Posts Taged tax

It has certainly been a busy week in terms of announcements regarding financial policies for small businesses. Following the series of proposed tax reforms that the government announced back in July, various tweaks and changes have subsequently been made, owing, perhaps in part, to confusion and frustration expressed among the small business community. We have provided a brief summary of the changes in this article and infographic.

It has certainly been a busy week in terms of announcements regarding financial policies for small businesses. Following the series of proposed tax reforms that the government announced back in July, various tweaks and changes have subsequently been made, owing, perhaps in part, to confusion and frustration expressed among the small business community. This week Finance Minister, Bill Morneau, has made further clarifications and adjustments to his original set of proposals, aiming to bring more of a sense of balance to the plans. Like all policy changes, the detail can be a little overwhelming, so here is a summary of the key points for your reference: 

  • The government intends to honor a commitment made prior to the election, to reduce the small business tax rate from 10.5% to 9% by the year 2019. 
  • Morneau confirmed that the government has scrapped the proposal to limit access to the Lifetime Capital Gains Exemption. 
  • The plans announced earlier in the year to reduce the value of passive investments made by corporations will continue in principle, but with few key changes. There will be a threshold of $50,000 of income per year, which will be excluded from the newly set higher rate of tax. 
  • The government has agreed to “simplify” the rules related to the new plans, to prevent income splitting for family members, who are not active in a business, but the plan will still move ahead in principle. 
  • Morneau has confirmed that the government will still provide good entrepreneurial incentives for venture capitalists and angel investors. The criteria for which still needs to be established. 
  • The proposed rules to limit the conversion of income to capital gains have been abandoned due to the concerns that many related to intergenerational transfers and insurance policies were held inside corporations. 

Of course, this is one area of government policy which is not only constantly changing, but particularly controversial in the current climate, so keep yourself updated regularly on new announcements and news, to ensure your understanding in this area and its potential impact on your family and business. If you have any questions, please talk to us. 

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The month of July saw a set of proposed tax changes announced by the Federal Minister of Canada which are potentially the most impactful and significant amendments since the large-scale tax reform of 1972.

The month of July saw a set of proposed tax changes announced by the Federal Minister of Canada which are potentially the most impactful and significant amendments since the large-scale tax reform of 1972. We will go on to describe the detail and impact of the proposals, which fall into three main areas, below. In summary, however, the purpose of the changes introduced by the government is broadly to close the potential current perceived tax loopholes that exist for higher earners and owners of private corporations. In response to the proposals, the government is inviting views and opinions on the changes during a consultation period which will last until October 2 2017.

  1. Changes to Income Sprinkling

If a high earning individual moves a proportion of their income to a family member such as children or a spouse who hold a lower tax rate in an attempt to reduce the total amount of tax payable, this is known as income sprinkling. To mitigate this, the government is proposing to include adult children in the eligibility rules in addition to minors, as well as taking a “reasonability” approach to assessing their income and thus which rate the transferred income should be taxed at. This will mark a change to the current TOSI (tax on split income) rules which currently apply.

 2.  Minimizing the incentives of keeping passive investments in CCPCs

Currently, it can be advantageous for corporations to keep excess funds in a CCPC due to the fact that the corporate tax rate on the first $500,000 of taxable income is often much lower than the tax that would be payable by an individual. The government is moving to make this option less beneficial by the following two initiatives: firstly, by the removal of the option of crediting the capital dividend account (known as the CDA) equal to the amount of the non-taxable portion of any capital gains and secondly by removing the refundability of passive investment taxes.

 3.  Reducing the transfer of corporate surpluses to capital gains

Tax advantages can currently be achieved by the sharing out of corporate surpluses to shareholders through dividends or salaries, which are often taxed at a lower rate than if earned as personal income. This is due to the fact that just 50% of capital gains are taxable.

These are the first significant proposals since 1972, talk to us we can help. If these changes are of concern to you or your client, please send an email to Fin.consultation.fin@canada.ca or send an email to your local member of parliament.

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Do you have unrealized capital losses? Have you maximized your TESA contribution yet?

Do you have unrealized capital losses? Have you maximized your TESA contribution yet? Have you thought about family income splitting? Can you benefit from the New Canada Child Benefit? Have you maximized your RRSP contributions? Is it time wind up your RRSP? Are you meeting the CRA deadlines for 2016 savings? Have you paid your personal tax instalments?

Your Investments

    • Do you have unrealized capital losses?
      • If you own investments with unrealized capital losses, you could consider selling them before year end to apply it against any net capital gains you’ve realized in this year or the prior 3 years. However, make sure you don’t create a superficial loss, contact us to learn more.
    • Have you maximized TFSA contribution yet?
      • In 2016, you can contribute up to $5,500 to your TFSA (this has decreased from $10,000 TFSA in 2015), if you have never contributed, you may be able to contribute up to a total of $46,500.

Family Tax Considerations

    • Have you thought about family income splitting?
      • There are a variety of ways to income split, with the increase to the top marginal tax rates for 2016, please contact us to learn how valuable family income splitting can be.
    • Can you benefit from the new Canada Child Benefit?
      • The Canada Child Benefit is based on family income from the preceding year, please ensure you have filed your tax returns for 2015.

Retirement and Estate Planning

    • Have you maximized your RRSP contributions?
      • You have until March 1, 2017 to make your 2016 RRSP contribution.
    • Is it time to wind up your RRSP?
      • If you turn 71 and you need to wind up your RRSP in 2016, remember you only have until Dec 31, 2016 to make a contribution to your RRSP for 2016.

Key Tax Deadlines and Administration Considerations

    • Are you meeting the CRA deadlines for 2016 savings?
      • Key payments due by December 31, 2016

          • Charitable gifts
          • Medical Expenses
          • Union and Professional Dues
          • Investment counsel fees, interest and other investment expenses
          • Certain child and spousal support payments
          • Political contributions
          • Deductible legal fees
          • Interest on student loans
          • Contributions to your RRSP if you turned 71 during 2016 (you will also have to wind up your RRSP by this date)
    • Have you paid your personal tax installments?
      • If you are required to pay 2016 personal tax installments, remember that your final installment must be paid by December 15, 2016.

 

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