Prepare in Advance for Next Year’s Tax Filing

Phew! Tax season is over!  You have hopefully just filed your 2017 personal income tax returns.  Was it a satisfying experience for you?  Do you feel a sense of accomplishment or dismay?  For many, the April 30th deadline seems to arrive way too soon.  If this is the case with you, starting the process much earlier would seem to be the answer.

The process should include proper record keeping, taking advantage of the tax saving methods available to you, and, perhaps, finally getting a professional to complete and file your return on your behalf.  The problem with handing your taxes alone is that often people don’t know what they don’t know.  This results in paying more in taxes than was necessary.  The cost of a professional completing your taxes potentially could be offset by the savings that might be gained.

Even if you earned little to no income, filing your return is a good idea and could prove to be advantageous.  This is because there are a number of federal and provincial government programs that you might be eligible for if your declared income is below a certain threshold.  You can refer to the Government of Canada website for the child and family benefits that might be available to you. Read more

Private Corporations Dodge a Bullet with the 2018 Federal Budget

The Liberal Government’s Federal Budget was delivered by Finance Minister, Bill Morneau, on February 27, 2018.  There had been much concern and speculation about the direction the budget would take with respect to the taxation of private corporations.  This was due to a release of the Department of Finance in July 2017 which contained private corporation tax proposals which addressed areas of concern to the government involving, among other things, business owners holding passive investments inside of their corporation.  There was speculation that if these proposals were implemented the effective tax rate on investment income earned by a private corporation and distributed to its shareholders could increase astronomically.  Thankfully, the concerns voiced by business and professional groups following the July proposals were effective in moderating the government’s actions.

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Update on Taxation Changes Affecting Private Corporations

Owners of private corporations should be concerned about proposed tax changes being explored by the Department of Finance.  In the Federal Budget of March 2017, Finance expressed their concern that private corporations were being used by high income Canadians to obtain tax advantages that were not available to other Canadian tax payers.  That concern led to the release of a consultation paper along with draft legislation last July.  Finance asked for input from interested parties and stakeholders during a consultation period that ended in October 2017.

What happens now is anyone’s guess and most likely, we will probably have to wait until the Spring to find out. There were three specific tax planning strategies employed by private corporations that the department was most concerned with: Read more

Private Corporations in the Cross Hairs

If you are the owner of a private corporation you should be concerned about the commentary that is coming from the Department of Finance.  In the Federal Budget of March 2017, Finance expressed their concern that private corporations were being used by high income Canadians to obtain tax advantages that were not available to other Canadian tax payers.  That concern has led to the release on July 18th 2017, of a consultation paper along with draft legislation.  Finance is currently asking for input from interested parties and stakeholders and has stated that the consultation period will end on October 2, 2017.  At this point, whatever happens after that date is anyone’s guess, but speculation is high that changes will be introduced to close what the Department perceives as abusive practices relating to private corporations.

Specifically, there are three specific tax planning strategies employed by private corporations that the department is most concerned with:

Sprinkling income using a private corporation

Income tax paid on income from a private corporation can be greatly reduced by causing that income to be received in the form of dividends by individuals who would pay tax at a much lower rate or not at all.  These dividends are usually paid to adult children or other family members who are shareholders of the private corporation or to a family trust.  By “sprinkling” the income in this manner the amount of income tax paid can be greatly reduced. Read more

The Clock is Ticking!

Don’t Put Off Your Decision to Buy Life Insurance

2016 is an opportune year to buy life insurance.  New laws affecting the taxation of life insurance come into effect on January 1, 2017. After this date new policies will not perform as well as they do currently.

The good news is that the proceeds of life insurance policies paid at death still remain tax free.  What has been affected is the amount of cash value that may accrue in a policy and the tax-free distribution of death proceeds from a life insurance policy owned in a corporation.

How will this impact your existing and future policies?

Adjustment to the Maximum Tax Actuarial Reserve

Whole Life and Universal Life policies are valuable vehicles in which to accumulate cash value. The limit of how much can be invested is governed by the Maximum Tax Actuarial Reserve (MTAR).  If the cash value ever exceeds the MTAR limit, the policy is deemed to be “offside” and will be subject to accrual taxation. Read more

9 Ways the 2016 Federal Budget Could Affect Your Business

The Trudeau government’s first budget contained a shock on the small business tax rate, and some smaller let-offs

by Murad Hemmadi for ProfitGuide

When Bill Morneau rose to deliver his first budget speech as Finance Minister in Justin Trudeau’s new federal government, entrepreneurs and the owners of Canada’s small- and medium-sized businesses held their breath.

Concerns over the small business tax deduction, stock options for startup employees and capital gains exemptions made this a crucial policy document for SMBs. Here’s what the 2016 federal budget will do and change, and what that means for you and your business. Read more

Taxation of Life Insurance – New Rules Offer a Window of Opportunity

Permanent life insurance, such as Whole Life or Universal Life, has long been accepted as a tax efficient way of accumulating cash for future needs.  Soon the amount of funds that can be tax sheltered within a life insurance policy will be reduced by new tax rules which take effect January 1, 2017.  These changes may make 2016 the best year to buy cash value life insurance.

The changes to the tax rules regarding life insurance have resulted in an update to the “exempt test” which measures how much cash value can accumulate in a policy before it becomes subject to income tax.

Highlights of the new rules and their effect

For Cash Value Life Insurance: Read more

Changes to the Taxation of Estates

Estate, trust and tax planners have long favoured testamentary trusts as vehicles to pass along assets to beneficiaries or heirs.   A testamentary trust is generally a trust or estate that is created the day a person dies.  Commonly, these trusts are established in a testator’s will.

A significant benefit to testamentary trusts had been that income earned and retained in the trust received the same graduated rate of income tax as an individual tax payer.  Unfortunately, under the terms of Bill C-43, after January 1, 2016, all income retained in the trust will now be taxed at the highest rate of tax applicable in the province in which the trust is resident.

There will be two exceptions to this new rule – The Graduated Rate Estate (GRE) and a Qualified Disability Trust (QDT). Read more

Estate Planning Tips for Real Estate Investors

For many Canadians the majority of their wealth is held in personally owned real estate. For most this will be limited to their principal residence, however, investment in recreational and real estate investment property also forms a substantial part of some estates. Due to the nature of real estate, it is important to utilize estate planning to realize optimum gain and minimize tax implications.

Key Considerations for Real Estate Investment

  • Real estate is not a qualifying investment for the purposes of the Lifetime Capital Gains Exemption.
  • Leaving taxable property to a spouse through a spousal rollover in the will defers the tax until the spouse sells the property or dies.
  • Apart from the principal residence, real estate often creates a need for liquidity due to capital gains, estate equalization, mortgage repayment or other considerations.
  • Professional advice is often required to select the most advantageous ownership structure (i.e. personal, trust, holding company).

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There is Nothing so Certain as Death and Taxes

Or so the saying goes.  This certainly is true in Canada where there is a “deemed disposition” when a taxpayer dies.  What this means is that a taxpayer is deemed to dispose of all his or her assets at fair market value immediately preceding death.

How does this affect your assets?

  • For certain assets (e.g. stock investments, company shares, revenue property, collectables), if the fair market value is greater than the adjusted cost base then capital gains will result.
  • Fifty percent of capital gains are included in the deceased taxpayer’s income.
  • Revenue property could also attract additional tax in the form of recaptured depreciation.

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