Business owners need a transition plan to fund retirement.

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Just more than half (57%) of Canadian business owners who are within 10 years of retirement have business transition plans, find a CIBC poll. But the vast majority admit their plans are informal, despite the fact that many of them are counting on selling their businesses and living off the proceeds in retirement.

“For many owners the value of their business is a key part of their retirement fund; we have heard stories from some business owners that they rely on a few ideas on a cocktail napkin,” says Shelley Swanlund, head of Small Business, CIBC.

Additional findings include:

  • 80% acknowledge their plans are informal;
  • 14% created their plans in consultation with advisors, such as accountants, lawyers or bankers; 6% prepared a formal plan on their own;
  • 40% of business owners have not identified a successor; and
  • 28% have fully communicated their transition plans to stakeholders.

When asked to assess their retirement income sources, proceeds from the sale of their business ranked number one at 28%, followed by RRSPs, at 25%.

Budget 2015 delivered lower tax rates for business owners, but it leaves a troubling issue unresolved.

This year’s budget proposes to reduce the small business tax rate, currently 11%, to 9% over four years. The reduction generally applies to the first $500,000 of business income. Effective January 1, 2016, the rate will be reduced to 10.5%; and it falls 0.5% each year until 2019.

The dividend tax credit is changing accordingly. As a percentage of the grossed-up amount of a non-eligible dividend, the effective DTC rate will be 10.5% in 2016, 10% in 2017, 9.5% in 2018 and 9% after 2018.*

Despite this good news, industry experts were hoping Budget 2015 would address an issue the government raised last year: changes to the eligible property regime. Specifically, the potential changes would put eligible capital property (ECP) – which includes intangible assets like goodwill and client lists — into its own Capital Cost Allowance class. ECP currently has its own special rules.

But all this year’s document said was that the government was still thinking about the issue, and would release draft legislation for comment.

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