I often meet people at various social events and inevitably through casual conversation I am asked what I do for a living. I used to respond in a boring accountant-like manner, “I am a chartered accountant.” The conversation generally came to a quick halt and my fellow conversationalist either turned to my wife to chat her up or quickly changed the subject.
I have learned though, that what I do for a living (as a chartered accountant) is not necessarily as boring as I once thought. In fact, I think it is pretty exciting. So my response to the question is now “I ensure that entrepreneurs pay as little tax as possible.” When people hear the word “tax” followed by “pay as little as possible,” they are somewhat intrigued and often ask me to explain. I go on to explain that I specialize in strategic tax planning for owner-managed businesses at which point my wife chimes in and says “Can’t we talk about something more exciting than tax!” Whoosh….is the sound I hear as my bubble is burst!
Fortunately, my clients, prospective clients, colleagues and professional contacts are more inclined to hear me out and learn more about strategic tax planning and saving tax. But what exactly is strategic tax planning….? Tax planning is a very general and somewhat broad term, but as I tell all of my clients, strategic tax planning starts with objectives. Without an objective or objectives, tax planning is like peeing into the wind – you never know quite where it may end up. However, strategic tax planning has an objective or objectives and the tax planner knows exactly what the end result must be. In other words, there is a goal and it is my responsibility as the strategic tax planner to ensure that the client’s objective or objectives are met.
It should therefore come as no surprise that when I meet a client for the first time I spend some time asking questions so that I can get a sense of what the client wishes to achieve. Often a client knows they wish to minimize tax but are unsure of how to do it or what options and alternatives their situation may allow for. It is my primary objective to pull enough information out of a client as we explore various objectives. Strategic tax objectives can include, but are not limited to:
- Income splitting with immediate family members;
- Multiplying the $750,000 lifetime capital gains exemption on a sale of the shares of a business;
- Mitigating or eliminating “double taxation” issues on the death of a shareholder of a company;
- Minimizing previously identified areas of potential tax exposure to an individual or his or her company;
- Distributing surplus cash from a corporation in a tax efficient manner;
- Remunerating key employees through monetary and non-monetary means;
- Protecting individual or corporate assets from unforeseen creditors.
Once the objective or objectives are known, the fun begins! The next step is to map out a plan to get the client to where they want to go. The plan depends on a myriad of factors, probably none more important than the client’s personality. But the key is knowing the objective or objectives… without them I cannot help a client from a strategic planning point of view.