1. January, 2013 Taming The Tax Beast: Partnering for Financial Success

2. Mr. A owns 100% of ABC Company Inc. which he bought in 1996 for $500,000 (at the time the business was grossing $5M and earning $100K net profit) ABC has grown and now has revenue of $12.5M and pre-tax profit of $500K after salary of $300K to Mr. A ABC has Retained Earnings of $1M Mr. A believes that ABC is worth $2M today (after retained earnings are drawn out) 2 Case Study Facts

3. Mrs. A left the workforce years ago (but receives a $50,000 salary from ABC) The A’s have 4 children: 21, 19, 17 and 14 The 21 and 19 year old children both attend university out of town Mr. A wants out in 5 years and wants to sell ABC for at least $6M cash 3 Case Study Facts, continued

4. $750,000 Enhanced Capital Gains Exemption Shares of Qualifying Small Business Corporation (“QSBC”) Accessing multiple exemption amounts Additional family owners Potential savings of $174,000 per shareholder on future sale of shares of company 4 Capital Gains Exemption

5. 5 How much tax does he owe? POD ACB CGE CG TCG Tax $6M ($500K) ($750K) $4,750K $2,375K $1,100K

6. 6 How much tax COULD he owe? POD ACB CGE CG TCG Tax $2M ($500K) ($750K) $750K $375K $170K $4M - ($3,750K) $250K $125K $60K $230K $6M ($500K) ($750K) $4,750K $2,375K $1,100K $870K savings

7. What if ABC’s profit drops to $150K? Are you overpaying corporate and personal tax? Small business deduction utilization Income splitting using a Family Trust Are you getting low corporate tax rate money out of your company at little or no personal tax cost? Multiplication of capital gains exemption on a sale of shares 7 Reality Check…

8. Corporate:$150,000 at 15.5% = $23,250 Personal: ­ Mr. A Tax on $300,000 salary = $120,000 CPP $2,200 ­ Mrs. A Tax on $50,000 salary = $9,350 CPP $2,200 8 Total Tax Bill - Currently Total Net after tax = $216,250 Total tax and CPP payable = $157,000

9. Not utilizing full Small Business Deduction –15.5% corporate tax on up to $500,000 corporate income Overpaying total corporate and personal tax…but by how much? 9 What’s Wrong With This Picture?

10. Corporate:$500,000 at 15.5% = $77,500 Personal: ­ Mr. A Tax on $132,500 dividends = $24,375 ­ Mrs. A Tax on $132,500 dividends = $24,375 10 Total Tax Bill – Remuneration Strategy #1 Total Net after tax = $216,250 (same as current situation) Total tax and CPP payable strategy #1 = $126,250 Total tax savings = $30,750 ($157,000 - $126,250)

11. Corporate:$500,000 at 15.5% = $77,500 Personal: ­ Mr. A Tax on $53,500 dividends = $3,075 ­ Mrs. A Tax on $53,500 dividends = $3,075 ­ Kid A (21) Tax on $60,000 dividends = $2,300 ­ Kid B (19) Tax on $60,000 dividends = 2,300 11 Total Tax Bill – Remuneration Strategy #2 Total Net after tax = $216,250 (same as current situation) Total tax payable strategy #2 = $88,250 Total tax savings = $68,750 ($157,000 - $88,250) …with corporate restructuring:

12. Richter LLP 2345 Yonge St., 3 rd Floor Toronto, ON M4P 2E5 www.richter.ca For more information… Mitch Silverstein, CPA, CA – Partner msilverstein@richter.ca 416.488.2345 x 274