Episode 99: Why The CRA is the Joint Venture Partner You Never Asked For and How To Plan For It

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How to understand and navigate the joint venture partner you have in every single deal and investment you have!

In this episode, Jon Orr and Kyle Pearce dive into the power and potential pitfalls of joint venture (JV) partnerships, especially when it comes to alternative assets like real estate. They explore how strategic partnerships can help you tap into areas where you might lack expertise or capital, allowing you to reach new financial heights. But beyond selecting the right JV partner, the biggest challenge is dealing with the ultimate, unavoidable JV partner: the government. By overlooking tax implications, many investors miss out on valuable opportunities to hold onto more of their hard-earned money.

• Gain insights on how to evaluate potential JV partners and assess the value each brings to the table.
• Discover how to maximize your investment returns by considering the tax impacts upfront.
• Learn strategies to minimize the amount the government claims as your silent JV partner, allowing you to keep more of your wealth.

Ready to make the most of your investments and keep more of what you earn? Listen to this episode of Canadian Wealth Secrets now to learn how strategic joint ventures can unlock new financial opportunities and how you can mitigate the invisible JV partner’s cut.

Resources:

• Dig into our Ultimate Investment Book List
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting corporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Unlock the potential of joint ventures and strategic partnerships to grow your wealth in this Canadian Wealth Secrets episode. Jon and Kyle discuss how alternative investments, like real estate, can complement your financial strategy and highlight the importance of understanding your silent partner—the CRA—when it comes to income tax. They dive into Canadian investing tactics, including infinite banking and permanent life insurance options such as participating whole life and universal life insurance, which offer unique ways to minimize income taxes and secure low tax rates. Whether you’re planning for retirement or looking to boost your investment returns, this episode is packed with insights to help you keep more of what you earn.

Watch Now!

Transcript:

Kyle Petter: Well there, John, today we are going to be diving in to a great conversation around joint venture agreements. Joint venture partners and all kinds of collaborative types of investments. A lot of people reach out to us sometimes are interested in trying to figure out if if they can be with us, if we know of those out there looking for JVs.

And honestly, it is such a great opportunity out there that people have, especially when you’re getting started in this world. And I’m going to say it’s probably going to be in more of the alternative asset space. A lot of times this comes up in in real estate, but it also comes up in business, right, where you might have certain skills or maybe certain assets that can help do some things, but maybe you’re missing other pieces.

Maybe there’s a learning to be done. Maybe experience is holding you back. And ultimately, at the end of the day, when you arrange a joint venture, you’re really coming together to collaboratively work towards some sort of greater good, right? And a lot of times an investment that means, you know, growing your capital, growing your investment and of course, having a positive outcome from that.

But John, I got to say, when people are talking about joint ventures, this can be a bit of a tricky situation. And today we’re going to talk about how it gets maybe even trickier than you might have expected.

Jon Orr: Yeah. Yeah. You know, in the simplest terms, if you think about joint ventures, you know, if you’ve ever watched Dragons Den or Shark Tank like those guys are pitching those those folks on those panels to become joint venture partners. They want they want to kind of have those investors who come in bring more to the table than just, let’s say, money.

And that’s usually what they’re after when they are pitching is going, hey, you’ve got money to invest in my company. But they also are looking for their expertize. And so when you’re looking at a joint venture or having a joint venture that you have to do, you have to consider like what Paul was saying, you have to consider like what is it that you’re looking for in terms of this partner now?

Also, you know, you might be going into a joint venture, being, you know, playing one of the roles of, let’s say, those Shark Tank people. And you’re bringing this thing to the deal. You didn’t find the deal. You didn’t structure it or you didn’t you know, you’re bringing your expertize to the deal or maybe your money, like for example, when I first invested in real estate, Kyle and his other partner, Matt, who was a co-host of this show for for a while, for a year, they were already successfully investing in real estate in our area.

And I joint ventured with them and I didn’t have the expertize of knowing, you know, how to manage property managers, how to buy, you know, real estate properties. You can get into that world. I was the money partner. I brought the down payment. I brought the capital invested into that. They brought the expertize. We joint venture and co-owned that property and we still co-own that property together in that partnership.

But we both had specific roles that we drew up to say, I was bringing the capital, they were bringing the expertize boom. That’s a partnership. So that was a JV. That’s that’s one example. But basically, in a sense, you’re looking at strategic partnerships and sometimes, you know, like you have to consider, like you have to consider like what is the partnership bringing, you know, to this deal?

And sometimes you might start wondering like, is this partnership worth it, worth the deal, worth, you know, the expertize. We always like to think about it in terms of businesses that we look at or invest in or create. When we when we go to reach out to people, we’re like, how do we create a strategic partnership? Because anyone can bring money, but what else can we get with say that capital investment?

Kyle Petter: Yeah. You know, one of the things that I think can be really difficult when you are exploring joint venture opportunities is deciding where that value lies. And I think one of the most undervalued is time and expertize is also very, very difficult to measure as well. So the reality is, is while on this show, you know, the easy JV split is often times 5050, but sometimes it could be even more 60% for, say, managing partners versus 40% for the money partners.

And you’ll notice that these can swing depending on the situation and depending on the actual roles. As John had mentioned. Are you going to be completely silent? Also, let’s put it this way, if the people will call it the managing partners, the people bringing the idea of the deal, if it’s real estate, maybe bringing the actual property to the table, if they’re in a position where they have the capital themselves to go all in, they might push the envelope on what it is that they want from a partnership.

So they might push more towards having more of a majority ownership because they’re thinking, listen, we have the capital and we have the expertize. So if we’re going to share this, we really want to make this worth our time and our effort. Right, because there’s added complexity. As soon as a joint venture actually happens. But rather than us going down the rabbit hole in describing joint ventures in detail today, we wanted to bring something up to your attention that you might be missing when you’re thinking about joint ventures.

Is that everything we do in our lives, we have a joint venture partner that you actually never asked for, and that joint venture partner is the government. So I think back to how many times in joint venture situations, especially early in my journey, where when I was the money partner, where I didn’t bring the expertize or I didn’t, you know, maybe bring the deal, where I used to wonder and I used to think to myself, Oh, I wish I could get more of a split.

Like I want more equity by bringing the money. For example, the part that I often ignored and I did this for a really long time was actually ignoring the invisible, the most silent of JV partners until about April, right? Because April every year we have to file our taxes. The government is a forced joint venture partner and so what we wanted to discuss here today is sometimes thinking about how much time and effort we focus on things like the joint venture split or the agreement that you might be doing when you’re going into an investment and starting to think about the actual split that’s happening in the background that you may or may not be

unknowingly agreeing to based on how you’ve been structured for sure. And for us, that was a massive wake up call because for many years we basically did deals, we made investments, whether they were joint venture or otherwise, and we just learned about the tax consequence afterwards. And what we’re trying to articulate here is that actually by being smarter with the invisible joint venture partner, by actually understood ending how we are taxed and how we can potentially be taxed differently depending on how we structure our deals moving forward, we could actually have a much greater outcome by doing that, keeping more money in our pocket than, let’s say, trying to pull the extra percentage points from the JV partner that we’re looking to get into a real estate or investment deal with.

Jon Orr: Sure. For sure. And not even not even thinking about the JV partner. If you’re going into a JV partner, like you said, it’s everything. So like when you’re looking at negotiating or kind of thinking about your the interest rate on an investment or let’s say you’re negotiating with the bank who would then be a JV partner if they’re giving you, say, any sort of loan or capital that that you can you get you have access to your equity in your home like a hillock.

Like we tend to like you’re saying we tend to, you know, fixate on the best rate or the terms of this deal without really considering that we could be optimizing on the tax side and that would save us so much more money in the long run versus saying the 1%, 2% on let’s say your renegotiate, getting your headlock or your mortgage, you know, when it comes up for renewal to get more access to your equity or or thinking about the interest rate or sorry, the, you know, the the return rate on an investment is like 1%, 2% when you’re trying to make a deal, like by optimizing on the back end on your tax side,

you can open up so much more possible free of thinking about what that actual return is. If you can, you can structure your tax situation to to be more advantage and just then than what you’ve had in the past.

Kyle Petter: Yeah, absolutely. And you know, so what we’d like you to be doing today as you listen to this episode, is sort of pausing for a moment, and we want you to think about your own situation, think about where income is coming to you personally, maybe where income is coming into your corporation if you have a corporate structure. And then really pausing for a second to try to think to yourself, do I understand how the money is being taxed now and how it will be taxed if I want to access it at a personal level later?

So some common examples is really understanding how is, say your RRSP going to be taxed, right? How will your unregistered accounts be taxed? So for example, I was just on a forum recently and there was a big argument about which savings account, which high yield savings account people should have their emergency funds in. And there’s people with 50,000.

Some have $100,000 of emergency funds better in an unregistered because and I would argue as well I don’t want to take up my tax free savings account room for a for an emergency fund earning four ish percent. But they’re arguing about whether you’re earning 4% or whether you’re earning 3.75%. And in reality, depending on the tax bracket that you are in those for or 3.75% are going to be taxed because they’re in an unregistered account.

And therefore, if you are in a 50% tax bracket or your marginal rates 50%, you’re losing half of that anyway to taxation. So the real question becomes is when we’re taking action and when we’re splitting hairs over the extra couple percentage points in that JV deal, or whether it’s the extra percentage point or so inside of a high yield savings account, or it might even be in my investment accounts inside an RRSP or maybe an unregistered account.

We really have to look at the big picture and think about how is my invisible JV partner going to be compensated in this situation, and is this the best joint venture that I have for me? And the beautiful part is, is that you don’t need the other partner to agree with you. The rules are set, right. You get to decide.

But the part that you need to know is how does it work? How will I be taxed if I’m getting interest or I’m getting dividends? Am I taking that as personal income or is that inside of a registered account so that I don’t get taxed in a specific tax year? Maybe you want that dividend income to be a part of your personal tax so that you don’t have to sell off assets and pay capital gains taxes in order to live your lifestyle.

But ultimately, at the end of the day, when you’re looking at all of the opportunities that you have in front of you, instead of thinking about which is going to grow the most or give me the greatest return, we have to start thinking about how much of that is. Am I going to keep in my own pocket? Because that joint venture partner has set all kinds of tax traps for you where you’re just able to fall right into them and it is advantageous for them.

So take control of this joint venture partner that you have there, sitting there silently waiting and you get to decide on the terms of the joint venture agreement that you’re going to make and the reality is sometimes it can be a little bit trickier. So the question is, is where are you going to go in order to have that discussion, in order to learn about some of the different taxation rules and some of the ways that you might be able to get a better cut out of this joint venture partnership.

Jon Orr: So we’re going to, you know, challenge you is you could whip, you know, whip out your phone right now if you’re if you’re listening on your on your device, if you’re watching us over on YouTube right now, you on the on the sidebar, you’re going to see other episodes that we have have released. We like this is this is the point of the Canadian Well Secrets podcast is to help you navigate this joint venture.

You know, this joint venture partner you’re on and or you have and how you can say optimize it. So if you’re on your device, you’re scrolling through the episodes and going which which episode is actually going to help me navigate this joint venture a little bit better? Is it going to be like episode 92 that says, Do you have a retirement plan or a retirement prayer?

Is it going to be you know, you’re scrolling through and you going like maybe it’s the three reasons the wealthy avoid paying down debt and that’s going to help, you know, you navigate your tax situation or maybe it’s about your RSP investments and the alternatives that you could be using to mitigate, say, this tax implication that you have.

There are numbers of episodes by scrolling and looking in the catalog to see which episode will be most appropriate for you to listen to. And this is the the actual way that we would encourage you to listen to past episodes is is to not say listen to them in order, listen to them by area of need or which one is speaking directly to you.

But that’s that’s the say the next step you’re going to want to take after listening to this episode is going, I know I have a JV partner that I can’t kick to the curb, but I do want to I do want to make sure that I can structure this to be advantageous for myself, my family, you know, other business partners that I have.

Kyle Petter: And if you think about this and go, you know, if I can keep more of the money that I earn, regardless of how I earn it, whether it’s a T for income, whether it’s a dividend from my own company, whether it’s some other way, however you’re earning income and how you’re going to set yourself up to earn that income into the future is going to make a bigger impact on the net or end result than, say, the actual investment you make right?

Taking that having more money to put into your future wealth is going to be a bigger payoff, especially if we put them into buckets that are going to allow me to then take more of that earning earned income and keep it in my own pocket. So thinking a little bit different than maybe how we were all raised, how we thought about investing in school.

We have to start thinking about how do I keep more of my money now from that, give partner, how do I grow it from here in buckets? And when I say buckets, it’s in assets, in buckets, in accounts that are going to be advantageous for me later when I follow through on my plan to utilize those assets for my own income.

How can I do it in the most tax efficient way so that that JV partner gets their true fair share, not what they believe is their fair share, which is the maximum amount they can receive, but the minimum amount they can receive so that you are on the upper or have the upper hand with the assets that you’ve accumulated.

So folks, check out those episodes just like John said, give it a scroll and we would love to hear from you. What is your situation? Send us an email at Kyle at Canadian Wealth Secrets dot com and reach out to us. Let us know where you’re at. Where’s your biggest hidden job partner challenge? And we’ll do our best to provide you with some guidance and next steps.

As always, you can head to Canadian wealth secrets dot com forward slash discovery and you can book yourself a discovery call and we’ll go through your scenario and try to give you your very next step towards building that wealth that you’re after for financial freedom and to try to silence that JV partner.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance. The show also digs into the underutilized corporate owned life insurance as a wealth building and Canadian tax planning tool through the use of participating whole life insurance that can not only resolve the issue of removing the income tax target from the back of your corporations retained earnings and put more money in your personal pocket both now and in the future.

OPTIMIZE YOUR FINANCIAL FUTURE