The Professional Advisory June/2007

Notes From the Editor: Half A Job Won’t Do! RALPH CRAWFORD BA., DMD (Editor)

Knowledge is Power When it Comes To Your Transition MARK McNULTY BA, CFP, CIM

Your Parents’ Insurance Planning Can Have a Major Impact On Your Financial Future DR. IAN WEXLER

Five Ways to Reduce Rent IAN TOMS B.Sc. (Hons)

Efficient and Professional: An Office Ideal DR. RON WEINTRAUB

Income-Splitting Opportunities That Avoid Attribution Rules and Tax Traps (Part 4 of 4) DAVID CHONG YEN CFP, CA

Transition: What To Expect GRAHAM R. TUCK H.B.A. C.A

Sequential Buy-Ins: A Lawyer’s Views BARRY SPIEGEL LL.M., Q.C

The

Professional

Advisory For Dental Professionals

The Professional Advisory consists of a group of seven independent professionals who provide services to the dental profession, each of who specializes in a different field. They have gathered to keep each other informed of the latest developments relating to the profession, and to produce this publication which is designed to provide expert information and advice solely for dentists and their advisors.

Half A Job Won’t Do! RALPH CRAWFORD

BA., DMD (Editor)

Many years ago before a career in dentistry I worked for a large national organization where one of the managers, whose responsibility was hiring new employees, had a unique (if not perfect?) method of determining an applicant’s qualifications. Despite the candidate’s previous accomplishments, the manager would somehow during the interview endeavour to get a good look at the prospective employee’s shoes.

And if the applicant had brightly shone only the toes of his shoes but displayed shoddy neglected heels, the manager would make his assessment, “This individual only does half a job and half a job won’t do”.

I’m not sure how this method of hiring fares in today’s world of recruitment and personnel management but somehow that “half a job” analogy has lingered in my mind down through the years and I find myself now and then still looking down at people’s shoes. And there was never any doubt in dental school and in years of practice that “half a job won’t do”. Just think of the consequences of decay left under a filling, an inadequate crown margin or an unfilled root canal. I’m not quite sure how a fifty year old employment experience crept into reviewing this issue of Professional Advisory but I found myself thinking of the quality of advice offered by our author contributors. I couldn’t find a “half job” in the lot. No matter the topic – the dental practice itself, transition, insurance, taxes, rent – each contributor’s submission

bears the same message. In the depth of each article it is abundantly clear that attention to detail and completeness gets the job done right.

In dealing with transitions Graham Tuck tell us that “You must relate to the purchaser” and Mark McNulty advises that “Good transitions happen by design not default”.

And in a lawyer’s view of Sequential Buy-Ins Barry Spiegel tells us “It is essential that each party must have complete confidence. Ron Weintraub’s Efficient and Professional: An Office Ideal leaves little doubt for practice success and when Ian Toms uses the strength of a word like confirm five times in order to Save Rent we get the message – do the job right. The aspect of doing the job right also rings loud and clear in two of the important dental practice essentials – insurance and taxes. David Chong Yen warns us in his final installment of Attribution Rules and Tax Traps about “various tax planning techniques frequently overlooked” and Ian Wexler leaves a similar strong message for the necessity of “proper financial planning” in dealing with “Your Parent’s Insurance”. We recommend you read each article, not only for its own unique message of success, but the value of the overriding wisdom that Half a Job Won’t Do!

crawford@dccnet.com

Knowledge is Power When it Comes to Your Transition MARK McNULTY

BA, CFP, CIM

It’s a fact of life that all of us will face, in one way or another, a transition from our career or professional life to what is generally referred to as “retirement”. Some resist it for as long as possible, and it’s only after a change in health or some other life changing event that they are propelled into transition. Others embrace the concept. And of course, most practitioners are somewhere in between these two extremes. Yet, even knowing that such a transition is inevitable, many dental professionals in my experience are not adequately

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prepared. I like using automobile analogies since we can all identify so readily with them. Using such an analogy, if you know you are going to go on a long journey by car wouldn’t you prepare ahead of time?

Wouldn’t you, for example, make sure that you knew how to get to your destination; that you could get fuel and accommodation along the way; that the car was in good enough condition to make the journey and so on?

My point is that it’s the same with a transition. Knowing it’s coming gives you the power to prepare so that your

transition and retirement experience are a success.

Awareness that your transition is unavoidable is not the only thing you need to know. That’s just the beginning.

You are also going to need to know: • What you and your significant other would be happy with in the way of a lifestyle post-transition.

Why is this important? It all has to do with your individual expectations. If you are used to living a lifestyle that takes, say $250,000 per year after tax, you are going to need a lot more capital than the couple who is quite comfortable living off $75,000 a year after tax. Keep in mind that depending on when you retire, you may need to finance your choice of lifestyle for 20 to 30 years or even more.

Thus, a critical component of the knowledge you will need in order to have control of your future transition and retirement is knowing what the right amount is for your definition of retirement on an annual basis after tax.

• Given the knowledge of what you need to finance your retirement, you need to know now if you have

the resources to build the necessary capital (we call it your pension). So, in planning your transi tion, do you know what your practice is worth, and what the combined total of your RRSPs and other retirement savings are today? I say today by the way, because it is impossible to predict the future.

The only way you can really be sure of reaching your goal is to update these estimates every year.

If you don’t have enough capital right now, do you know how to capture some of the cash flow of your practice to build the necessary capital between today and your eventual transition date?

We have a saying in our office. Good transitions happen by design, not default. If you don’t already know this fundamental information, I strongly recommend that you acquire it as soon as possible. Good Luck!

Mr. Mark McNulty, BA, CFP, CIM is a financial advisor with Raymond James Ltd., Independent Financial Services - Member CIPF. This is for informational purposes only. The opinions expressed by the author are not necessarily those of Raymond James Ltd. He may be contacted at 905-470-6222ext 209 or mark.mcnulty@raymondjames.ca

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Your Parents’ Insurance Planning Can Have a Major Impact On Your Financial Future DR. IAN WEXLER According to the latest reports and mortality studies there is no doubt that both men and women living in Canada and the USA can expect to live well into their eighties. The often accepted concept of retiring at age 65 – or even more unrealistic “Freedom 55” – is not a valid scenario for most considering how much they need to save for retirement. What this means for these octogenarians is a number of different scenarios: • They may not have properly planned or saved for retirement in order to satisfactorily live and enjoy their retirement years, thus being forced to exist through years of financial strain; • If one or both of these octogenarians are your parents, and they incur a significant illness or accident that has chronic or long term implications, the costs associated with care, home renovation, etc., could have devastating financial consequences; • If your parent or parents continue to grow and accumulate assets and wealth, there could be significant tax implications for you and/or your siblings upon their demise.

The Financial Consequences Any of the above can dramatically impact your own retirement plan. The life and estate insurance specialists at my firm often meet with dentists and other

professionals who are relying on an “inheritance” to assist with their retirement plan. Although this may happen for some, what most children don’t realize is what can happen if events do not play out as expected with regards to their parents. Proper financial planning, especially insurance planning, far enough in advance for your parents, can enable them to secure not only an enjoyable and stress free retirement but help avoid placing any unnecessary financial burden on their children.

Proper Planning There are a number of planning issues for you to consider before it is too late. It is recommended that you do some homework and “line up your ducks now” or as early as you can.

1. Speak to your parent(s) about what financial planning they have implemented; 2. Recommend that they get the advice of a financial advisor who specializes in estate and retirement planning; 3. Recommend they speak to a lawyer regarding wills, trusts, and the like in order to minimize tax implications at death; 4. Both you and your parents should speak to an insurance advisory team that specializes in such planning. They can often help you and your parents

mitigate or totally eliminate the costs of: • Long term care via long term care coverage; • The cost associated with a devastating illness via critical illness insurance; • Capital gains taxes at death via life insurance plans such as “joint last to die”; • Expensive drugs and other health care costs not covered by provincial plans.

Some final thoughts • Do not rely on government programs to adequately look after your parents financially during retirement; • Recommend your parents start proper insurance planning when they are “younger and still healthy enough to be insured properly”; • Consider that it may make sense over the long term for you and/or your siblings to assist them with insurance premiums over the long term. It may turn

out to be one of the best financial planning moves you make for your own retirement.

The bottom line is that sooner than later, you should assess your parent’s financial situation. In doing so, you may be able to provide them with the ability to enjoy the wealth and assets they amassed during their lifetime with the security of knowing that you and the rest of your family will not be saddled with debt upon their demise. The right insurance planning today can easily provide the most cost effective source of funding and income for the surviving spouse and other family members today and for generations to come.

Dr. Ian Wexler is Canada’s leading authority on insurance issues for dentists. He is the President of Protect-a-dent and Protect Insurance Agencies Inc. in Toronto which provides life, disability, critical illness, and healthcare insurance products and services to professionals, executives, and business owners across Ontario. He can be reached at (416) 391-3764 or drwex@protect-ins.com.

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Five Ways to Reduce Rent IAN TOMS

B.Sc. (Hons) -

www.iantoms.com

Approximately 30 per cent of tenant leases I review are over paid by $200 to $300 per month. Approximately 1 out of 100 are overpaid by more than $1,000 per month.

If you are thinking “not me”, think again. Please spend a few minutes reading and administering your lease. It could end up saving you hundreds if not thousands of dollars.

1. Determine if you are paying too much rent. You have to know you have a problem before you can solve it.

Divide your monthly rent by your monthly production. If the result is more than seven per cent then either your production is too low or your rent is too high. If your rent is too high, take steps to reduce payments.

2. Confirm you are actually paying net rent according to the lease. Many leases are “misinterpreted”. Do you think landlord is going to call you up and tell you that you are paying too much rent?

Read your lease. Confirm that the net rent multiplied by the area leased works out to what you are actually paying for the current lease year.

3. Confirm you are only paying the additional rent you agreed to pay. Why would you pay for what you didn’t agree to pay for? Probably because you don’t understand the elements and calculation of additional rent.

Read your lease, study and understand the additional rent section. Compare elements of this section to your current additional rent statement. Cross reference elements between the lease and the statement. Stop paying for items you did not agree to pay for.

4. Confirm that you are only paying for space actually leased. The area you pay rent on is supposed to be measured exactly. However most leases indicate measurement figures up to 10 per cent more or less than actual space leased. At $30 per square foot, a 10 per cent error on a 1,500 square foot premises equates to $4,500 per year.

Many leases are “misinterpreted”.

Do you think landlord is going to call you up and tell you that you are paying too much rent?

If the number representing the area leased in your lease ends in a “0” or “00” then it is very likely that the space was never measured properly. Read and understand the space measurement criterion. Get out your tape measure and confirm your space.

renew earlier than this date will preserve your 5. Confirm your lease term and renewal option leverage position. expiry dates. Administering your renewal will likely save you at least $2 per square foot for the renewal One last piece of advice. MAKE SURE THAT YOU term.

ARE CERTAIN OF YOUR POSITION, AND YOU ARE Find the date that is the last day of the current NOT UNDERPAYING BEFORE APPROACHING THE term. Write that down. Read the renewal option LANDLORD. in the lease; identify the renewal option expiry Based on more than 20 years business experience Mr. Toms, B.Sc. date. Write that down. Calculate the date that is (Hons) acts as a tenant advocate on behalf of select retail and the earlier of either 18 months earlier than the professional tenant clients primarily in the Greater Toronto Area. Mr. Toms is licensed as a Real Estate Broker and can be reached at term expiry date, or six months earlier than the (705) 743-1220, by e-mail at iantoms@pipcom.com, or through his option expiry date. Approaching landlord to web site at: www.iantoms.com

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Efficient and Professional: An Office Ideal DR. RON WEINTRAUB With the overabundance of technological and management systems available to ease running a modern dental office, it is easy to appear robotic and disregard professionalism. An efficient dental office, however, needn’t detract from professionalism; efficiency adds another dimension. A well-organized, well-run office simultaneously portrays a productive image and maintains the highest standards of professionalism.

Although establishing a culture in a dental environment that values patients AND includes the efficiency of technology is challenging, we can achieve a “patientcentred” dental office by involving staff, patients, and ourselves. The strategies include establishing a calm atmosphere, training a friendly staff, and providing outstanding dental service.

weddings, births, becoming parents or grandparents.

Involvement of front desk, dental assistant, hygienist, and doctors prepares for patients gaining prior knowledge of their appointment objectives in an early morning “huddle.” This brief meeting allows team members to review patients’ issues and objectives of their visit. It might also include sharing personal social information about them so staff can congratulate patients’ achievements, special bir thdays, anniversaries,

on “how much?” A well-functioning office could have a third party such as a patient coordinator to discuss treatment recommendations, financial agreements, and insurance in person in a non-treatment environment.

Patients appreciate dealing with the dentist on a higher plane without the necessity of discussing their financial limitations directly with the person with whom they will enter into a dissimilar power relationship.

TRAINING A FRIENDLY STAFF Management systems and technology in a wellrun office help make a practice more efficient and productive, but it takes interpersonal communication to make a dental practice patient-centred. A well-run office allows providers to focus almost exclusively on patients’ dental needs and to forge relationships with them giving the impression the entire office is committed to their personal welfare. Patients’ interaction with staff and dentist determine the satisfaction of the experience.

PROVIDING OUTSTANDING DENTAL SERVICE

Donning a clinic gown, mask, goggles, and gloves for ESTABLISHING A POSITIVE ATTITUDE AND CALM work, dentists face new challenges in presenting a human face to their skills. “Cutting edge” technologies ATMOSPHERE need caring hands to implement them.

Front desk staff dispels any negative perceptions of being task-oriented rather than people-oriented by Helping provide a fluid workflow, well-trained assistants their warm, personal greeting when patients arrive. contribute to dentists’ efficiency by helping us avoid Staff guides patients through the ritual of “meet, wasteful time when we allow them to perform support greet, seat, and treat” in a well-thought and organized duties while we work directly with patients. We need manner welcoming rather than processing them. Prior time to educate patients’ long-term dental health to knowledge of their appointment goals tells them they complement our technical skills. are expected and respected. Patients react favourably For dentists, it is professionally satisfying to discuss to a reception reflecting forethought and organization in the biological imperatives with patients leading to anticipation of their visit. treatment recommendations without having them focus

Efficient, professional offices are productive and provide a healthy environment for staff, patients, and dentists. Patients trust their safety and health to an organization focused on their needs, safe surroundings, and exceptional care. We can achieve these goals by employing the strategies needed to establish a calm atmosphere, encourage a friendly staff, and provide outstanding dental service.

Ron Weintraub is a founding partner with the Bayview Village & Downtown Dental Associates and brings over thirty-five years of knowledge and experience in the practice of general dentistry to the Professional Advisory. Large companies such as Patterson Dental, Ash Temple Ltd, Henry Schein Arcona, & the former Canadian Dental Co. have benefited from his insight. As a consultant to Innovative Practice Solutions, Ron advises dentists on practice enhancement, practice purchases, sales, location evaluations, associate buy-ins, and business mergers. Dr. Weintraub can be contacted at (905) 4706222 Ext. 221 or drronips@rogers.com.

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Income-Splitting Opportunities That Avoid Attribution Rules and Tax Traps (Part 4 of 4) DAVID CHONG YEN CFP, CA This is the final installment of a four-part Tax Planning series. In this article we will outline various tax planning techniques frequently overlooked.

Spousal RRSP: This is when the higher income spouse uses some of his or her own contribution room and puts money into the RRSP of the lower income spouse. The higher income spouse will receive the RRSP deduction for making such contribution, and the lower income spouse will be taxed on the withdrawal from the RRSP presumably at a lower rate. This assumes however that a minimum period of about three years passes from the time of the last contribution by the spouse to the time of withdrawal by the lower income spouse.

CPP benefit: Pension sharing, also known as “assignment”, is for spouses or common-law partners who are already receiving their Canada Pension Plan retirement pension(s). Assignment does not increase or decrease the overall benefits paid. Each person is responsible for any income tax that may be payable on the pension they receive. By doing so, spouses will be in the same or similar tax bracket and minimize the overall family’s tax bill. Certain pension income splitting between senior spouses may now be possible if both the Federal and Ontario governements go ahead with the proposed measures.

Filing Tax returns: Filing tax returns for your children, spouse and or parents, even if they have no income and owe no taxes, may result in tax refunds. It may also increase their current and future ability to contribute to their RRSP if they have some “earned income”. Postsecondary students can transfer certain tuition/education tax credits to their parents resulting in a lower tax bill for their parents, and any unused tax credits can be carried forward to reduce the students’ future taxes.

Recovering GST: You may be entitled to recover part of the GST paid on your business expenses if you provide “zero-rated” services such as crowns, artificial teeth and orthodontic devices. These services are subjected to GST but at the rate of “zero” percent. In general, the extra time required for bookkeeping and

invoicing patients outweighs the benefits of GST recovery. However, if you own a piece of equipment such as a CEREC 3D, it is cost beneficial to become a GST registrant as the GST paid on the CEREC 3D is in excess of $10,000, which could be fully refunded.

Another exception is where the general practitioner does significant orthodontic or cosmetic work. As an orthodontist owning your own practice, you should definitely consider registering for GST. As a registrant, you can request 100 per cent of the GST paid on supplies and laboratory fees used exclusively in the production of “orthodontic appliances”. GST paid on all other office expenses (e.g., rent, utilities, office supplies and dental supplies) are only eligible for a partial refund.

Life insurance: Life insurance may also be a tax efficient investment instrument. Monies invested in certain life insurance policies can grow tax-free. Upon death, the insurance proceeds could be used to pay off any of your outstanding debts (including income tax). In general, life insurance premiums are not taxdeductible, but the growth in value of the investment component is usually tax-free. However, where an insurance policy is required as collateral on a bank or business loan, the insurance premium is deductible.

Universal Life insurance policies provide coverage to protect against loss due to the death of a business partner and as a strategy to minimize corporate taxes.

You may borrow from a bank using the Universal Life Insurance policy as collateral. Any debts not repaid during your lifetime will be covered by the insurance proceeds. The death benefit as well as the growth in value of the investment portion inside your life insurance can represent a sizable legacy for your loved ones.

It is also important to name your spouse or children as beneficiaries, instead of your estate, to preclude creditors of your estate from claiming these proceeds.

David Chong Yen, CFP, CA with an international firm background and more than twenty-six years of experience, advises healthcare professionals and owner-managers. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or E-mail david@dcy.ca. This article is intended to present tax saving and tax planning ideas and is not intended to replace professional advice.

Transition: What To Expect GRAHAM R. TUCK

H.B.A. C.A

When contemplating the sale of a practice, the major area of uncertainty concerns transition. It means many different things to most vendors. The vendor’s reasoning can range from wondering “How long a period could I stay on?” to “I do not want any transition. I want to sell and be gone!”

In today’s vendor market the vendor is in greater control if he/she is located in a community which is in demand.

If the vendor has 2,000 or more recall patients in a sought after community, he/she can basically dictate the transition plans to the purchaser. If this is unacceptable to the vendor’s potential purchaser then another dentist with similar transition plans as the vendor’s will buy the practice. But the vendor should be aware that the world does not always unfold as one would expect.

The personality of the purchasing dentist is also very important. You must relate to the purchaser in practice philosophy. Typically, the younger dentist is more interested in developing the practice i.e., stronger hygiene program and more cosmetic dentistry.

If the practice has about 1,200 recall patients it is much more difficult for the vendor to call the tune as most purchasers can treat 1,200 recall patients without the assistance of an associate. This means that if you have a smaller practice, a short transition is about the best you can expect. If there is a shortage of patients the new owner will want to do the treatment and there will be no work for the vendor associate.

I was just talking to a dentist with about 1,200 recall patients who wanted to sell and be an associate in a practice near his cottage. This normally works out well

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as there is a shortage of dentists in cottage country and the sale can be completed with a limited transition.

We recently sold a larger practice where the vendor wished to get his capital out of the practice and still work for a number of years. We structured the sale around selling ninety per cent of the practice and the vendor continuing to hold ten per cent to ensure that he could continue to work. The purchaser also agreed to purchase the last ten per cent at a price of ten per cent of the last year’s gross. Thus, if the production goes up, so does the value of the remaining ten per cent. The trigger to sell was at the option of the vendor not the purchaser. The vendor agreed not to exercise his option to sell for a minimum of 24 months. This is not a Sequential Buy-in; it is more of a guarantee of future income as a dentist.

Another large practice we recently sold had no transition time after the sale, although the purchaser came into the practice as an associate a couple of weeks prior to the completion of the sale. Special arrangements should be in place prior to the future purchaser arriving to ensure the completion of the sale.

Basically, tell your broker what transition plan you would like as that will have significant impact on the type of purchaser they will attempt to attract. Generally, a newer graduate requires more transition time whereas a more experienced dentist requires less or no time.

Graham Tuck, H.B.A., C.A. is the broker/owner of Professional Practice Sales (Ontario) Ltd., which specializes in the valuation and sales of dental practices. He can be reached at (905) 472-6000 or 1-888777-8825 or e-mail at: grtuck@gmail.com

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Sequential Buy-Ins: A Lawyer’s View BARRY A. SPIEGEL

LL.M., Q.C

I commend to you Dr. Ron Weintraub’s excellent article on this subject in Volume 29 of The Professional Advisory. I would like to add my comments from the point of view of a lawyer who has dealt with many such buy-ins, most, but not all, of which have been successful.

To refresh your memory, a sequential buy-in occurs where a Principal and a prospective Purchaser (who may already be an associate) currently agree on a plan

to transfer the practice from the Principal to the Purchaser in two or more stages. This type of transaction is valuable where the Principal is not ready to sell the entire practice currently but both parties want their long-term plans committed to formal agreements. Typically, the parties become partners for a period of time until the buy-in is complete (a cost sharing plan is not as effective).

Given the right people and the right agreements, a sequential buy-in makes eminent good sense and should be a win/win situation. But, for it to work, it is essential that each party must have complete confidence in the other – both as to integrity and ability – and both parties must be comfortable that a long-term relationship will be successful.

THE PLAN: The parties will enter into agreements that: 1. Detail the Principal/Associate relationship for the period until the Purchaser buys the first part of the practice, at which time the practice becomes a partnership; 2. Provide for the Purchaser to buy specific percentages of the practice in two or three stages, with the dates of purchase spelled out; 3. Fix the formula or price to be paid at each stage; 4. Clearly detail the partnership arrangements; 5. Determine if the Principal will remain as an associate after the final purchase; 6. Specify what is to happen if either party becomes disabled or dies before the final buy-in; and, 7. Most importantly, are completely unambiguous, fair and transparent to both sides.

THE BENEFITS: Dr. Weintraub deals with certain concerns that must be satisfied, but let me elaborate on some benefits: 1. Both parties can plan for the future with some certainty. The Principal has a ready buyer and the Purchaser knows that (s)he has a permanent home.

2. The transition, as the Principal nears retirement, should be almost seamless, and there should be

Q A &

Please address your questions to: The Professional Advisory for Dental Professionals 308-7050 Woodbine Avenue, Markham, Ontario L3R 4G3 T. (905) 470-6222 F. (905) 475-4082 info@theprofessionaladvisory.com

Q Recently, I received a mailer from an insurance broker talking about using incorporation for insurance planning, especially with regards to critical illness coverage. What are your thoughts about using my professional corporation to pay for and write off a critical illness plan for me?

A If you choose to own your policy in your corporation (many dentists want to pay for everything with corporate dollars) you may effectively be able to save some

little attrition in the patient base (as opposed to as much as a 20 per cent decrease in a typical acquisition).

3. A Purchaser will find it less onerous to carry the debt load since it is phased in over time.

4. The growth in the practice should work to the advantage of both.

PROBLEM AREAS: 1. If the Principal owns the building where the practice is carried on, the Purchaser must be assured of a long-term lease at a fair rent and may want an option to purchase the premises at or before the final purchase.

2. While growth in the partnership is beneficial to both parties, the increase in the purchase price could be capped so that the Principal does not get all the benefit of the growth to which the Purchaser has contributed.

3. The danger always exists that the parties’ relationship will deteriorate over time. There must be careful thought given as to what the obligations will be if that occurs. Many solutions are possible and one must be found with which both parties are comfortable.

4. This arrangement will simply not work if the parties do not negotiate the agreements in total good faith. Once either party loses confidence in the honour or integrity of the other, the plan is doomed to failure.

A good idea? It certainly is – for some dentists.

Barry Spiegel Q.C. is a senior lawyer with Spiegel Rosenthal Professional Corporation whose practice is devoted to corporate, commercial and business law, with special emphasis on advising and consulting for the dental profession. He can be reached at (416) 865-0330; or fax to (416) 203-8592 or e-mail to barry@drlaw.ca

premium dollars by taking advantage of the lower corporate tax rate (for most professionals). However, if a claim occurs, the benefit would be trapped inside your corporation and the payout into your personal hands would go through a tax cycle (income / bonus / dividend). In most cases you would end up at the same place as if it were purchased and owned personally.

However, the insurance broker’s letter may be referring to another strategy. The insurance industry has worked hard to clarify the tax treatment of Critical Illness and have adopted a wide-spread belief that it falls under “Accident and Sickness” legislation. This implies that if a Critical Illness policy is provided as a “group of individual policies” the premium will be tax deductible and the benefits can be received tax free by the employee.

There are a number of caveats associated with this strategy. It would have to be an employee benefit and some amount of Critical Illness coverage would have to be provided to each employee.

You have to do your homework! You should speak to your accountant first, as well as a knowledgeable insurance advisor who can adequately explain the necessary criteria and risks associated with this strategy.

The views expressed in any article are those of the author alone. They should not be acted upon without the advice of your “professional advisors”.