- The Story
When John* sold a capital property, he was hit with a staggering $2.5 million tax bill. Overwhelmed and uncertain about his next steps, he turned to Stone Owl for guidance. By implementing a multi-faceted tax strategy, we helped John reduce his immediate tax burden, optimize his cash flow, and create a sustainable long-term plan. As a result, John regained confidence in his financial future and was able to refocus on his business.
Crafting a strategic tax plan
John’s situation required a tailored approach that balanced tax efficiency with liquidity management. Our team at Stone Owl worked closely with him to develop a roadmap that maximized available tax strategies while ensuring financial flexibility. Key components of our approach included:
To mitigate the tax impact on his holding company, we advised John to draw a reasonable salary, reducing the taxable income within the corporation while maintaining compliance with tax regulations.
We recommended maximizing his RRSP contributions to offset personal tax liabilities, providing an immediate reduction in his taxable income and future retirement benefits.
To ease the tax burden, we structured the sale to take advantage of the capital gains reserve, spreading the tax liability over five years. This allowed John to retain more liquidity in the short term.
We introduced John to an Immediate Financing Arrangement (IFA), using his insurance policy to manage cash flow. This strategy enabled him to offset taxable income while preserving liquidity for investments and other business needs.
By carefully structuring dividend payouts, we helped John maintain a tax-efficient income stream while ensuring his long-term financial stability.
A closer look at liquidity and cashflow management
One critical aspect of John’s plan was ensuring he maintained adequate liquidity while managing his tax obligations. By integrating an Immediate Financing Arrangement (IFA), John was able to leverage his insurance policy to create a tax-efficient cash flow strategy. Our team guided him through the process, ensuring he understood the benefits and mechanics of the arrangement.
In addition, by strategically spreading out his tax payments using the capital gains reserve, John avoided a large one-time tax hit, allowing him to better allocate resources to his business and investments.
The power of proactive tax planning
Over the course of our engagement, Stone Owl provided John with a structured approach that transformed his tax burden into a manageable financial strategy. By the end of the process, John had significantly reduced his immediate tax liability, optimized his cash flow, and positioned himself for long-term financial success.
Today, John is a prime example of how proactive tax planning and strategic financial management can turn a seemingly overwhelming situation into a structured and optimized financial future. His ability to focus on his business, rather than his tax bill, is a testament to the power of thoughtful and comprehensive financial planning.
* We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real.
