a corporation isn’t.
(0:06:06) The main reasons for a separate operating company and a holding company. 
(0:08:08) Navigating liability and investment properties as a physician. 
(0:11:42) Taxation of active and passive investment income inside of a Canadian Controlled Private Corporation (CCPC). 
(0:16:06) What is considered passive income and the nuances within that. 
(0:20:50) Tax integration, advantages and disadvantages, and how to avoid a big tax bump. 
(0:23:43) Fears around the passive income limit, and why these concerns are overblown.
(0:26:23) Taxation of corporate investments and why tax is a secondary consideration. 
(0:27:16) A breakdown of notional and real accounts and how they are used. 
(0:33:42) Eligible and non-eligible dividends and dividend tax. 
(0:43:49) Understanding unfavourable tax integration with foreign dividend income. 
(0:49:04) Tax deferral, capital gains, and the most valuable notional account. 
(0:54:09) How to implement good insurance and estate planning. 
(0:58:48) A review of today’s content and what we’ll be discussing next time. 
 
Links From Today’s Episode:
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/
 

The overarching theme of today’s conversation revolves around prudent financial decision-making, including tax-efficient investing, risk assessment, and leveraging home equity for investment purposes. This acts as supplementary material for the main episode, where we take a deep dive into the nuances of tax. Join us as we look at taxation and income through the lens of common scenarios that often lead people to make poor decisions with their investments. We uncover the importance of structuring investment portfolios with tax implications in mind and venture into the realm of corporate-class bond ETFs, assessing their potential benefits and complexities. You’ll gain insight into the free dividends fallacy and the benefits of high dividend yield stocks. We also unravel the strategy of leveraging home equity to defer tax and share our personal experiences and insights, along with essential criteria to determine your risk profile.  Tune in as we turn dollars into sense and pave the road to a prosperous financial future!
 
Key Points From This Episode:
(0:01:32) Optimizing investment portfolio structure without relying on dividends.
(0:03:33) Essential aspects of taxes on capital gains and dividends. 
(0:06:41) The risks of dividend-chasing strategies. 
(0:09:56) A case study comparing premium with discount bond tax efficiency. 
(0:12:26) Practical examples and steps for leveraging discount bonds effectively. 
(0:19:11) Income after tax between discount and premium bonds. 
(0:22:52) Using corporate class bond ETFs for tax deferral. 
(0:25:07) Another case study that demonstrates leveraging home equity to invest. 
(0:28:15) Risks and complexities of leverage investing. 
(0:33:32) The value of a clear plan and reasonable expectations regarding your risk profile. 
(0:36:31) Mark’s experience of leverage investing. 
(0:40:06) How he used leverage investing to reach his financial goals. 
(0:47:39) Final thoughts and key takeaways. 
 
Links From Today’s Episode:
Rational Reminder Podcast: Professor Samuel Hartzmark — https://rationalreminder.ca/podcast/273
BlackRock — https://www.blackrock.com/ca
Horizons ETFs — https://horizonsetfs.com/
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/