4 Reasons to use a Holding Company

 1. Tax savings
  • If certain tests are met (ie the hold co. owns more than 10% of the voting shares) your portion of the after-tax earnings of the operating company (OP CO) could be paid to the hold co by way of a tax-free inter-corporate dividend.  You would only be taxed on the portion of the dividend you withdraw from the hold co. The balance you can re-invest from your hold co.  Passive income is not eligible for the small business deduction limit (14% combined low rate) but you recover $1 of the high-rate tax for every $3 of dividends you pay out.  You can control your personal tax liability by controlling how much you gradually draw from your hold co, and saving a balance to draw out at a minimal liability in retirement and by any kids after they turn 18 years old but are in school with little income.
  •  If in the other case, the shares of the OP CO are owned personally the total payout would be immediately subject to personal income taxes and you would not be eligible for the refundable dividend tax on hand strategy to reduce the tax on any investments you make personally.
2. Creditor Protection
  • Any excess earnings of an OP CO should be held by hold cos  so that the money is out of reach of potential creditors and liability claims from the OP CO.
3. The $800,000 Lifetime Capital Gains Exemption
  • In order for its shares to qualify for the $800,000 lifetime capital gains exemption at least 90% of the OP CO assets need to be used in an active business.
4. Purifciation and Making the Business More Saleable
  • Potential investors/purchases and their lending institutions would be only interested in the true business assets. We should claim all our mileage, meals&ent, office-in-home, laptops, in the hold cos and those assets are the responsibility of the hold cos.  The financials will be a truer representation of the discretionary cash flow and true value of the OP CO.
In the future at the time you want to sell your shares in the OP CO you will need to have the OP CO  amalgamate with a new corporation to avail of the $800,000 lifetime capital gains exemption.  The OP CO will have the same legal name and the same business number except it will have the suffix RC 0002 instead of the RC 0001 it has now.
Share with someone that could use some advice in this post or save some taxes
For every person you refer we’ll give you a free month or a gift card equal to 1 month of service of your referral – whatever is bigger! Up to to $600!
Anyone you refer gets a free month of bookkeeping!
THUT data capture technology extracts data from bank, credit card and online statements and allows for automatic bank reconciliation.
THUT uses artificial intelligence to locate and extract line item and tax summary data from receipts and exports it into a csv file.
Cleansing algorithms allow it to extracts transactional data that is 100% accurate.
Send us your prior financials and we will prove to you how our value is unrivaled in Canada.
➤➤➤

Calculating Your Annual Advertising Budget

In order to logically budget for advertising you must take into consideration the markup on your average sale and your rent. Presence that comes with rent is one of the best advertising your money can buy and should be taken into account in determining the budget.

  • The more time you spend on the road, the more you should spend on vinyl vehicle lettering.
  • The more inaccessible your location the more you should spend buying web traffic.Spend as much as you can on buying traffic! Margins may stay same or decrease but the only thing that matters is volume. Analyze conversion rates and adjust targeted demographics accordingly 30+ purchases for ever 1,000 visitors and you are on track.  $10K in marketing/month and $5K in profit. Cut the marketing to increase margins? NO! Spend as much as you can spend  until your business can afford to spend $10K/week and still profit $5K/week.

Assume that my business is projected to do:

  • $400,000 in sales this year  (value A)
  • a profit margin of 48% (value B)
  • my rent is $20,000 per year (value C)
  1. Calculate 9% and 10% of your projected annual gross sales (A x .09 = X) and (B x .10 = Y) [ X= $36,000 and Y= $40,000]
  2. Gross Profits: [A x B =Z] [400, 000 x 48% = $192,000]
  3. Markup %: [Z / (A – Z) = M] [192,000 / (400,000 – 192,000) = 0.9230 or 92.3%]
  4. Multiply X and Y by the markup % [X x M=X1] and [Y x M=Y1]  [36,000 x 0.923 = 33,228] and [40,000 x 0.923 = 36,920]
  5. Low figure: [X1 – C = L] [33,228 – 20,000 = $13,228]
  6. High figure: [Y1 – C = H] [36,920 – 20,000 = $16,920]

If you are currently a customer we can provide all of the figures above for you and assist you in your calculations of your annual advertising budget. If you are not currently a customer we would still love to hear from you!

Share with someone that could use some advice in this post or save some taxes
For every person you refer we’ll give you a free month or a gift card equal to 1 month of service of your referral – whatever is bigger! Up to to $600!
Anyone you refer gets a free month of bookkeeping!
THUT data capture technology extracts data from bank, credit card and online statements and allows for automatic bank reconciliation.
THUT uses artificial intelligence to locate and extract line item and tax summary data from receipts and exports it into a csv file.
Cleansing algorithms allow it to extracts transactional data that is 100% accurate.
Send us your prior financials and we will prove to you how our value is unrivaled in Canada.
➤➤➤