Small business owners need professional advice even more than individuals who work for other people. This is because they have the same financial planning challenges as everyone else plus the unique opportunities and liabilities of being business owners.

Let's consider the liabilities first. As a business owner, you are exposed to liabilities arising from hiring others, exposure to possible lawsuits from customers and of course, exposure to creditors.

This vulnerability is increased by the tendency of small business owners to focus their energy and concentrate so much of their personal wealth in their businesses. A business should be considered an asset. It should be viewed as a wealth generator, not a repository of equity. The first response of many business owners to an approach by a financial planner regarding retirement planning is, "You're standing in my pension plan!"

Proper tax planning strategies represent opportunities to make your business work for you by transferring the wealth from your company into your or your family's hands as efficiently as possible. At the same time, you can reduce exposure of corporate and personal assets to liabilities of all sorts.

Here are some ideas worth exploring with a Certified Financial Planner professional:

1. Individual Pension Plans (IPPs). Picture this as a supercharged RRSP for incorporated business owners. They work best for established entrepreneurs over age 45 earning in excess of $86,000 personal earned income. This is the point at which you reach the RRSP maximum of $15,500 for 2004. Owners at this stage often have retained earnings in their company and must bonus themselves at top marginal tax rates to maintain their small business tax rate. An IPP lets you contribute up to 60 per cent more annually than an RRSP. In addition, you can obtain a substantial past service contribution going back to the date of incorporation as well as a very hefty "top-up" once you "retire." The corporation makes a fully tax deductible (including all set up and management fee) contribution on your behalf that is exempt from payroll tax (CPP, EI, etc.). The money is immediately vested in you and therefore creditor protected from both a corporate and personal level. IPPs require an actuary to set them up, but they should work closely with your financial planner. This is not a do-it-yourself project!

2. Employee Profit Sharing Plan (EPSP). An EPSP can be used as a vehicle to pay bonuses to business owners and selected employees. Again, all deposits are deductible to the company and fully taxable to the employee as T4PS income. However, they are exempt from CPP and EI premiums. As a result, with proper planning, each business owner, spouse or employee participant could save up to $8,000 annually for up to seven years for a total tax savings of $56,000 each!

3. Estate Freeze. This strategy allows you to reorganize your business and "freeze" the taxable capital gains within the shares of your company while crystallizing the current $500,000 qualified small business capital gains exemption. The result allows you to do more effective estate planning while passing on future growth to heirs or successors. At the same time, it gives you an opportunity to streamline your operating company, making it more attractive for future buyers.

4. Health Spending Account. An excellent way to self-insure health benefits for owners, their families and selected employees. Unlike insured accounts, the company establishes the amount contributed for each class of employee to be used for a wide range of health, drug and dental benefits. The contributions are fully deductible to the company and tax-free to the employee. This is an effective way to use corporate dollars to pay for personal health care.

5. Retirement Compensation Arrangement (RCA). Unlike IPPs, RCAs are not registered as pension plans but are a bona fide way to transfer wealth to highly paid business owners. While company contributions are fully deductible, there is a 50 per cent refundable tax forwarded to the government that is paid back as the employee starts making withdrawals. Frequently, Universal Life Insurance is used as a funding vehicle since it provides tax- sheltered accumulation. Once again, anything put into an RCA is out of the reach of corporate or personal creditors.

These and other ideas should be integrated into your total personal and corporate planning relying on skilled experts. A Certified Financial Planner professional can help protect your hard earned assets while saving you thousands of dollars in unnecessary taxes.

This article is solely the work of Alan Atkins. This is not an official publication of Dundee Private Investors Inc. and the views (including any recommendations) expressed in this newsletter are those of the author alone, and have not been approved by, and are not necessarily those of Dundee Private Investors Inc.