Your most profitable year

You know your business plan is a valuable tool for achieving your corporate business goals. Why not put a similar plan to work on your personal finances? Follow our monthly wealth-building to-do list and 2005 could be your best year ever.

January

• Start the year by creating a personal balance sheet. “It’s really the catalyst that drives the planning exercise,” says David Lloyd, a chartered accountant with Newport Partners Inc., a Toronto-based wealth-management firm for high-net-worth individuals. Start your net-worth statement by summarizing all of your family’s assets and liabilities, including trusts, corporations, RRSPs and real estate.
• Review the performance of your investment portfolio for the past year and determine a strategy for the coming year.
• Naturally, you’ll also want to start the year with a budget. Then resolve to keep up-to-date financial records and reconcile your bank accounts each month. “That’s your measuring stick,” says Terry Greene, senior advisor with MSC Financial Services Ltd. in North Vancouver; it allows you to track your progress throughout the year.
• To reduce your tax bill, consider loaning any surplus cash to your spouse or child. You save because the income is taxed in their hands, not yours. Keep in mind that you’ll need to charge interest at the Canada Revenue Agency’s (CRA) prescribed rate (currently 6%).

February

• If you haven’t already done so, contribute your maximum allowable to an RRSP (18% of your 2004 earned income, to a maximum of $15,500, plus any unused contribution room from previous years). Although the deadline for RRSP contributions is March 1, the earlier you invest, the more time your money has to grow.
• Consider transferring funds to a lower-income-earning spouse through a spousal RRSP. Taxes will be deferred till the spouse withdraws from the account, presumably in a lower tax bracket than yours.
• Arrange for a complete medical exam in preparation for developing a health-management plan. “Disability or failing health can be a significant impediment to your business,” says Lloyd. In your mind, play out as many contingencies as you can think of. Then ask yourself, “Am I protected in each case?”

March

• Review your compensation structure to determine the best way to withdraw income from your firm. Salary allows you to maximize CPP and RRSP contributions, but dividends, individual pension plans (IPPs) and retirement compensation arrangements (RCAs) are other options to consider.

April

• If you’re over 50, consider setting up an IPP or RCA. These flexible, unregistered retirement savings plans, set up by a firm for an employee or owner, allow you to pile up retirement funds quickly and tax-effectively.

May

• You should now have the results of your medical exam (see February), so develop or review your health-management plan. Assess your insurance needs. Specific areas to consider: do you need supplementary health insurance for youand your family; do you have the appropriate travel coverage?
• Check your emergency funds. You should be sitting on enough cash to cover living expenses for at least three months. If you’re not, start banking cash and establish a comfortable buffer by arranging for a line of credit.

June

• Consider tax-sheltering opportunities. While the CRA has closed many tax loopholes, you can still shelter income in film production and real estate limited-partnership deals.
• Review your shareholders’ agreement.

July

• Hold a family summit to discuss long-term personal, business, family and financial goals. You’ll want to talk about philanthropic/stewardship objectives. Develop an action plan for implementation in the next six months.

August

• Now is the time to determine your most effective tuition-funding strategy. If you have children attending out-of-town universities, review their living accommodations and assess opportunities to buy housing versus renting.
• “When you’re less busy, it’s a good time to look at your debt,” says David Trahair, a Toronto-based chartered accountant. “Approach several different banks and get quotes on different products that might reduce your interest rates.”

September

• Develop or review your succession plan. Start by getting a current valuation of your business, which will help you plan your estate and exit strategies. Ensure you have a current will and power of attorney.

October

• Assess your charitable donations strategy to ensure your philanthropic goals are being met and that your gifts are made in the most tax-effective manner.
• Review medical expenses for yourself, dependent children and parents for the past 12 months to determine whether there are tax-deduction benefits. The medical-expense tax credit is a rolling 12-month calculation, so you may want to prepay large upcoming bills, such as orthodontics.

November

• Review the status of unrealized capital gains and losses in your investment portfolio and then take appropriate action to minimize taxes for the current and prior years.

December

• Do a final review of any tax-loss selling opportunities. “There are opportunities to trigger any losses for tax purposes to offset large capital gains incurred in the year, or up to three years prior,” says Lloyd.
  Make political and charitable donations, in cash or publicly traded securities, to realize benefits on your 2005 tax return. Pay deductible investment expenses, such as safety deposit box charges and investment counselling fees, in order to claim them come April.