Are You Always Running Out of Time?

Are the current standards you have set in place the most efficient and viable in achieving your goals? Are you finding the right balance between your work and personal lives? Are you always pushing back deadlines and rescheduling matters? These are some of the questions you must ask yourself when assessing your legal practice. For lawyers, time is of the essence, no pun intended. They must prioritize their schedules in order to complete tasks on their daily agenda. There is always a constant influx of tasks and prioritization means everything when your most important assignment could be the next one you receive. Having the right skillset, tools, balance, flexibility, and procedures in place can simplify even the most complex matters allow lawyers to execute their plans proficiently. Such practices enable a firm to become more productive and this increased productivity is inevitably going to result in increased profits.

Let’s examine a billing trend report to determine how much billable time lawyers are actually getting out of their workday. Lawyers are working long hours to meet productivity goals but are only billing for 29% of their workday on average [1]. There is definitely a discrepancy in this figure and how occupied a typical lawyer’s schedule is. That means legal professionals are spending time carrying out tasks that do not equate to billable time. These tasks include, but are not limited to, administrative functions that are required in running your practice. Law school teaches lawyers how to carry out legal work and put their valuable legal expertise to practice. It is this knowledge and capability that allows lawyers to bill their clientele and earn an honest living. Yet, all law firms include tasks which need to be performed in order for a practice to remain functional but are not billable.

A simple business principle that can be implemented is outsourcing these tasks and leaving more time for yourself to work on assignments which can generate billable time. Bookkeeping and office administrative tasks can take up large portions of a workday but by outsourcing them to staff and paying for a particular service, more time is left for lawyers to focus on the legal matters specific to their line of work.

In realizing the proper techniques that need to be applied for running a more efficient legal practice, a quote from Mark Twain came up numerous times.

If you eat a frog first thing in the morning, the rest of your day will be wonderful.

Mark Twain [2]

and

If you have to eat a frog, don’t look at it for too long.

Mark Twain [2]

It is important to note that certain tasks can be daunting, and lawyers may push them back because they may take up most of their day. According to Twain, it is these tasks that could hold one back. Complete your most difficult assignment first thing in the morning, and suddenly, the other tasks become minute and less challenging. In doing so, you are able to prioritize your assignments, and create to-do lists for yourself in collaboration with your calendar [3].

Next, eliminating distractions will give you a sense of clarity in your work/practice. It is healthy to take breaks throughout your day and refresh but being unproductive is unjustifiable. Another healthy practice is taking care of your emotional and physical health. Being mentally and physically fit will contribute to your success just as much as your skillset and business intelligence will [4]. Being able to attract clients is not the sole determinate of success for a legal practice. It is equally important to be able to work on matters for those clients on a time efficient basis. If that includes taking a break, so be it. One should be open to the idea of stepping away from their work. Research shows that our brains are capable of solving problems while we are not actively working on them [5]. Hence, stepping away from your practice may, in fact, prove to be more beneficial than harmful.

Implementing technology may also prove to be an effective practice tool in time management. Using the most adept practice management software, communication tools, and digital services can lighten the burden on you and allow you to allocate time more freely. That simple advantage separates those attorneys who surrender focus on one aspect of their work and those who are all over the place.

A workspace committed to providing lawyers with the excellent communication tools and services to improve efficiency, is that of Wolf Law Chambers. Located in the heart of Mississauga, the chambers aids lawyers through the administrative aspects of their practice. This helps facilitate growth and expansion for the lawyers in their area of practice. Come in and see for yourself how Wolf Law Chambers is innovating time management in the practice of law. Visit us as 90 Matheson Blvd. West, Suite 101 and feel free to join us for all our upcoming events and workshops.

[1] Jeffreys, Brenda Sapino. ‘What Do Lawyers Really Do With Their Time?’ (2017) LAW.COM. https://www.law.com/sites/almstaff/2017/09/26/what-do-lawyers-really-do-with-their-time/?slreturn=20190802200000

[2] Pfeifer, William. ‘Essential Time Management Tips For Lawyers’ (2018) the balance small business. https://www.thebalancesmb.com/effective-lawyer-time-management-2151357

[3] Taylor, Lucy. ‘7 Ways You Can Become an Uber Productive Lawyer’ (2019) Nozbe. https://nozbe.com/blog/productive-lawyer/

[4] Boss Reporting. ‘TIME MANAGEMENT FOR SOLO PRACTITIONERS: MAXIMIZING YOUR TIME EVERYDAY’ 2016. BOSS CERTIFIED REALTIME REPORTING INC. http://bossreporting.com/time-management-for-solo-practitioners-maximizing-your-time-everyday/

[5] Case Peer. ‘6 PRODUCTIVITY TIPS EVERY LAWYER SHOULD KNOW’ CASE peer. https://www.casepeer.com/6-productivity-tips-every-lawyer-should-know/

-Narvir Goindi

The Advantages of Incorporating your Professional Practice

Since November 1st, 2001, professionals have been entitled to incorporating their practice under the Business Corporations Act as provincial governments changed their incorporation laws to include professionals [1]. Incorporating a professional practice is a pivotal step forward in securing financial advantages. Whether it be through tax deferrals, individual pension plans, health and welfare trusts, the lifetime capital gains exemption, and/or limited shareholder liability, incorporating enables professionals to benefit from potential advantages that would not be available if they operated under sole proprietorship.

Tax Deferral

Tax legislation makes a corporation a separate taxpayer and its own legal entity [1]. Deferring taxes may single handedly be the most beneficial aspect of incorporating your legal practice. The income earned within a corporation is taxed at two separate levels: at the corporate level and then again at the personal level when the income gets distributed [2]. Once you incorporate, tax rates for the corporation become significantly lower than personal tax rates. There is flexibility that lies in deferring personal taxation as corporate surplus inside the corporation. This can defer one’s personal income taxes and although these tax-deferred funds will be withdrawn at some point in time, it is clear that the compounding effect can be very beneficial over long periods of time [3].

Income earned from operating your professional practice within a corporation is taxed at a lower corporate tax rate than the income you may earn under sole proprietorship. Sole proprietors are taxed at an individual marginal tax rate, for which the highest marginal tax rate for individuals in some provinces and territories was higher than 50% for 2018 [4]. The marginal income tax rate will increase for an individual as income increases. On the contrary, professional income earned within a corporation is subject to being taxed at a lower corporate tax rate. In 2018, this rate ranged from 26.5% – 31%, which is significantly lower than the former figure [5]. Lower corporate tax rates for active business income leaves professionals with more after tax income within the corporation to invest at their discretion.

Furthermore, corporations that are legally defined as a Canadian controlled private corporation (CCPC), can benefit from the federal small business deduction. This benefit lowers the tax rate even further on the first $500,000 of active business income [4]. This figure is known as the ‘business limit’ and it varies by province/territory. The small business deduction rate also varies by province and territory, and the combined federal and provincial tax on income subject to the small business rate ranged from 12% to 22% in 2018 [5]. That is definitely not bad a tax rate that would otherwise be 38%, which is what the corporate would have to pay according to Part I of the Income Tax Act [2].

Small Business Deduction Limits/Rates
(2019)
Small Business
Limit
Rate %Combined Fed/Prov. Rate%
Federal$500,0009.00 
Provincial:   
 Alberta$500,0003.0012.00
 British Columbia$500,0002.0011.00
 Manitoba$425,0000.009.00
 New Brunswick$500,0002.5011.50
 Newfoundland and Labrador$500,0003.0012.00
 Northwest Territories$500,0004.0013.00
 Nova Scotia$350,0003.0012.00
 Nunavut$500,0004.0013.00
 Ontario$500,0003.5012.50
 Prince Edward Island$500,0003.5012.50
 Quebec$500,000  
 Without MPP* 8.0017.00
 MPP* 4.0013.00
 Saskatchewan$500,0002.0011.00
 Yukon$500,000  
 Without MPP* 2.0011.00
MPP* 1.5010.50

*Manufacturing and Processing Profits Tax Credit

IPP’s

An individual pension plan (IPP) is specifically designed for an incorporated professional and/or business owner of an incorporated company, age 40 or over [1]. With that said, it is not to say that someone under 40 cannot contribute to an IPP. An IPP is funded by corporate assets with the intention of providing post-career income to the contributor. IPP investments grow on a tax-deferred basis and usually provide higher contributions than those permitted by Registered Retirement Savings Plans (RRSP’s) [1]. Additionally, fees incurred from setting up and administering an IPP are tax deductible by the employer [1].

Health and Welfare Trusts

A health and welfare plan is a corporate arrangement set up by the employer and can provide employees compensation for medical and/or dental expenses. Coverage extends from the incorporated professionals to those employed by the corporation. This plan can provide coverage for medical expenses incurred outside of provincial or insurance plans. This tax-free benefit can make medical and dental expenses tax deductible for the corporation [5].

Lifetime Capital Gains Exemption

Each Canadian was entitled to a capital gains exemption of up to $848,252 in 2018 and this figure is indexed annually [4]. The Lifetime Capital Gains Exemption (LCGE) enables shareholders to reap the benefits of significant tax breaks on capital gained through the sale of private company shares. This is solely applicable to qualified small business corporation sales but is a benefit every Canadian is entitled to. Family members who own shares of a single professional corporation can multiply the LCGE available upon the sale of the qualified small business corporation, resulting in significant tax savings [3].

Limited Shareholder Liability

Incorporating your professional practice limits the liability of the corporation’s shareholders. Unless a shareholder has provided a personal guarantee, they are not subject to responsibility for the corporation’s liabilities. Nonetheless, a professional corporation does not protect individuals from personal liability for negligence [5].

Closing Remarks

Incorporating your professional practice provides endless potential for possible tax breaks, retirement savings, health benefits, minimizing capital gains on the disposition of private company shares, and protection from potential legal liabilities. With that said, professionals operating in different fields should definitely consider incorporating their practice as it is a simple process that presents an abundance of opportunity for one’s welfare. If you are still not sure about what incorporating can do for you, contact a professional who knows exactly how to help.

Greater Toronto Area based lawyer, Dezso Farkas, who operates under FARKAS LEGAL PROFESSIONAL CORPORATION, has helped many professionals incorporate their practice from start to finish. He has advised corporations and caters his services to their needs in order to maximize potential benefits. He believes in helping businesses grow and enabling business owners to benefit from the advantages that can be sought through incorporation. For professional advice please feel free to contact Mr. Farkas at (416) 735-6645.

-Narvir Goindi

[1] RBC. ‘Is incorporating your professional practice right for you?’ (2018) 6:2 Investment, tax and lifestyle perspectives from RBC Wealth Management Services. https://www.rbcwealthmanagement.com/ca/en/research-insights/is-incorporating-your-professional-practice-right-for-you/detail/

[2] Service Ontario. ‘Incorporating a business corporation’ (2019) Business and economy. https://www.ontario.ca/page/incorporating-business-corporation

[3] Rotfleisch & Samulovitch P.C. ‘Lawyers Advantages of Incorporation – Ontario Tax Lawyer Comments’ (2019) Taxpage.com. https://taxpage.com/articles-and-tips/incorporation/lawyers-advantages/

[4] TurboTax Canada. ‘Lifetime Capital Gains Exemption’. (2019) SAVINGS & INVESTMENTS. https://turbotax.intuit.ca/tips/lifetime-capital-gains-exemption-6258

[5] Acton, Alan. ‘Should you incorporate your legal practice?’ (2010) CANADIAN LAWYER. https://www.canadianlawyermag.com/news/general/should-you-incorporate-your-legal-practice/267749