Planning for your child’s education can be both exciting and overwhelming. The rising costs of post-secondary education make it important for parents and families to consider the financial tools available to help ensure children have the opportunity to pursue their educational dreams. One such tool is the Registered Education Savings Plan (RESP), a tax-deferred savings account specifically designed to help save for a child’s post-secondary education in Canada.
Eligibility and How to Open an RESP
You can open a Single Plan for an individual beneficiary, such as your child, or a Family Plan if you wish to contribute to the education of multiple children in your family. The great news is that anyone can open an RESP for a child, whether you’re a parent, grandparent, or other family member, making it a versatile option for educational savings.
RESP Withdrawals and Beneficiary Requirements
RESPs can be used to cover a broad range of educational expenses. The only stipulation is that the beneficiary must attend a qualifying educational institution, which could be a university, college, or technical or vocational school. Withdrawals from the RESP will help support tuition, textbooks, living expenses, and more, as long as the student is enrolled part-time or full-time.
Key Benefits of an RESP
RESPs come with a range of benefits that make them an attractive savings vehicle for education:
– Lifetime Contribution Limit: You can contribute up to $50,000 over the lifetime of the plan for each beneficiary.
– Tax-Deferred Growth: While contributions to an RESP are not tax-deductible, the investment growth within the plan is tax-deferred. This allows your savings to grow faster, as taxes on the earnings are deferred until the funds are withdrawn.
– RESP Duration: You can keep the plan open for up to 35 years, giving you ample flexibility for when the funds may be needed.
Canadian Education Savings Grant (CESG)
One of the biggest incentives for opening an RESP is the Canadian Education Savings Grant (CESG). Through this program, the government will match 20% of your annual contributions, up to a maximum of $500 per year. Over time, this can accumulate to a lifetime maximum of $7,200 in CESG funds for each child. If you’re unable to contribute the maximum amount in a given year, the unused CESG contribution room is carry-forwardable, and you may be able to receive up to $1,000 in grant payments annually in future years.
Eligibility for CESG
To qualify for the CESG, the beneficiary must be:
– 17 years of age or younger
– A Canadian resident
– In possession of a valid Social Insurance Number (SIN)
A Smart Way to Save for the Future
Starting an RESP early can make a significant difference in how much you can save for your child’s education. With contributions that grow tax-deferred, along with generous government grants like the CESG, the RESP is a valuable tool to help ease the financial burden of post-secondary education. Planning for your child’s future today ensures that when the time comes, they can focus on their studies without worrying about the costs.
Consider opening an RESP to take advantage of the substantial benefits and opportunities this plan offers. Start investing in your child’s future today!
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If you cannot work because you are seriously injured or ill, disability insurance will provide you with a monthly, tax-free income to help replace your lost wages. An injury does not have to be as blatant as a broken leg or arm – suffering from chronic pain or dealing with mental health issues can also qualify you for a disability insurance payout.
If you’re disabled, you may lose one of your most valuable assets – your ability to work and bring in a paycheck. Disability insurance can help replace that paycheck for as long as you need it to. Being able to rely on a disability insurance payout means you won’t have to dip into your savings if anything happens to you.
Disability insurance is especially important if you are self-employed, particularly if you are the family’s sole income earner.
What if I already have disability insurance through work?
If you have disability insurance through work, that’s great – but it may not replace 100 percent of your paycheck, especially if you’re off work for a long time. If you purchase private disability insurance, you can:
Choose how much coverage you want.
Adjust your coverage as needed.
Not have to worry if you leave your employer – you won’t lose your disability insurance coverage.
Having private disability insurance will give you peace of mind that you either have additional coverage if you are employed and at least some disability coverage if you lose your job.
How does disability insurance work?
We’d be happy to answer any questions you have about disability insurance. There are five main steps to disability insurance:
Determine the amount of coverage you want. The higher your salary, the more coverage you should get.
Pay your monthly premiums. Factors like your health, your age, and the amount of coverage you have will all impact the cost of your premiums.
File a claim if you become disabled – we can help you with this.
Receive your monthly payments once your waiting period has passed – a longer waiting period can lower your premiums, but it does mean you’ll go longer without any income.
When you are healthy enough to return to work, or your coverage period runs out, you will stop receiving disability insurance payments.
We’re Here To Help
If you’d like to know more about disability insurance – from how much it would cost you to what you can file a claim for – we’re here to help! Give us a call today.
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Life can throw unexpected events your way that can hit you in the wallet. Whether it’s falling ill, getting laid off, or facing hefty repair bills for your car or home, these situations can strain your finances. To stay ahead and avoid falling into debt, it’s a good idea to have an emergency fund. This is cash you set aside specifically to handle unforeseen expenses, so you’re not left scrambling for money when the unexpected happens.
Why Emergency Funds Matter
An emergency fund is like an insurance policy for unexpected expenses that everyone can benefit from. It’s a stash of money specifically saved to cover daily living costs during emergencies that catch you off guard, such as:
Sudden car repairs
Vet visits
Losing your job
Sudden home repairs
Medical emergencies
Creating an emergency fund helps you to:
Deal with surprise costs without going into debt
Stay away from expensive loans like payday loans or credit card cash advances
Keep control of your finances
Feel less worried about unexpected expenses.
An emergency fund offers peace of mind during life’s surprises, preventing debt by covering costs without needing to use up savings or retirement funds, which could result in extra fees.
How much do you need?
The amount you should save depends on your financial situation, like how much you earn, what you spend each month, and if you have any dependents. A good rule is to have enough money to cover three to six months of necessary expenses, like rent, groceries, bills, and childcare.
How to Build Your Emergency Fund
Building an emergency fund to cover three to six months of essential living expenses might feel overwhelming, but the key is to start saving gradually. Even putting away a small amount regularly can add up significantly over time.
Here are some ways to build up your emergency fund:
Automate your savings: Pick how much money you want to save, when you want to save it, and how often. Then, arrange for the money to be automatically moved from your regular account to your savings account. You can set up this automatic transfer to happen on your payday. That means the money you’ve chosen to save will be moved as soon as your paycheque is put into your account.
Take advantage of opportunities to boost your emergency fund whenever you can. This might happen when you get extra money, like a tax refund, a pay raise at work, or when you sell things such as a car. Even receiving money as a gift or getting a bonus from your job can help. Additionally, when you finish paying off a loan, consider putting the money you used for payments into your emergency fund instead. Since you’re already used to budgeting for those payments, it’s an easy way to increase your savings without much extra effort.
Make it a habit: Make saving a regular part of your routine by incorporating it into your daily habits. Here are some simple tips to help you get started: drop any loose change into a container whenever you come home, set up a savings, mark your saving dates in advance on your calendar, and use sticky notes on your fridge to remind yourself to save regularly. These small actions can make a big difference in building your savings over time.
Where to keep your emergency fund?
Given that emergencies can occur unexpectedly, having quick access to your funds is important. Although a regular chequing account may offer immediate access to your money, it’s best to keep your emergency fund separate from your regular account. This prevents accidental spending on non-emergencies. Look for an account that:
Is distinct from your regular spending account
Has minimal or no transaction fees
Permits penalty-free withdrawals
Earns interest on your savings
Consider exploring “cash equivalents” as an option to invest your money. They’re a bit like cash but can also help your money grow with interest. They’re safe and easy to get your money from. But before you decide, make sure you understand how and when you can take your money out and if there are any extra fees or charges. Examples of cash equivalents include:
Savings accounts
Chequing accounts
High-interest rate savings accounts (HISA)
Guaranteed Investment Certificates (GIC)
Money market funds
Having an emergency fund can be a lifeline during tough financial times, preventing you from falling into debt. While there’s no fixed amount you should stash away, assessing your financial situation can guide you in determining your ideal emergency fund size. If you need assistance in planning your emergency fund, don’t hesitate to reach out to us for personalized guidance and support.
https://familyinsuranceplans.com/wp-content/uploads/2024/07/Getting-Ready-for-Money-Emergencies.png300500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2024-07-03 07:00:592024-07-03 06:06:13Getting Ready for Money Emergencies
As a financial advisor, my primary goal is to help you achieve financial clarity. I do this by accessing a network of dedicated professionals, each bringing their unique expertise to the table. Together, we provide personalized advice and services that help you make informed decisions and secure your future.
Financial Advisor
Think of me as your financial coordinator. I help you figure out your goals, create plans to achieve them, and keep everything on track. Whether it’s planning for retirement, managing investments, or saving for a major purchase, I have access to a network of professionals who ensure every aspect of your financial life works together smoothly.
Accountant/Tax Professional
Having an accountant or tax professional in your financial network is essential for keeping your financial records in order. They handle tasks like bookkeeping, preparing financial statements, and assisting with tax planning. Their role is particularly important during tax season. They help you file your taxes accurately and on time, taking the stress out of the process. By optimizing your tax strategies and ensuring everything is reported correctly, they help you save money. Their skills are invaluable for both your immediate needs and long-term financial planning.
Investment Advisor
Investment advisors focus on building and managing investment portfolios tailored to your short-term, medium-term, and long-term goals. They thoroughly research the market, evaluate investment opportunities, and offer valuable insights to help you create a well-rounded portfolio. Whether you’re saving up for a major purchase, planning for retirement, or aiming for other financial milestones, they assist in choosing the right investment vehicles, such as RRSPs, TFSAs, RRIFs, and non-registered accounts, to support your financial stability and future needs.
Life Insurance and Living Benefits Advisor
Life insurance and living benefits advisors are here to help you protect your greatest asset: yourself. Their job is to make sure you and your family are financially secure if unexpected events occur. These advisors walk you through different insurance options, including disability insurance, critical illness insurance, and life insurance, to find the coverage that fits your needs best. By understanding your unique situation and recommending the right policies, they provide you with peace of mind, knowing that you have a safety net in place for life’s uncertainties.
General Insurance Specialist
General insurance specialists cover a wide range of insurance needs, including auto, property, travel, and liability insurance. They assess your risks and recommend policies that provide the protection you need. Their advice helps you understand your options, compare quotes, and select the best policies to safeguard your assets, ensuring you are well-protected in various aspects of your life.
Banker
Bankers are there to help you navigate a wide range of financial services, especially when it comes to getting loans and credit products. They offer advice on securing personal loans, understanding credit options, and managing debt effectively. Whether you’re looking to finance a major purchase, consolidate debt, or build your credit, bankers provide the support and guidance you need to make informed financial decisions.
Mortgage Broker
Mortgage brokers assist you in securing financing for property purchases by accessing multiple lenders on your behalf. They assess your financial situation, compare mortgage products from various sources, and recommend the best options for you. With their ability to shop around and understand different interest rates, loan terms, and application processes, they ensure you get the best possible mortgage deal, making homeownership more accessible and affordable.
Realtor
Realtors are your go-to professionals for buying or selling property. They provide market insights, negotiate deals, and manage the legal aspects of real estate transactions. With their knowledge of local market trends and property values, realtors help you make informed decisions whether you’re purchasing a home, investing in real estate, or selling property.
Legal & Estate Professional
Legal and estate professionals play a vital role in your financial planning by handling the legal side of things, such as estate planning, wills, trusts, and probate. They make sure your assets are distributed according to your wishes and that all the necessary legal documents are properly set up. Their guidance helps you reduce estate taxes and smoothly navigate the legal processes, ensuring your wealth is transferred to future generations just as you intended.
Having a network of financial professionals is essential for achieving financial well-being. Each member brings their own expertise to address different aspects of your finances, from investments and insurance to legal and real estate matters. As your financial advisor, I act as the coordinator, ensuring that all these professionals work together seamlessly. By leveraging their combined knowledge and skills, you can gain financial clarity and know that every aspect of your financial life is taken care of.
Ready to take control of your financial future? Contact us today.
https://familyinsuranceplans.com/wp-content/uploads/2024/06/Network-of-Professionals-FI.png7001200Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2024-06-03 12:01:592024-06-03 11:42:57Network of Professionals
We understand that when looking for employee benefits, you’re looking to do so cost-effectively. But it’s essential to make sure you work with an employee benefits specialist, no matter what the price tag is on your benefits package.
We’ll explain how an employee benefits specialist differs from a generalist and why working with an employee benefits specialist is so important.
How does an employee benefits specialist differ from a generalist?
You may have approached financial advisors who can handle various tasks, such as selling you insurance products, investments, and employee benefits. However, this kind of financial advisor would be considered a generalist, and they lack in-depth knowledge of how complex employee benefits can be.
An employee benefits specialist is the opposite of a generalist. They are licensed advisors who have dedicated their practice to employee benefits. Employee benefits specialist prides themselves on understanding all the nuances associated with employee benefits. A specialist undergoes further training and acquires in-depth knowledge about employee benefits.
Why is it essential to work with an employee benefits specialist?
Employee benefits plans are complex, and your business could be at risk if your employee benefits program isn’t administered correctly. As you know, employee benefits form a part of an employee’s compensation package.
These are the benefits of working with an employee benefits specialist:
We help provide the best employee benefits suited for you and your business.
We provide a smooth employee enrollment program so your employee saves time.
We help your employees with questions about their employee benefits program.
We educate your employees about how the benefits program works for them.
We know how to deal with complicated benefits claims.
We can explain how to reduce the risk of any liabilities associated with offering employee benefits programs—for example, offering mandatory enrollment versus voluntary enrollment in a benefits program. You can run into issues with voluntary enrollment if your enrollment level is below the required threshold.
We can explain how your benefits program can work for different employment situations, such as seasonal and contract workers.
The bottom line is that working with an employee benefits specialist means you’ll have access to a well-designed and administered benefits plan.
How can I get started working with an employee benefits specialist?
Ready to make a move to working with an employee benefits specialist? We’re here to help you get the benefits program to attract and retain employees. Call us today to get started!
https://familyinsuranceplans.com/wp-content/uploads/2024/05/The-Benefits-of-Working-With-An-Employee-Benefits-Specialist.jpg300550Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2024-05-01 06:00:002024-05-01 05:28:12The Benefits of Working With An Employee Benefits Specialist
With the upcoming 2024 Canadian tax rule changes, it’s important to review your financial strategies. We’ve identified the key changes that we expect to influence financial decisions for investors, business owners, incorporated professionals, retirees, and individuals with high income or net worth.
Capital Gains Inclusion Rate
Starting on June 25, 2024, the tax on capital gains is changing. Until now, you would only have to include half of your capital gains in your income for tax purposes. But after that date, you’ll have to include two-thirds of any capital gains over $250,000 on your tax return. This is also the case for employee stock options.
Consequently, for corporations and trusts, they will have to include two-thirds of all their capital gains, no matter the amount. This is a significant change.
Lifetime Capital Gains Exemption (LCGE)
The budget proposes increasing the LCGE for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. This change increases tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.
Alternative Minimum Tax (AMT) The 2023 budget included updates to the AMT, suggesting revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.
Employee Ownership Trust (EOT)
The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met.
Canadian Entrepreneurs’ Incentive
This new tax measure offers a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years. However, it’s important to know that not all businesses qualify—this doesn’t apply to businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care.
Below is a checklist to help you navigate the tax adjustments and ensure your financial plans are updated and aligned with the new rules.
Investors
Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate.
Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.
Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.
Employee Stock Options: Adjust the timing of exercising stock options to align with the upcoming changes in inclusion rates.
Business Owners:
Corporate Investments: Assess the impact of increased inclusion rates on corporately held assets, exploring the timing of gains realization. Review trust-held investments.
Lifetime Capital Gains Exemption: Maximize the benefits of the increased LCGE for qualifying business assets.
Employee Ownership Trust: Consider the advantages of transferring business ownership via an EOT.
Succession Planning: Update your succession plans to consider the potential impact of capital gains tax changes.
Entrepreneurs Incentive: Check if you are eligible to reduce capital gains taxes.
Incorporated Professionals:
Investments: Assess both personal and corporate investments for the new inclusion rate. Determine the most tax-effective structure for holding and realizing gains from investments.
Succession Planning: Time the potential sale of your professional corporation to capitalize on the current LCGE.
Retirees:
Estate Planning: Update estate plans considering the impending increase in capital gains rates.
Life Insurance Coverage: Ensure life insurance is adequate to cover increased capital gains tax liabilities upon death.
Non-Registered Investments and Retirement Income: Review your strategy for non-registered investments to manage taxes on gains and adjust your retirement income plans to accommodate the upcoming changes in capital gains rates.
Individuals with High Income or Net Worth:
Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate. Review trust-held investments.
Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.
Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.
Charitable Contributions: Align your charitable giving strategies with the new tax benefits and AMT considerations.
Please reach out to us to review your financial strategy together and ensure it aligns with the upcoming changes.
https://familyinsuranceplans.com/wp-content/uploads/2024/04/Stay-Ahead-in-2024-A-Comprehensive-Checklist-for-Federal-Tax-Updates.jpg300500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2024-04-22 11:02:132024-04-22 10:58:57Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates
On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget.
While there are no changes to federal personal or corporate tax rates, the budget introduces:
An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate.
The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs.
The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions.
This year’s budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants.
Introduces new support measures to aid people buying their first homes.
Costs for specific patents and tech equipment and software can now be written off immediately.
Canada carbon rebate for small business.
Capital Gains Inclusion Rate
The budget suggests raising the inclusion rate on capital gains after June 24, 2024:
Corporations and trusts, from 50% to 66.67%.
Individuals, on capital gains over $250,000 annually, also from 50% to 66.67%.
For individuals, the $250,000 annual threshold that applies to net capital gains—the amount remaining after offsetting any capital losses. This includes gains acquired directly by an individual or indirectly through entities such as partnerships or trusts. Essentially, this threshold acts as a deductible, considering various factors to determine the net gains eligible for the increased capital gains tax rate.
Individuals in the highest income bracket, who earn above the top marginal tax rate threshold, will face a higher tax rate on capital gains exceeding $250,000 due to these changes. Furthermore, the budget modifies the tax deduction for employee stock options to align with the updated capital gains taxation rates yet maintains the initial 50% deduction for the first $250,000 in gains. Regarding previously incurred financial losses, the budget plans to adjust the value of these net capital losses from past years so that they are consistent with the current gains, upholding the uniformity with the new inclusion rate.
The budget outlines transitional rules for the upcoming tax year that straddles the implementation date of the new capital gains rates. If the tax year begins before June 25, 2024, but ends afterward, capital gains realized before June 25 will be taxed at the existing rate of 50%. However, gains accrued after June 24, 2024, will be subject to the increased rate of 66.67%. It’s important to note that the new $250,000 threshold for higher tax rates will only apply to gains made after June 24.
Consequently, for individuals earning capital gains beyond the $250,000 threshold and who fall into the highest income tax bracket, new rates will be effective as outlined in the table below. Specifically, this pertains to individuals with taxable incomes exceeding $355,845 in Alberta, $252,752 in British Columbia, $1,103,478 in Newfoundland and Labrador, $500,000 in the Yukon, and $246,752 in all other regions.
Further details and guidance on these new rules are expected to be provided in future announcements.
Lifetime Capital Gains Exemption
The budget proposes raising the Lifetime Capital Gains Exemption (LCGE) for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. Additionally, the exemption will once again be adjusted for inflation starting in 2026. This change aims to increase the tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.
Canadian Entrepreneurs’ Incentive
The Canadian Entrepreneurs’ Incentive is a new tax measure which provides a reduced inclusion rate on capital gains from the disposition of qualifying small business shares.
Qualifications for the incentive include:
Shares must be of a small business corporation directly owned by an individual.
For 24 months before selling, over half the corporation’s assets must be actively used in a Canadian business or be certain connected assets.
The seller needs to be a founding investor who held the shares for at least five years.
The seller must have been actively involved in the business continuously for five years.
The seller must have owned a significant voting share throughout the subscription period.
The incentive does not apply to shares linked to professional services, financial, real estate, hospitality, arts, entertainment, or personal care services sectors.
The shares must have been acquired at their fair market value.
The incentive allows for a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years.
This measure will apply to dispositions after December 31, 2024.
Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, with proposed changes outlined in the summer of 2023. The budget suggests revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.
Further proposed changes to the AMT include:
Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation benefits.
Exempting employee ownership trusts (EOTs) entirely from AMT.
Allowing certain tax credits, like federal political contributions, investment tax credits (ITCs), and labour-sponsored funds tax credit, to be carried forward if disallowed under the AMT.
These changes would take effect for tax years beginning after December 31, 2023. Additionally, the budget proposes technical amendments that would exempt specific trusts benefiting Indigenous groups from the AMT.
Employee Ownership Trust (EOT) Tax Exemption
The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met:
Sale of shares must be from a non-professional corporation.
The seller, or their spouse or common-law partner, must have been actively involved in the business for at least two years prior to the sale.
The business shares must have been solely owned by the seller or a related person or partnership for two years before the sale, and mainly used in active business.
At least 90% of the EOT’s beneficiaries must be Canadian residents after the sale.
If multiple sellers are involved, they must jointly decide how to divide the $10 million exemption
If the EOT doesn’t maintain its status or if the business assets used in active business drop below 50% at any point within 36 months after the sale, the tax exemption may be revoked.
For Alternative Minimum Tax purposes, the exempted gains will face a 30% inclusion rate.
The normal reassessment period for the exemption is extended by three years.
The measure now also covers the sale of shares to a worker cooperative corporation.
This exemption is valid for sales occurring from January 1, 2024, to December 31, 2026.
Home Buyers Plan (HBP)
The budget proposes enhancements to the HBP for 2024 and beyond, effective for withdrawals after April 16, 2024. These include:
Raising the RRSP withdrawal limit from $35,000 to $60,000 to support first-time homebuyers and purchases for those with disabilities.
Extending the grace period before repayment starts from two to five years for withdrawals made between January 1, 2022, and December 31, 2025, deferring the start of the repayment period and thereby providing new homeowners additional time before they need to commence repayments
Interest Deductions and Purpose-Built Rental Housing
The budget proposes a selective exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules for certain interest and financing expenses related to arm’s length financing. This exemption is for the construction or purchase of eligible purpose-built rental housing in Canada and applies to expenses incurred before January 1, 2036. To qualify, the housing must be a residential complex with either at least four private apartment units, each with its own kitchen, bathroom, and living areas, or 10 private rooms or suites. Additionally, at least 90% of the units must be designated for long-term rental. This exemption will be effective for tax years starting on or after October 1, 2023, in line with the broader EIFEL regulations.
Accelerated Capital Cost Allowance (CCA) – Purpose built rental housing
The budget introduces an accelerated CCA of 10% for new rental projects that start construction between April 16, 2024, and December 31, 2030, and are completed by December 31, 2035. This accelerated depreciation applies to projects that convert commercial properties into residential complexes or expand existing residential buildings that meet specific criteria under the EIFEL rules. However, it does not cover renovations to existing residential complexes.
Additionally, these investments will benefit from the Accelerated Investment Incentive, which allows for immediate depreciation deductions for properties put into use before 2028. Starting in 2028, the regular depreciation rules, including the half-year rule, will apply.
Accelerated Capital Cost Allowance (CCA)- Productivity-enhancing assets
The budget introduces immediate expensing for newly acquired properties that become operational between April 16, 2024, and December 31, 2026. This applies to specific categories such as:
Class 44- Patents and rights to patented information
Class 46- Data network infrastructure and related software
Class 50- General electronic data-processing equipment and software
Properties that are put into use between 2027 and 2028 will continue to benefit from the Accelerated Investment Incentive.
To qualify for this accelerated depreciation, the property must not have been previously owned by the taxpayer or someone closely connected to them, and it must not have been received as part of a tax-deferred deal. Also, if a tax year is shorter, the depreciation will be adjusted accordingly and will not carry over to the next year.
Canada Carbon Rebate for Small Businesses
The budget introduces a Canada Carbon Rebate for small businesses, offering a new refundable tax credit automatically. To be eligible, a Canadian-controlled private corporation must:
File a tax return for its 2023 tax year by July 15, 2024, for the fuel charge years from 2019-20 to 2023-24. For subsequent fuel charge years, it must file a tax return for the tax year that ends within that fuel charge year.
Employ 499 or fewer people across Canada during the year that corresponds with the fuel charge year.
The amount of the tax credit for each eligible business will depend on:
The province where the company had employees during the fuel charge year.
The number of employees in that province multiplied by a rate set by the Minister of Finance for that year.
The CRA will automatically calculate and issue the tax credit to qualifying businesses.
We can help!
Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!
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This year’s tax deadline is April 30, 2024. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. We’ve separated this article into 2 sections:
What’s new for 2023
Individuals and Families
What’s New for 2023
Advanced Canada Workers Benefit (ACWB)
Automatic advance payments of the Canada Workers Benefit (CWB) are now seamlessly distributed through the ACWB program to individuals who received the benefit in the last tax year. However, it’s important to note that not everyone who received the CWB in the previous tax year will automatically receive the ACWB payments. Only individuals who filed their 2022 tax return before November 1, 2023, are eligible for the ACWB payments.
Furthermore, it’s worth mentioning that the ACWB program eliminates the need to file Form RC201. Recipients are no longer required to fill out this form. Instead, starting in 2023, individuals should report the amounts from their RC210 slip on Schedule 6, Canada Workers Benefit, of their tax return. Additionally, for eligible spouses, the option to claim the basic amount for the CWB is available regardless of who received the RC210 slip.
Deduction for Tools (Tradespersons and Apprentice Mechanics)
Starting in 2023, the maximum employment deduction for eligible tools of tradespersons has risen from $500 to $1,000. Consequently, the threshold for expenses eligible for the apprentice mechanics tools deduction has also been adjusted.
Temporary Flat Rate Method for Home Office Expenses
For the year 2023, the temporary flat rate method for claiming home office expenses is not applicable. Consequently, taxpayers seeking to claim such expenses for 2023 must utilize the detailed method and obtain a completed Form T2200, Declaration of Conditions of Employment, from their employer.
Federal, Provincial, and Territorial COVID-19 repayments
Repayments of COVID-19 benefits at the federal, provincial, and territorial levels, made after December 31, 2022, can be deducted and claimed.
First Home Savings Account (FHSA)
The FHSA is a registered plan designed to aid individuals in saving for their first home. Starting April 1, 2023, contributions made to an FHSA are typically deductible, and eligible withdrawals made from an FHSA for purchasing a qualifying home are tax-free.
Property Flipping
Starting January 1, 2023, any profit generated from the sale of a housing unit (including rental properties) situated in Canada, or a right to acquire a housing unit in Canada, that you owned or held for less than 365 consecutive days prior to its sale is considered business income rather than a capital gain. This is applicable unless the property was already classified as inventory or the sale occurred due to, or in anticipation of specific life events.
Multigenerational Home Renovation Tax Credit (MHRTC)
The MHRTC is a refundable tax credit designed to enable eligible individuals to seek reimbursement for specific renovation expenses incurred in establishing a secondary unit within an eligible dwelling. This enables a qualifying individual to live with their qualifying relative. If eligible, you can claim up to $50,000 in qualifying expenditures for each renovation project completed, with a maximum credit of $7,500 for each eligible claim.
Fuel Charge Proceeds Return to Farmers Tax Credit
The Fuel Charge Proceeds Return to Farmers Tax Credit is now accessible to self-employed farmers and individuals involved in a partnership operating a farming business with one or more permanent establishments located in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, or Saskatchewan. If eligible, you may be entitled to a refund of a portion of your fuel charge proceeds.
For Individuals and Families
Canada Training Credit (CTC)
The CTC is a refundable tax credit available to help Canadians with the cost of eligible training fees.
To qualify for the CTC, you need to fill out Schedule 11 for the following:
Tuition fees and other applicable fees paid to an eligible educational institution in Canada for courses taken in 2023.
Fees paid to specific organizations for occupational, trade, or professional examinations undertaken in 2023.
To be eligible for the CTC, you must meet all these conditions:
You resided in Canada for the entire year of 2023.
You were at least 26 years old but less than 66 years old at the end of the year.
Your most recent notice of assessment or reassessment for 2022 shows a Canada Training Credit Limit for 2023.
Canada Caregiver Credit (CCC)
The CCC is a non-refundable tax credit aimed at assisting individuals who provide support to a spouse, common-law partner, or dependent with a physical or mental impairment, as outlined by the CRA.
You might be eligible for the CCC if you aid:
Your spouse or common-law partner dealing with a physical or mental impairment.
Dependents such as children, grandchildren, parents, grandparents, siblings, uncles, aunts, nieces, or nephews residing in Canada, who rely on you for consistent provision of basic needs like food, shelter, and clothing.
The amount you can claim varies depending on your relationship to the individual, your circumstances, their net income, and whether other credits are claimed for them.
Child Care Expenses
Child care expenses encompass payments made by you or someone else to arrange care for an eligible child. This care allows you to participate in income-earning activities, pursue education, or conduct research funded by a grant.
If you qualify, you can claim certain childcare expenses as deductions when you file your personal income tax return.
Disability Tax Credit (DTC)
The DTC is a non-refundable tax credit designed to support individuals with disabilities, or their family members who provide support, by reducing their income tax responsibilities.
To be eligible for this credit, individuals must have a significant and enduring impairment. Once approved, they can apply the credit when filing their taxes.
The DTC aims to ease some of the extra costs linked with the disability by lessening the individual’s income tax burden.
Moving
You can claim moving expenses you paid during the year if you meet these conditions
You moved to a new residence for work reasons, to start a business in a different area, or to attend a post-secondary program as a full-time student at a university, college, or other educational institution.
Your new residence must be at least 40 kilometres closer, determined by the shortest public route, to your new work location or educational institution.
Interest Paid on Student Loans
You might qualify to claim an amount for the interest paid on your student loan for post-secondary education if it was obtained under the following acts:
Canada Student Loans Act
Canada Student Financial Assistance Act
Apprentice Loans Act
Provincial or territorial government laws that are similar to the aforementioned acts.
Only you, or a person related to you, can claim the interest paid on the loan within the tax year 2023 or the preceding 5 years.
Donations and Gifts
When you or your spouse/common-law partner donate to eligible institutions, you might be eligible for federal and provincial/territorial non-refundable tax credits when you file your income tax and benefit return.
Normally, you can claim a portion or the full eligible donation amount, capped at 75% of your net income for the tax year.
Seeking guidance?
Wondering if you qualify for valuable tax credits or deductions? Reach out to us – as your financial advisor, we’re here to assist you in optimizing your finances and maximizing your savings.
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Why A Buy-Sell Agreement Is Vital For Your Business
The purpose of a buy-sell agreement is to establish a set of rules or actions (that are legally binding) for what must happen to a business if one or more of the business owners is no longer involved.
Why does my business need a buy‐sell agreement?
A buy-sell agreement is vital for your business as it protects the shareholders and the business itself if one of the partners exits the business for any reason.
A buy-sell agreement offers so many benefits for your business. It:
Can help maintain the continuity of your business.
Minimize disputes between remaining co-owners and the family of the departing owner.
Decrease stress and uncertainty for all business owners.
Protect business assets and liquidity by including a solid financial and tax plan.
What are the different types of buy-sell agreements?
These are the most common types of buy-sell agreements:
A cross-purchase agreement. In this agreement, each remaining shareholder agrees to buy a percentage of the shares owned by the departing shareholder. The purchase can be funded by life insurance in case of the death of one of the shareholders.
A promissory note agreement. Each shareholder has corporate-owned life insurance in this agreement, and the corporation is the beneficiary. If a shareholder dies, the surviving shareholder(s) use a promissory note to purchase the deceased’s shares from their estate. The shareholders then use a capital dividend provided by the life insurance to pay off the promissory note.
A share redemption arrangement. This is similar to the promissory note agreement set up, but no promissory note is involved, and the capital dividend account pays for the deceased shareholder’s shares.
What do I need to cover in my buy‐sell agreement?
Your buy-sell agreement must address the following:
Valuation of the company.
Ownership interests.
Buyout clauses.
Terms of payment.
What will happen in the event of any “triggering events.”. These events can include a disagreement between business owners, a business owner getting divorced or retiring, a business owner going bankrupt or becoming disabled, or a business partner dying.
What is the best way to fund my buy-sell agreement?
This needs to be addressed when putting the buy-sell agreement together and can be challenging in the case of some “triggers,” such as a business owner getting a divorce or a disagreement between business owners.
In the case of the death of a business owner or a business owner becoming disabled, the buy-sell agreement can be funded by insurance. Insurance provides both immediate capital and significant tax benefits.
We Can Help!
Buy-sell agreements can be complex and challenging, but they are vital to protect your business and your personal interests. We can explain the best way to set one up – reach out to us today to get started!
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Are you tired of using your hard-earned after-tax dollars to cover medical expenses? As a business owner, the burden of managing healthcare costs can be overwhelming. However, there’s a little-known solution that can alleviate this financial strain – the Health Spending Account.
Designed specifically for entrepreneurs like you, the Health Spending Account offers a tax-efficient way to manage medical expenses. Say goodbye to paying out of pocket with after-tax dollars for your healthcare needs, and let’s explore the advantages of this specialized account tailored to meet the unique needs of business owners and incorporated professionals.
Who’s eligible?
The Health Spending Account is available to a wide range of businesses, making it an inclusive and flexible solution. Small businesses, professional corporations, and corporations that wish to supplement an existing health plan are all eligible to participate in this program. Whether you run a small family-owned enterprise, a professional practice, or a larger corporate entity, the Health Spending Account can cater to your specific needs and provide valuable healthcare benefits for you and your employees.
What are the benefits?
Tax Deductibility for Corporations
As a business owner or incorporated professional, you know the significance of minimizing tax burdens. The Health Spending Account allows your corporation to make contributions that are 100 percent tax-deductible. By taking advantage of this tax benefit, you can reduce your corporation’s taxable income, resulting in lower overall taxes. This leaves you with more funds to reinvest in your business, expand operations, or reward your hardworking employees.
Tax-Free Benefits for You and Your Employees
The Health Spending Account offers tax-free reimbursements for both you, as the business owner or incorporated professional, and your employees. Any medical expense covered through the account is received as tax-free income. This means you get to retain more of your earnings while providing valuable healthcare benefits to your workforce without increasing their taxable income. It’s a win-win situation that fosters employee satisfaction and loyalty.
No monthly premium to pay and cost-efficient
A Health Spending Account (HSA) offers a highly cost-efficient approach to managing medical expenses, providing individuals and businesses with significant financial advantages. One of the key benefits of an HSA is that there is no monthly premium to pay, unlike traditional health insurance plans. This means that participants can access valuable healthcare benefits without the burden of regular premium payments. With no ongoing costs, the HSA allows individuals and businesses to allocate their funds more strategically, ensuring that their healthcare budget is utilized efficiently. This cost-effective feature makes the Health Spending Account an attractive option for those seeking to optimize their healthcare spending while enjoying comprehensive medical coverage.
How it works
The Health Spending Account simplifies the process of managing healthcare expenses:
1. Employees pay for medical services out of pocket.
2. The employee submits the claim for reimbursement.
3. The claim amount is then reimbursed tax-free through the corporation’s account.
4. The claim is reimbursed to the employee.
This streamlined process eliminates the complexities associated with traditional health insurance plans, saving you time and effort.
To learn more about how a health spending account can benefit you, please reach out today to book a meeting, and we would be happy to help.
https://familyinsuranceplans.com/wp-content/uploads/2024/03/FIND-MORE-MONEY.jpg300600Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2024-03-06 06:00:462024-03-06 12:12:18The Health Spending Account for Business Owners and Incorporated Professionals
On February 22, 2024, the B.C. Minister of Finance announced the province’s 2024 budget. This article highlights the most important things you need to know about this budget, broken into 3 sections:
Real Estate
Personal Tax Changes
Business Tax Changes
Real Estate
Home Flipping Tax Introduced
Effective January 1, 2025, the home flipping tax applies to properties sold within a short holding period of 365 days. Sellers who dispose of residential properties within this timeframe will incur a 20% tax on the income generated from the sale. The tax rate gradually decreases to 0% for properties held between 366 and 730 days. It’s important to note that this tax applies globally, affecting both British Columbia residents and non-residents selling properties within the province.
The tax encompasses various types of residential properties, including those with housing units and properties zoned for residential use. Additionally, income generated from contract assignments is also subject to this tax. However, the tax does not apply to land or portions of land used for non-residential purposes.
Property Transfer Tax Exemption Thresholds Increased:
Effective April 1, 2024, first-time home buyers can benefit from an increased threshold of $835,000, with properties valued under $500,000 being fully exempt from the tax. Furthermore, purchasers of qualifying newly built homes see an increase in the exemption threshold to $1.1 million for principal residences. This measure aims to alleviate the financial burden on first-time buyers and encourage investment in new housing developments.
Speculation and Vacancy Tax – Registered Occupier:
Starting January 1, 2024, individuals holding residential properties under a registered lease will be considered the registered occupiers of these properties for taxation purposes. This means that leaseholders will be required to declare the use of the property annually, with declarations for activities occurring in 2024 commencing in 2025. This measure aims to ensure that registered leaseholders accurately report their property usage.
Personal tax changes
There are no changes to the province’s personal tax rates in Budget 2024.
As a result, the B.C.’s personal income tax rate remains as follows:
BC Family Benefit Bonus:
Effective July 1, 2024, the annual benefit amounts and income thresholds used to determine eligibility for the B.C. Family Benefit are increased by 25%. However, these adjustments are temporary and will revert to previous levels at the end of the 12-month benefit period. This enhancement aims to provide additional financial assistance to families facing economic challenges during the specified period.
Provincial Sales Tax Changes:
Several amendments to the Provincial Sales Tax (PST) rules are introduced to streamline tax administration and ensure fairness in taxation:
Reduction in PST refunds for goods intended for export but resold within British Columbia aims to prevent abuse of export-related tax benefits.
Broadening of the “software” definition for PST purposes, retroactive to April 1, 2013, addresses ambiguities and aligns with the evolving landscape of digital products and services.
Clarification on PST refunds for self-assessed goods returned to non-PST collecting sellers aims to simplify tax refund processes and reduce administrative burdens.
Inclusion of clean energy production machinery in PST exemptions aims to incentivize investment in renewable energy infrastructure and support climate action initiatives.
Clarification on taxable services provided with leased goods ensures consistency and clarity in tax treatment, reducing potential disputes and improving compliance.
Expansion of administrative penalties’ application aims to deter non-compliance and ensure adherence to tax laws, thereby safeguarding revenue integrity.
Climate Action Tax Credit Payment Increase:
Effective July 1, 2024, adult recipients will see an increase to $504, spouses or common-law partners to $252, and children to $126. Furthermore, income thresholds for credit phase-outs are adjusted upwards, allowing more individuals and families to benefit from the tax credit. These adjustments aim to alleviate financial burdens associated with climate action initiatives and promote environmental sustainability
Business tax changes
There are no changes to the province’s personal or corporate tax rates in Budget 2024.
As a result, B.C.’s Corporate income tax rate remains as follows:
Employer Health Tax Exemption Increased:
In response to feedback from businesses, the budget raises the employer health tax exemption threshold to $1 million, effective January 1, 2024. Additionally, the notch rate for remuneration between $1 million and $1.5 million increases to 5.850%. These adjustments aim to reduce the tax burden on small and medium-sized enterprises while ensuring adequate funding for healthcare services.
Tax Credit Extensions:
Recognizing the role of tax credits in promoting economic growth and investment, the budget extends several business tax credits:
The training tax credit for employers is extended to the end of 2027, encouraging businesses to invest in employee training and skills development.
The training tax credit for individuals is extended to the end of 2025, supporting lifelong learning and workforce development initiatives.
We can help!
Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!
Tax-Free Savings Account vs Registered Retirement Savings Plan
When looking to save money in a tax-efficient manner, Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) can offer significant tax benefits. To assist you in understanding the distinctions, we will compare the following:
The differences in deposits between TFSAs and RRSPs
The differences in withdrawals between TFSAs and RRSPs
TFSA versus RRSP – Difference in deposits
When comparing deposit differences between TFSAs and RRSPs, there are several key considerations:
The amount of contribution room available
The ability to carry forward unused contributions
The tax deductibility of contributions
The tax treatment of growth in the account
How much contribution room do I have?
If you have never contributed to a TFSA, you can contribute up to $95,000 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
Regarding RRSPs, the limit for tax deductions is 18% of your pre-tax earned income from the previous year, with a maximum limit of $31,560. To illustrate, if your pre-tax income in 2023 was $60,000, your deduction limit for 2024 would be $10,800 (18% x $60,000). If your pre-tax income was $200,000, the maximum limit of $31,560 would apply.
How much contribution room can I carry forward?
Suppose you opt not to contribute to your TFSA each year or do not contribute the maximum amount. In that case, you can carry forward your unused contribution room indefinitely, provided you are a Canadian resident, over 18 years of age, and have a valid social insurance number. If you make a withdrawal, the amount withdrawn will be added to your annual contribution room for the next calendar year.
In contrast, for an RRSP, you can carry forward your unused contribution room until age 71. Once you reach 71, you are required to convert your RRSP into an RRIF. Withdrawals from an RRSP do not create additional contribution room.
The tax deductibility of contributions
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
It is essential to contribute to both RRSP and TFSA because of the different tax treatment of the growth within them.
A TFSA is ideal for short-term goals, such as saving for a down payment on a house or a vacation, as its growth is entirely tax-free. When withdrawing from your TFSA, you will not have to pay any income tax on the amount withdrawn. On the other hand, the growth within an RRSP is tax-deferred. This means you will not pay taxes on your RRSP gains until age 71, at which point you convert the RRSP into an RRIF and start withdrawing money.
RRSPs are more suitable for long-term goals such as retirement because, in retirement, you will have a lower income and be in a lower tax bracket, resulting in less tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st, 2024.
Tax Treatment of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! Therefore, they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you withdraw from your TFSA, the amount you withdrew will be added on top of your annual contribution room for the following calendar year. If you withdraw from your RRSP, you do not open any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
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Welcome to our 2024 financial calendar! This calendar is designed to help you keep track of important financial dates and deadlines, such as tax filing and government benefit distribution. You can bookmark this page for easy reference or add these dates to your personal calendar to ensure you don’t miss any important financial obligations.
If you need help with your taxes, tax packages will be available starting February 2024. Don’t wait until the last minute to get started on your tax return – make an appointment with your accountant to ensure you’re ready to go when tax season arrives.
Important 2024 Dates to Know
On January 1, 2024 the contribution room for your Tax Free Savings Account opens again. The maximum contribution for 2024 is $7,000.
If you qualify, on January 1, 2024 the contribution room for your First Home Savings Account opens. The maximum contribution for 2024 is $8,000.
For your Registered Retirement Savings Plan contributions to be eligible for the 2023 tax year, you must make them by February 29, 2024.
GST/HST credit payments will be issued on:
January 5
April 5
July 5
October 4
Canada Child Benefit payments will be issued on the following dates:
January 19
February 20
March 20
April 19
May 17
June 20
July 19
August 20
September 20
October 18
November 20
December 13
The government will issue Canada Pension Plan and Old Age Security payments on the following dates:
January 29
February 27
March 26
April 26
May 29
June 26
July 29
August 28
September 25
October 29
November 27
December 20
The Bank of Canada will make interest rate announcements on:
January 24
March 6
April 10
June 5
July 24
September 4
October 23
December 11
April 30, 2024 is the last day to file your personal income taxes, and tax payments are due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2023.
May 1 to June 30, 2024 would be the filing deadline for final tax returns if death occurred between November 1 and December 31, 2023. The due date for the final return is six months after the date of death.
The tax deadline for all self-employment returns is June 17, 2024. Payments are due April 30, 2024.
The final Tax-Free Savings Account, First Home Savings Account, Registered Education Savings Plan and Registered Disability Savings Plan contributions deadline is December 31.
December 31 is also the deadline for 2024 charitable contributions.
December 31 is also the deadline for individuals who turned 71 in 2024 to finish contributing to their RRSPs and convert them into RRIFs.
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2023 Year-End Tax Tips and Strategies for Business Owners
Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary/Dividend Mix
As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.
When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room.
As a general guideline, if you find yourself needing to take money out of your corporation, like for personal expenses, it’s a good idea to consider withdrawing a salary to create room for contributing to your Registered Retirement Savings Plan (RRSP). By receiving a salary of up to $175,333 in 2023, you can potentially generate RRSP contribution room for the following year, amounting to a maximum of $31,560 (the 2024 limit).
If you don’t have an immediate need to withdraw funds from your corporation, you might still want to take out enough money to maximize your contributions to RRSPs and Tax-Free Savings Accounts (TFSAs). These plans can offer an effective way to earn a return on your investments without incurring taxes.
Lastly, it’s worth considering the option of leaving any surplus funds in your corporation to take advantage of substantial tax deferral benefits. This strategy may potentially result in more substantial investment income over the long term compared to personal investing.
The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends.
In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.
Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes
How much RRSP contribution room do you have?
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.
These are the main things to consider when determining how you want to handle compensation:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.
Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12% to 21%, depending on the province or territory.
With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold is taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).
Here’s how to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.
Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2023 taxation year.
Qualified Small Business Corporation (QSBC) Share Status
Ensure your corporate shares are eligible to get you the $971,190 (for 2023) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.
Suppose you sell QSBC shares scheduled to close in late December 2023 to January 2024. In that case, you may want to consider deferring the sale to access a higher LCGE for 2024 and therefore defer the tax payable on any gain arising from the sale.
Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you.
Business Transition
When considering the transfer of your business, family farm, or fishing corporation to your children or grandchildren, it is advisable to engage in a discussion with your advisor. This conversation should encompass an examination of recent and upcoming proposed changes to the Income Tax Act. These changes include the introduction of additional requirements that must be fulfilled for transfers taking place after 2023. The purpose of this discussion is to assess how these amendments may affect the tax implications associated with the sale of your assets.
Donations
Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate Securities
Give a direct cash gift to a registered charity
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of these types of charitable donations.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.
https://familyinsuranceplans.com/wp-content/uploads/2023/12/2023-Year-End-Tax-Tips.jpg300500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-12-04 10:48:192023-12-05 11:33:342023 Year-End Tax Tips and Strategies for Business Owners
The end of 2023 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!
In this article, we’ve covered five different major types of 2023 personal tax tips:
Investment Considerations
Individuals
Families
Retirees
Students
Investment Considerations
Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6,500 for 2023. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $88,000 (including 2023) if you have been at least 18 years old and resident in Canada since 2009.
Registered Retirement Savings Plan (RRSP) – For the 2023 tax year, you have until February 29, 2024, to contribute to your Registered Retirement Savings Plan (RRSP) or a spousal RRSP. However, contributing earlier can benefit you more due to tax-deferred growth. Your deduction limit for 2023 is 18% of your 2022 income, up to $30,780, but this will reduce if you have pension adjustments. Don’t forget, any unused contribution room from previous years or pension adjustment reversals can increase your limit.
Also, you can deduct contributions on your 2023 income if they are made within the first 60 days of 2024. It’s possible to defer these deductions to a later year if that suits your financial strategy better. To optimize your RRSP, consider holding investments that have the potential for growth outside of your RRSP to take advantage of lower taxes on capital gains and dividends. Within your RRSP, keep investments that generate regular interest income. If you’re unsure about the best investment strategy for your RRSP, our team is ready to provide expert advice to help you maximize your retirement savings.
Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely.
Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.
Tax Loss Selling- Tax-loss selling is when you sell investments that have lost value by the end of the year from accounts that are not tax-deferred. This helps to offset any profits you made from other investments. If your losses are greater than your profits, you can use these extra losses to reduce taxes on profits from the last three years or save them to lower taxes on future profits.
For your losses in 2023 (or the past three years) to count, you need to complete the sale by December 27, 2023. This is because it needs to be settled by the end of the year, and December 30th and 31st are on a weekend in 2023.
If you sell an investment at a loss and plan to buy it again soon, you should know about the “superficial loss” rule. This rule applies if you sell something for a loss and buy it back within 30 days before or after selling it. It also applies if someone close to you, like your spouse or partner, a company they or you control, or a trust where you or they are the main beneficiaries (like your RRSP or TFSA), buys it within 30 days and still has it after 30 days. If this happens, you can’t use that loss to reduce your taxes right away. Instead, the loss gets added to the cost of the investment you bought back. You’ll only get the tax benefit from this loss when you sell this investment later.
When it comes to transferring investments, you might think about moving one with a loss into your RRSP or TFSA to count the loss without really selling it. But the tax rules don’t allow this, and there are big penalties for swapping an investment from a regular account to a registered account like an RRSP or TFSA.
To avoid these issues, it’s better to sell the investment that’s lost value and, if you have room, put the money from the sale into your RRSP or TFSA. Then, if you want, your RRSP or TFSA can buy the investment again after waiting for 30 days since the initial sale. This way, you avoid the superficial loss rule.
Individuals
The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.
COVID-19 federal benefits – If you return any amounts you received from COVID-19 benefits before the year 2023, you have the option to deduct the amount you paid back from your income for the year when you originally received the benefit, rather than the year in which you repay it.
Income Timing – If your marginal personal tax rate is lower in 2024 than in 2023, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2024 than in 2023, accelerate.
Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.
Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
Alternative Minimum Tax (AMT)- The AMT framework is a taxation system that sets a minimum amount of tax for individuals who utilize specific tax deductions, exemptions, or credits to substantially reduce their tax liabilities to exceedingly low levels. With AMT, there’s a parallel tax calculation that doesn’t allow as many deductions, exemptions, or credits as the regular way of calculating taxes. If the tax amount computed under the AMT system exceeds the tax liability determined under the regular tax system, the surplus amount becomes payable as AMT for the year.
Recent government proposals have outlined forthcoming adjustments to the AMT system, set to take effect in 2024. These proposed modifications encompass elevating the AMT tax rate, enhancing the AMT exemption threshold, and expanding the AMT tax base by constraining specific exemptions, deductions, and credits that serve to reduce overall tax obligations.
For individuals whose taxable income surpasses approximately $173,000, and who derive income subject to lower tax rates than standard income, or those who benefit from deductions or credits that mitigate their tax liabilities (such as capital gains, stock options, Canadian dividends, unused non-capital losses from preceding years, or non-refundable tax credits like the donation tax credit), it is anticipated that their AMT liabilities in 2024 may exceed those incurred in 2023.
To navigate these impending changes effectively and make financial decisions, it is advisable for individuals to seek counsel from a tax professional.
Families
Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.
Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.
Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.
Estate planning arrangements
Periodic Review: It is imperative to conduct an annual review of your estate planning arrangements to verify that they are in alignment with your objectives and compliant with current tax regulations.
Probate Fee Mitigation: Deliberate strategies should be explored to minimize probate fees.
Will Examination: Regularly reviewing your will is crucial to ensure it remains valid and aligns with your evolving life and estate planning requirements.
Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
First Home Savings Account (FHSA) – If you are a Canadian resident, age 18 or older and planning to become first-time homebuyers. Starting from April 1, 2023, this account serves as a valuable tool for saving towards the purchase of a qualifying first home.
The FHSA program comes with an annual contribution limit of $8,000, and a cumulative lifetime cap of $40,000, with the flexibility to carry forward up to $8,000 in unused contributions. Importantly, contributions made to the FHSA are tax-deductible, offering potential tax benefits. Additionally, the returns earned on your savings within this account are not subject to taxation, which can enhance the overall growth of your savings. Most notably, when you make qualifying withdrawals to buy your first home, these withdrawals are non-taxable.
Retirees
Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices.
Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits. Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.
Old Age Security – For individuals aged 65 or older, securing enrollment in Old Age Security (OAS) benefits is essential. It’s important to note that retroactive OAS payments are limited to a maximum of 11 months plus the month in which you apply for your OAS benefits. Moreover, if you encounter OAS clawback challenges due to exceeding income thresholds, there are strategic measures you can take including income splitting or reduction.
If eligible, you can opt to defer the initiation of your OAS benefits for up to 60 months after turning 65. This choice results in a permanent increase of 0.6% in your monthly OAS payment for each month of deferral.
These financial strategies, when combined with timely enrollment in OAS benefits, can help you navigate OAS-related matters effectively, ensuring you receive the maximum benefits available to you while optimizing your retirement income.
Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.
Students
Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.
Canada tuition credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 per year, $5,000 maximum lifetime tax credit. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Need some additional guidance?
Reach out to us if you have any questions. We’re here to help.
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As specialists in group benefits, the primary goal is to cultivate a sustainable future by collaborating closely with clients. The belief is that an informed and engaged workforce is pivotal for the success of any organization. A key component of this vision is the protection of the organization’s essential talent. This article delves into how group benefits can be instrumental in safeguarding an organization’s most treasured resource: its people.
The Importance of Essential Talent
Essential talent encompasses those employees who bring critical skills, expertise, and knowledge that propel an organization’s growth and success. These individuals form the core of any organization, ensuring its prosperity in the competitive market. Retaining such invaluable members is crucial as their absence can significantly affect business operations, productivity, and overall morale.
Challenges in Retaining Essential Talent
In the ever-evolving job market, holding onto essential talent can be a daunting task. Numerous factors, including enticing offers from rivals, opportunities for personal growth, work-life equilibrium, and employee well-being, can influence retention. For employers, recognizing and addressing these challenges is vital to safeguard top performers and sustain a competitive advantage.
The Significance of Group Benefits
Group benefits serve as a potent strategy in attracting and retaining essential talent. By presenting comprehensive and tailored benefits packages, organizations showcase their dedication to the well-being, security, and future of their employees. Here are some pivotal aspects of group benefits that aid in retaining essential talent:
Health and Wellness Coverage: Offering comprehensive health and wellness benefits, such as medical, dental, and vision plans, not only fosters a healthy workforce but also signifies an organization’s commitment to overall employee well-being. Employees who feel this support are more inclined to stay loyal.
Income Protection: Many group benefits packages encompass disability insurance, offering financial security for employees facing injuries or illnesses that hinder their work. Such provisions alleviate financial concerns during tough times, fostering a sense of stability and encouraging talent to remain with the organization.
Retirement Planning: A meticulously crafted retirement plan appeals to essential talent. It signifies an organization’s concern for their future and dedication to ensuring their financial comfort during retirement. Contributing to such plans also strengthens the bond between employers and employees.
Support for Work-Life Balance: Benefits that champion work-life balance, like flexible work schedules, paid leaves, and family leaves, reflect an organization’s understanding of the significance of a balanced life. Employees who sense this flexibility are more likely to remain devoted.
Career Advancement: Benefits can also encompass professional development and training opportunities. Investing in employee growth not only sharpens their skills but also underlines an organization’s commitment to their long-term achievements.
Educational Approach and Teamwork
The role of group benefits specialists is to offer educational support and foster collaboration with clients. Through open dialogues about an organization’s aspirations and needs, it’s possible to design group benefits packages that resonate with specific demands. The collective goal is to nurture and protect essential talent, ensuring a sustainable future.
Protecting essential talent through group benefits is more than a strategic move; it embodies a dedication to employee welfare. By investing in the well-being, security, and future of employees, organizations not only boost loyalty and retention but also lay the foundation for a robust and sustainable future. The journey ahead is one of partnership, aiming for a flourishing and vibrant workforce.
https://familyinsuranceplans.com/wp-content/uploads/2023/11/ProtectingKeyTalent.jpg350500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-11-02 06:00:592023-11-02 11:38:16Protecting Key Talent using Group Benefits
Many business owners have built up earnings in their corporation and are looking for tax efficient ways to pull the earnings out to achieve their personal and business financial goals such as:
building and protecting your savings
providing for loved ones
planning for retirement
Factors to consider when investing as a corporation:
What’s the purpose of the investment? First, think about what you’ll be doing with your savings. This will help dictate what savings vehicle is best suited for your situation. Then consider the following factors:
Taxes: As a small business owner, you have access to the small business tax rate which is typically lower than your personal tax rate. (See table below.) Also, as of January 1, 2019, the Federal Budget decreased the small business limit for corporations with a set threshold of income generated from passive investments.
Taxes on investment growth: Depending on what you invest in, you will want to review this as different asset types are taxed at different rates.
Timing: You can control the timing of the payout which means you could potentially defer paying out the money until you need it and determine if you’d like to pay it out as salary or dividend.
Creditor Protection: Sometimes, investments held inside a corporation can be vulnerable to creditors, therefore you may want to consider using a holding company or trust or pay out money to yourself personally. This can be complex and requires professional advice.
Capital Gains Exemption: If your investment grows too large, it may endanger your qualification for the lifetime capital gains exemption that’s available when shares of a qualified small business corporation are sold or transferred.
For business owners, before investing personally or corporately, it’s certainly worth talking to us to ensure that it suits your individual circumstances.
https://familyinsuranceplans.com/wp-content/uploads/2023/10/Slide1.jpeg405720Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-10-02 13:30:112023-10-02 12:50:57Investing as a Business Owner 2023
A Registered Education Savings Plan (RESP) is a unique savings account available in Canada, designed to assist individuals, such as parents or guardians, in saving for a child’s post-secondary education. Notably, anyone can open an RESP for a child. There are two main types of RESPs: single and family plans. Single plans cater to one beneficiary who doesn’t necessarily have to be related to the contributor. In contrast, family plans can cater to multiple beneficiaries, who must be related to the contributor by blood or adoption. This special account type offers significant tax benefits and is structured explicitly to fund a child’s future educational needs.
What are the eligibility requirements to open an RESP?
Opening an RESP requires both the contributor and the beneficiary (the child for whom you’re saving) to be Canadian residents with a valid Social Insurance Number (SIN). The plan can be opened for up to 35 years, and the RESP has a lifetime contribution limit of $50,000. To qualify for the Canada Education Savings Grant (CESG), the beneficiary must be aged 17 or under.
How can my child access their RESP funds for school?
The beneficiary can start withdrawing funds from the RESP as Educational Assistance Payments (EAPs) once they enrol in an eligible post-secondary educational program. EAPs comprise the income earned in the RESP and any government grants. The original contributions made to the RESP can be withdrawn tax-free by the contributor or given to the beneficiary. Given the student’s income level and personal tax credits, they typically remain tax-free.
What are the benefits of an RESP?
RESPs offer numerous benefits. Key among them is tax-deferred growth, which means the investment income generated within the account isn’t taxed as long as it remains in the plan. Also, through programs like the CESG and the Canada Learning Bond (CLB), the Canadian government contributes to your RESP, thereby enhancing your savings. Lastly, RESPs provide a structured path to save for a child’s future education, encouraging consistent savings and financial planning.
How does the Canada Education Savings Grant work?
The CESG is a government grant that matches a portion of your annual RESP contributions. The standard matching rate is 20% on the first $2,500 contributed each year, leading to a maximum annual grant of $500. However, low-income families may qualify for a higher matching rate. Unused CESG contribution room can be carried forward, allowing for a potential maximum grant payment of $1,000 in a single year. The CESG is available until the beneficiary turns 17, with a lifetime limit of $7,200 per beneficiary.
What is the Canada Learning Bond?
The Canada Learning Bond (CLB) is another program to promote long-term savings for a child’s post-secondary education. It targets children born after 2003 from low-income families. Eligible families receive an initial $500 from the government, directly deposited into the child’s RESP. An additional $100 is added annually until the child turns 15, for a potential total of $2,000. The CLB does not require any contributions to the RESP, making it accessible even for those in a tight financial position.
What are the BCTESG and QESI?
Provincial programs such as the British Columbia Training and Education Savings Grant (BCTESG) and the Quebec Education Savings Incentive (QESI) provide additional incentives for education savings. The BCTESG offers a one-time grant of $1,200 for eligible children, and the QESI provides a refundable tax credit paid directly into an RESP for qualifying Quebec residents.
How do I open an RESP?
Opening an RESP can be done through a financial advisor. You need to provide your SIN and the SIN of the beneficiary. Understanding the terms, conditions, and potential fees linked with the RESP offered by your chosen institution is crucial. You can make regular contributions or contribute lump sums as you see fit. Inquiring about the types of investments available within the RESP is vital, as they can significantly impact the growth of your savings.
In conclusion, while RESPs offer a structured and tax-efficient way of saving for a child’s post-secondary education, they also require careful planning and consistent contributions. Be sure to understand all aspects of an RESP and consider contacting us before starting one.
https://familyinsuranceplans.com/wp-content/uploads/2023/09/Understanding-Registered-Education-Savings-Plans-RESPs-in-Canada-4.jpg300500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-09-05 11:56:032023-09-05 12:05:34Understanding Registered Education Savings Plans (RESPs) in Canada
Most of us understand the benefits of sensible retirement planning. Still, it doesn’t feel relatively straightforward when it comes to creating your retirement strategy and putting it into effect. The reality is that, while there are lots of variables to consider, it isn’t as challenging to create an effective plan for retirement as you may think.
Firstly, let’s consider the merits of a retirement plan. Firstly, the plan will aid you in setting clear goals for your retirement, such as the age that you want to finish work and what you want your retirement to look like in terms of lifestyle. Secondly, it will help you establish how much you need to save to have a retirement that meets your objectives. Thirdly, a plan will allow you to choose your investment options wisely.
How you know how much you need to save is a common question. This depends on three factors:
Your age. It makes sense that starting to save for retirement when you are younger means that you need to save less money than starting later in life.
Benefits available to you. There is a range of federal government benefits that you might be eligible for, such as the Canada Pension Plan or Old Age Security.
Your plans for your retirement will inevitably affect how much you need to save to fund it.
If you haven’t started saving for your retirement yet or have less in your retirement savings plan than you would like, take a look at our top tips to accelerate your savings.
Make the most of RRSPs and TFSAs to minimize your tax bill and make your money grow faster.
Take advantage of any pensions or savings plans that your workplace offers, as your employer’s contributions can add extra value to your fund.
Look at your spending habits to identify opportunities to cut back outgoings and save more.
Think about putting spare money into your retirement fund.
Taking steps to create an effective retirement plan is a decision that will pay off as you approach later life, allowing you to have the savings for the retirement that you deserve.
Talk to us; we can help.
https://familyinsuranceplans.com/wp-content/uploads/2023/08/Retirement-planning-4.png281500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-08-01 05:57:322023-08-01 10:18:34Retirement Planning
A Tax-Free Savings Account (TFSA) is an investment vehicle available to Canadian residents. It offers numerous benefits, including tax-free growth of your investments and tax-free withdrawals. Before you decide to open a TFSA, it’s essential to understand the eligibility requirements, contribution limits, eligible investments, and withdrawal rules.
Eligibility Requirements
To open a TFSA, you must be a resident of Canada with a valid Social Insurance Number (SIN) and be at least 18 years old. However, in some provinces and territories, the legal age to enter a contract (which includes opening a TFSA) is 19. The TFSA contribution room for the year an individual turns 18 is carried over to the following year if the individual resides in a jurisdiction where the legal age is 19.
Benefits
One of the primary benefits of a TFSA is that it allows your investments to grow tax-free. Any income you earn from your investments within the TFSA is not taxed, even upon withdrawal. This includes interest, dividends, and capital gains.
Additionally, you can withdraw any amount from your TFSA at any time, and the withdrawals are tax-free. It’s important to note that withdrawing funds from your TFSA does not reduce the total amount of contributions you have made for the year. The amount withdrawn in a year will be added back to your TFSA contribution room at the beginning of the following year.
Contribution Limit
The annual TFSA dollar limit has varied over the years. From 2009 to 2012, it was $5,000; in 2013 and 2014, it was $5,500; in 2015, it increased to $10,000; from 2016 to 2018, it was $5,500; from 2019 to 2022, it was $6,000, and in 2023, it is $6,500. This annual limit will be indexed to inflation and rounded to the nearest $500.
The maximum amount you can contribute to a TFSA is determined by your TFSA contribution room. This room is the sum of the TFSA dollar limit of the current year, any unused TFSA contribution room from previous years, and any withdrawals made from the TFSA in the previous year.
Let’s look at two examples to better understand this:
Example #1: Carry Forward Unused Room to Your Current Contribution
In 2020, the annual TFSA contribution limit is $6,000. If you only contribute $5,000, you would have $1,000 of unused room. This unused room gets carried over to the next year. So, in 2021, the annual contribution room is $6,000, but because of the unused room from 2020, you actually have a total contribution room of $7,000 ($6,000 for 2021 + $1,000 carried over from 2020).
Example #2: Reclaim Your Contribution Room in the Following Year When You Make a Withdrawal
In 2021, you have $7,000 in contribution room and decide to contribute the full amount. However, you also decide to make a withdrawal of $1,000 in 2021. In 2022, the annual contribution limit is $6,000, but because of the withdrawal made in 2021, you actually have a total contribution room of $7,000 ($6,000 for 2022 + $1,000 withdrawn in 2021).
Please note that if you exceed your available TFSA contribution room at any time in the year, you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.
Eligible Investments
The types of investments that are permitted in a TFSA are generally the same as those allowed in a Registered Retirement Savings Plan (RRSP). These include cash, segregated funds, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, and bonds.
Withdrawals
As mentioned earlier, you can generally withdraw any amount from the TFSA at any time, depending on the type of investment held in your TFSA. However, if you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room.
For example, if in 2023 you withdraw $1,000 from your TFSA and later in the same year decide to re-contribute that amount, you can only do so if your contribution room for 2023 allows for it. If it doesn’t and you re-contribute the $1,000 anyway, you will be considered to have over-contributed to your TFSA in that year. This will result in a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account
Beneficiary
When establishing a Tax-Free Savings Account (TFSA), you are given the choice to designate a beneficiary. This person will be the recipient of the investments within your TFSA in the event of your death. The assets inherited by the beneficiary are not considered income, and as such, are received tax-free. It’s important to note, though, that while the inherited amount is tax-free, the beneficiary will be responsible for any tax on earnings that the TFSA generates after the original account holder’s death.
Start Planning for Your Future Today!
https://familyinsuranceplans.com/wp-content/uploads/2023/07/TFSA-3.png7001200Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-07-04 10:08:152023-07-04 10:17:37Understanding Tax-Free Savings Accounts (TFSAs)
Investing in a fund requires a good understanding of its associated costs, including the Management Expense Ratio (MER). In this article and infographic, we’ll break down the different components of the MER.
Understanding the Management Expense Ratio
The Management Expense Ratio is a percentage of the total assets in an investment fund that covers the cost of managing and operating the fund. It’s essential to remember that the MER is deducted from your investment returns. Therefore, a higher MER means lower net returns for you.
For instance, if a fund’s expenses added up to 2% of its assets, its MER would be 2%. It’s essential to keep in mind that your returns are reported after the MER is deducted. Therefore, a higher MER can lead to lower net returns for you. Understanding a fund’s MER is important in making informed investment decisions and ensuring you’re getting the most value for your money.
Components of the Management Expense Ratio
There are several components of the MER, including:
Investment Management Fee
The investment management fee is the cost of professional investment management, fund administration, and support services. Investment fund managers and analysts conduct research and analysis of current and potential holdings for the fund, providing investors access to their expertise, education, and experience.
Trailing Commission
The trailing commission compensates the investment dealer and financial advisor for selling the fund and providing ongoing financial advice and service to the investor. The commission also covers trade confirmation, account openings and closing, issuance of statements and communications, and regulatory compliance activities.
Operating Expenses
Operating expenses are essential for the smooth operation of the investment fund, and they ensure that investors receive the information they need to make informed investment decisions. These expenses cover day-to-day costs, including record-keeping fees, accounting and fund valuation costs, custody fees, audit and legal fees, reports and prospectuses, and filing fees.
Taxes
Investment funds are required to pay taxes on their management and administration fees. In addition, they must also include GST/HST in their fees.
It’s essential to comprehend the different factors that comprise the Management Expense Ratio to make informed investment decisions and maximize your investment’s value.
To obtain further details, please do not hesitate to contact us.
https://familyinsuranceplans.com/wp-content/uploads/2023/06/MER-4.png250500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-06-02 14:08:092023-06-02 14:28:32Demystifying MER’s (Management Expense Ratio)
The First Home Savings Account (FHSA) is a savings plan designed for first-time home buyers in Canada, which allows them to save up to $40,000 tax-free. Contributions to an FHSA are tax-deductible, similar to Registered Retirement Savings Plans (RRSP). Additionally, income and gains earned inside the account and withdrawals are tax-free, like a Tax-Free Savings Account (TFSA).
In this article and accompanying infographic, we will provide you with the necessary information you need to know about FHSA, including eligibility requirements, contributions and deductions, income and gains, qualifying investments, withdrawals, and transfers.
Eligibility Requirements
To be able to open an FHSA, you need to meet all the following eligibility requirements:
Residency: You must be an individual who is a resident of Canada.
Age: You must be at least 18 and not reach 72 in the current year.
First-time Home Buyer: You must be a first-time home buyer, which means that neither you nor your spouse had owned a qualifying home that was your principal residence at any point during the calendar year or the preceding four calendar years before the account was opened.
Contributions and Deductions
There are limits to the amount you can contribute to your FHSA.
The annual contribution limit is $8,000.
The lifetime contribution limit is $40,000.
If you do not contribute the full amount each year, the contribution room carries forward to the following year. However, carry-forward amounts only start accumulating after you open an FHSA for the first time, and they do not automatically begin when you turn 18.
Any excess contributions are subject to a penalty of 1% per month.
Tax Deductions
By claiming contributions made to FHSA accounts as a deduction against all taxable income sources, the amount of taxable income for the year can be reduced, resulting in a decrease in the amount of taxes payable.
Suppose you choose not to claim the FHSA deduction in the year. In that case, you can carry forward the unused contribution amounts indefinitely and claim them as a deduction later, like RRSP deductions.
Qualifying Investments
Qualifying investments for an FHSA are like those allowed in RRSPs and TFSAs, including mutual funds, segregated funds, ETFs, stocks, bonds, and GICs.
Incomes and Gains
The income and capital gains earned in an FHSA are not included in your annual income for tax purposes and therefore are not deductible. This means that the investment can continue to grow and compound within the FHSA tax-free like a TFSA.
Qualifying Withdrawals
Withdrawals from an FHSA are subject to specific rules and conditions. Qualifying withdrawals made to purchase a home are tax-free but must meet specific criteria:
The person making the withdrawal must be a first-time home buyer and a Canadian resident.
They must also intend to use the property as their primary residence within one year of purchasing or building it.
The home being purchased must be in Canada, and a written agreement to buy or build the home must be in place before October 1st of the year following the withdrawal.
It is not possible to restore FHSA contribution limits by making withdrawals or transfers.
Transfers
Unused funds in an FHSA account following a qualifying withdrawal can be transferred tax-free to an RRSP or Registered Retirement Income Fund (RRIF) until the end of the following year from the year of the first withdrawal. Transfers do not affect the available RRSP contribution room, but the transferred funds will be taxable when withdrawn from the account.
It’s important to remember that there are limitations on how long you can keep your FHSA account. You must close your FHSA after you’ve held it for 15 years or by the end of the year in which you turn 71, whichever comes first.
If you’re considering opening an FHSA or saving for a home, we can help; contact us.
https://familyinsuranceplans.com/wp-content/uploads/2023/05/fhsaFI-6.png250500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-05-01 13:32:442023-05-01 14:05:56First Home Savings Account (FHSA): What You Need to Know
Tax Tips You Need To Know Before Filing Your 2022 Taxes
This year’s tax deadline is May 1, 2023, as April 30 falls on a Sunday this year. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. In this article, we’ll provide you with tips to help you maximize your tax refund and ensure you’re taking advantage of all the available tax benefits.
Canada Workers Benefit
The Canada Workers Benefit (CWB) is a refundable tax credit designed to help low-income working families and individuals. The credit is made up of two parts:
The basic amount
A disability supplement (if you qualify).
To determine whether you qualify for the tax credit, you’ll need to consider your net income and where you live. The CRA website provides full details about the net income qualification amounts.
The maximum basic amount is $1,428 for single individuals and $2,461 for families.
The maximum amount for the disability supplement is $737 for single individuals and $737 for families.
Claiming Home Office Expenses Due To COVID-19
You can still claim home office expenses if you’re not self-employed but worked from home due to the pandemic. You can:
Claim the temporary flat amount if you worked more than 50% of the time from home for at least four consecutive weeks in 2022. You can claim $2 for each day worked from home, up to a maximum of $500. No paperwork or forms are required!
Use the detailed method and claim the actual amounts. In this case, you’ll need supporting documentation, plus a completed and signed T2200S form from your employer. You can claim various applicable expenses, including home Internet access fees.
The Tax Deduction for Zero-Emissions Vehicles
A capital cost allowance (CCA) is a tax deduction that helps cover the cost of an asset’s depreciation over time. The CRA created two new capital cost allowances, which apply to zero-emission vehicles bought after March 18, 2019.
They are as follows:
Class 54. This class is for motor and passenger vehicles, excluding taxis or vehicles used for lease or rent. It has a CCA rate of 30%. For 2022, capital costs will be deductible up to $55,000, plus sales tax. This amount will be reassessed every year.
Class 55 is for leased and rented vehicles or taxis. The CCA rate is 40%.
Return Of Fuel Charge Proceeds To Farmers Tax Credit
You may be eligible for this tax credit if you are either self-employed or part of a farming partnership in Alberta, Manitoba, Ontario and Saskatchewan.
This tax credit aims to help farmers offset the high cost of the carbon tax.
The tax credit rate for the 2022 tax year is 25%, with a maximum credit of $250.
Need help?
Do you qualify for a credit or deduction? Call us – we’re here to save you money on your taxes!
https://familyinsuranceplans.com/wp-content/uploads/2023/04/Tax-tips-2022.png250500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-04-03 15:09:062023-04-03 15:09:09Tax Tips You Need To Know Before Filing Your 2022 Taxes
On March 28, 2023, the Federal Government released their 2032 budget. This article highlights the following financial measures:
New transfer options associated with Bill C-208 for intergenerational transfer.
New rules for employee ownership trusts.
Changes to how the Alternative Minimum Tax is calculated.
Improvements to Registered Education Savings Plans.
Expanding access to Registered Disability Savings Plans.
Grocery rebate.
Deduction for tradespeople tool expenses.
Automatic tax filing.
New Canadian Dental Care Plan.
Amendments To Bill C-208 Intergenerational Transfer Introduces Two New Transfer Options
Budget 2023 introduces two transfer options associated with the intergenerational transfer of a business:
An immediate intergenerational business transfer (three-year test) based on arm’s length sales terms.
A gradual intergenerational business transfer (five-to-ten-year test) based on estate freeze characteristics.
For the three-year test, the parent must transfer both legal and factual control of the business, including an immediate transfer of a majority of voting shares and the balance, within 36 months. The parent must also transfer a majority of the common growth shares within the same time frame. Additionally, the parent must transfer management of the business to their child within a reasonable time, with a 36-month safe harbour. The child or children must retain legal control for 36 months following the share transfer, and at least one child must remain actively involved in the business during this period.
For the gradual transfer option, the conditions are similar to the immediate transfer, but with a few differences. The parent must transfer legal control, including an immediate transfer of a majority of voting shares and the balance, within 36 months. They must also transfer a majority of the common growth shares and the balance of common growth shares within the same time frame. As well, within 10 years of the initial sale, parents must reduce the economic value of their debt and equity interests in the business to 50% of the value of their interest in a farm or fishing corporation at the initial sale time, or 30% of the value of their interest in a small business corporation at the initial sale time. The child or children must retain legal control for the greater of 60 months or until the business transfer is completed, and at least one child must remain actively involved in the business during this period.
The extended intergenerational transfer now applies to children, grandchildren, stepchildren, children-in-law, nieces and nephews and grandnieces and grandnephews.
The changes apply to transactions that occur on or after January 1, 2024. If the election is made, the capital gain reserve period is extended to ten years, and the limitation period for assessing a return is extended to three years for an immediate transfer and ten years for a gradual business transfer.
New Rules for Employee Ownership Trusts
The employees of a business can use an employee ownership trust (EOT) to purchase the business without having to pay the owner directly to acquire shares. Business owners can use an EOT as part of their succession planning.
Budget 2023 introduces new rules for using ownership trusts (EOTs) as follows:
Extending the five-year capital gains reserve to ten years for qualifying business transfers to an EOT.
A new exception to the current shareholder loan rule which extends the repayment period from one to fifteen years for amounts loaned to the EOT from a qualifying business to purchase shares in a qualifying business transfer.
Exempts EOTs from the 21-year deemed disposition rule that applies to some trusts. This means that shares can be held indefinitely for the benefit of employees.
Clean Energy Credits
The upcoming Budget 2023 is set to introduce a series of measures aimed at encouraging the adoption of clean energy. These measures include several business tax incentives such as:
Clean Electricity Investment Tax Credit: This is a refundable tax credit of 15% for investments in equipment and activities for generating electricity and transmitting it between provinces. The credit will be available to new and refurbished projects starting from March 28, 2023, and will end in 2034.
Clean Technology Manufacturing Credit: This tax credit is worth 30% of the cost of investments in new machinery and equipment for processing or manufacturing clean technologies and critical minerals. It applies to property acquired and put into use after January 1, 2024. The credit will be phased out starting in 2032 and fully eliminated in 2034.
Clean Hydrogen Investment Tax Credit: It offers a refundable tax credit ranging from 15% to 40% of eligible project expenses that produce clean hydrogen, as well as a 15% tax credit for certain equipment.
Clean Technology Investment Tax Credit: This tax credit will be expanded to include geothermal systems that qualify for capital cost allowance under Classes 43.1 and 43.2. The phase-out will begin in 2034, and it will not be available after that date.
Carbon Capture, Utilization and Storage Investment Tax Credit (CCUS): The budget broadens and adjusts specific criteria for the refundable Investment Tax Credit (ITC) for CCUS. Qualified equipment now includes dual-purpose machinery that generates heat and/or power or utilizes water for CCUS and an additional process, as long as it meets all other requirements for the credit. The expense of such equipment is eligible on a proportionate basis, based on the anticipated energy or material balance supporting the CCUS process during the project’s initial 20 years.
Reduced rates for zero-emission technology manufacturers: The reduced tax rates of 4.5% and 7.5% for zero-emission technology manufacturers will be extended for three years until 2034, with phase-out starting in 2032. The eligibility will expand to include the manufacturing of nuclear energy equipment and processing and recycling of nuclear fuels and heavy water for taxation years starting after 2023.
Lithium from brines: Allow producers of lithium from brines to issue flow-through shares and expand the Critical Mineral Exploration Tax Credit’s eligibility to include lithium from brines.
Changes To How Alternative Minimum Tax Is Calculated
Budget 2023 proposed several changes to calculating the Alternative Minimum Tax (AMT), including the following:
The capital gains inclusion rate will increase from 80 percent to 100 percent, while capital losses and allowable business investment losses will apply at a rate of 50 percent.
The inclusion rate for employee stock option benefits will be altered to 100 percent, and for capital gains resulting from the donation of publicly listed securities, it will be modified to 30 percent.
The 30 percent inclusion rate will also apply to employee stock option benefits if any deduction is available because underlying shares are also publicly listed securities that were donated.
Certain deductions and expenses will now be limited to 50 percent, and only 50 percent of non-refundable credits (excluding a special foreign tax credit) will be permitted to reduce the AMT.
The AMT tax rate will increase from 15 percent to 20.5 percent.
The AMT exemption will rise from the present allowable deduction of $40,000 for individuals to an amount indexed to the fourth tax bracket, expected to be $173,000 in 2024.
The AMT carryforward period will remain unaltered at seven years.
Budget 2023 introduces the following changes to RESPs:
As of March 28, 2023, beneficiaries may withdraw Educational Assistance Payments (EAPs) up to $8,000 (from $5,000) for full-time programs and $4,000 (from $2,500) for part-time programs.
Individuals who withdrew EAPs before March 28, 2023, may be able to withdraw an additional EAP amount, subject to the new limits and the plan terms.
Divorced or separated parents can now open joint RESPs for one or more of their children.
Expanding Access to Registered Disability Savings Plans
Qualifying family members, such as a parent, a spouse, or a common-law partner, can open an RDSP and be the plan holder for an adult with mental disabilities whose ability to enter into an RDSP contract is in doubt and who does not have a legal representative.
Budget 2023 announces the government’s intention to extend the provision that allows this until December 31, 2026. To further increase access to RDSPs, the government also intends to expand the provision to include adult siblings of an RDSP beneficiary.
Grocery Rebate
The Budget 2023 will implement the Grocery Rebate, which will be a one-time payment managed through the Goods and Services Tax Credit (GSTC) system. The maximum amount that can be claimed under the Grocery Rebate is:
$153 for each adult
$81 for each child
$81 for a single supplement.
The implementation of the Grocery Rebate will be gradual and will follow the same income thresholds as the present GSTC regulations.
Deduction for Tradespeople’s Tool Expenses
Budget 2023 increases the employment deduction for tradespeople’s tools to $1,000 from $500. This is effective for 2023 and subsequent taxation years.
Automatic Tax Filing
The Canada Revenue Agency (CRA) will pilot a new automatic filing service for Canadians who currently do not file their taxes to help them receive certain benefits to which they are entitled.
The CRA also plans to expand taxpayer eligibility for the File My Return service, which allows taxpayers to file their tax returns by telephone.
Canadian Dental Care Plan
In Budget 2023, the federal government is investing in dental care for Canadians with the new Canadian Dental Care Plan. The plan will provide dental coverage for uninsured Canadians with annual family incomes of less than $90,000, with no co-pays for those under $70,000.
The budget allows the CRA to share taxpayer information for the Canadian Dental Care Plan with an official of Employment and Social Development Canada or Health Canada solely to administer or enforce the plan.
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
https://familyinsuranceplans.com/wp-content/uploads/2023/03/Federal-2023-budget-highlights.png250500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-03-29 14:16:092023-03-29 14:16:12Federal Budget 2023 Highlights
On February 28, 2023, the B.C. Minister of Finance announced the province’s 2023 budget. This article highlights the most important things you need to know about this budget.
No Changes To Corporate or Personal Tax Rates
There are no changes to the province’s personal or corporate tax rates in Budget 2023.
Tax Credits Changes
Budget 2023 extends two corporate tax credits – the Farmers’ Food Donation Tax Credit until 2026 and the Interactive Digital Media Tax Credit to August 31, 2028.
As of July 1, 2023, the maximum annual Climate Action Tax Credit will be increased to $447 for an adult, $223.50 for a spouse or common-law partner, and $111.50 per child.
Renters with household incomes under $60,000 can apply for a new refundable Renter’s Tax Credit up to a maximum of $400. Renters with a household income of over $60,000 and less than $80,000 are eligible for a reduced credit.
Increased B.C Family Benefit
The B.C Family Benefit will increase as of July 1, 2023:
• The maximum annual benefit is now $1,750 for a family’s first child, $1,100 for a second child, and $900 for each subsequent child for families with an adjusted net income of under $27,354.
• The minimum benefit will now be $775 for a family’s first child, $750 for a second child, and $725 for each subsequent child for families with an adjusted family net income of more than $27,354 and less than $87,533.
The budget also includes a maximum annual supplement of $500 to single-parent families on top of the maximum annual benefit.
Carbon Tax Changes
Effective April 1, 2023, carbon tax rates will increase annually by $15 per tonne of carbon dioxide equivalent emissions. Qualifying commercial greenhouse growers will be eligible for a reduced point-of-sale reduced carbon tax on purchases of natural gas and propane.
The 2023 budget verifies that B.C. plans to implement an output-based pricing system (OBPS) that meets updated federal requirements to replace the current carbon pricing as of April 1, 2024.
Other Tax Changes
The budget introduces new taxation rules for online marketplace services and now excludes automated external defibrillators from provincial sales taxes.
Budget 2023 indicates refund rates for International Fuel Tax Agreement licensees will increase effective April 1, 2023. New purpose-built rental buildings will be exempt from the further 2% property transfer tax applied to transactions that exceed $3 million as of January 1, 2024.
Healthcare and Housing Spending
Budget 2023 contains several commitments to support health care and housing:
Various contraception options, including birth control prescriptions, will be free as of April 1, 2023.
One billion dollars has been committed to new treatment beds and treatment support for mental health and addictions.
$2.3 billion will go towards enhancing core services, recruiting staff, implementing a new pay model for family doctors, and fighting COVID-19.
In housing, $1.1 billion will be used to purchase land near transit hubs and improve student housing.
Over $569 million will be allocated to building projects and $454 million towards homelessness support and response programs.
We can help!
Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!
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When looking to save money in a tax-efficient manner, Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) can offer significant tax benefits. To assist you in understanding the distinctions, we will compare the following:
The differences in deposits between TFSAs and RRSPs
The differences in withdrawals between TFSAs and RRSPs
TFSA versus RRSP – Difference in deposits
When comparing deposit differences between TFSAs and RRSPs, there are several key considerations:
The amount of contribution room available
The ability to carry forward unused contributions
The tax deductibility of contributions
The tax treatment of growth in the account
How much contribution room do I have?
If you have never contributed to a TFSA, you can contribute up to $88,000 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
Year
TFSA dollar limit
2023
$6,500
2022
$6,000
2021
$6,000
2020
$6,000
2019
$6,000
2018
$5,500
2017
$5,500
2016
$5,500
2015
$10,000
2014
$5,500
2013
$5,500
2012
$5,000
2011
$5,000
2010
$5,000
2009
$5,000
Regarding RRSPs, the limit for tax deductions is 18% of your pre-tax income from the previous year, with a maximum limit of $30,780. To illustrate, if your pre-tax income in 2022 was $60,000, your deduction limit for 2023 would be $10,800 (18% x $60,000). If your pre-tax income was $200,000, the maximum limit of $30,780 would apply.
How much contribution room can I carry forward?
Suppose you opt not to contribute to your TFSA each year or do not contribute the maximum amount. In that case, you can carry forward your unused contribution room indefinitely, provided you are a Canadian resident, over 18 years of age, and have a valid social insurance number. If you make a withdrawal, the amount withdrawn will be added to your annual contribution room for the next calendar year.
In contrast, for an RRSP, you can carry forward your unused contribution room until age 71. Once you reach 71, you are required to convert your RRSP into an RRIF. Withdrawals from an RRSP do not create additional contribution room.
The tax deductibility of contributions
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
It is essential to contribute to both RRSP and TFSA because of the different tax treatment of the growth within them.
A TFSA is ideal for short-term goals, such as saving for a down payment on a house or a vacation, as its growth is entirely tax-free. When withdrawing from your TFSA, you will not have to pay any income tax on the amount withdrawn. On the other hand, the growth within an RRSP is tax-deferred. This means you will not pay taxes on your RRSP gains until age 71, at which point you convert the RRSP into an RRIF and start withdrawing money.
RRSPs are more suitable for long-term goals such as retirement because, in retirement, you will have a lower income and be in a lower tax bracket, resulting in less tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st, 2023.
Tax Treatment of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! Therefore, they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits, including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you withdraw from your TFSA, the amount you withdrew will be added on top of your annual contribution room for the following calendar year. If you withdraw from your RRSP, you do not open any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
https://familyinsuranceplans.com/wp-content/uploads/2023/02/TFSA-or-RRSP-2023-Featured-Image-500px.jpeg292500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2023-02-02 17:10:392023-02-02 17:10:41TFSA versus RRSP – What you need to know to make the most of them in 2023
Welcome to our 2023 financial calendar! This calendar is designed to help you keep track of important financial dates and deadlines, such as tax filing and government benefit distribution. You can bookmark this page for easy reference or add these dates to your personal calendar to ensure you don’t miss any important financial obligations.
If you need help with your taxes, tax packages will be available starting February 2023. Don’t wait until the last minute to get started on your tax return – make an appointment with your accountant to ensure you’re ready to go when tax season arrives.
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Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary/Dividend Mix
As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.
When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room.
The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends.
In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.
Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes
How much RRSP contribution room do you have?
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.
These are the main things to consider when determining how you want to handle compensation:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.
Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12 to 21 percent, depending on the province or territory.
With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold are taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).
Here’s how to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.
Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.
Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2022 taxation year.
Qualified Small Business Corporation (QSBC) Share Status
Ensure your corporate shares are eligible to get you the $913,630 (for 2022) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.
Suppose you sell QSBC shares scheduled to close in late December 2022 to January 2023. In that case, you may want to consider deferring the sale to access a higher LCGE of $971,190 for 2023 and therefore defer the tax payable on any gain arising from the sale.
Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you.
Donations
Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate Securities
Give a direct cash gift to a registered charity
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of these types of charitable donations.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.
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The end of 2022 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!
In this article, we’ve covered four different major types of 2022 personal tax tips:
Investment Considerations
Individuals
Families
Retirees
Students
Investment Considerations
Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6000 for 2022. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $81,500 (including 2022).
Registered Retirement Savings Plan (RRSP)- Contribute to your RRSP or a spousal RRSP. Remember that you can deduct contributions made within the first sixty days of the following calendar year from your 2022 income. You also have the option of carrying forward deductions. Consider the best mix of investments for your RRSP: hold growth investments outside the plan (to benefit from lower tax rates on capital gains and eligible dividends), and hold interest-generating investments inside. We can help if you need advice on how to make the most of your RRSP.
Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely.
Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.
Individuals
The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.
COVID-19 federal benefits – If you repay any COVID-19 benefit amounts before 2023, you can deduct from your income the repayment amount in the year in which the benefit amount was received instead of the year it was repaid. (You can also split the deduction between the two years.)
Income Timing – If your marginal personal tax rate is lower in 2023 than in 2022, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2023 than in 2022, accelerate.
Worked at home in 2022?-You may be able to deduct an income tax deduction for home office expenses. The Canada Revenue Agency (CRA) has extended the availability of the simplified method—claiming a flat rate of $2 per day working at home due to the COVID-19 pandemic—to 2022. Consider what’s more advantageous for you to claim: the simplified or traditional method.
Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage! Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.
Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
Families
Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.
Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.
Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.
Estate planning arrangements – Review your estate plan annually to ensure it reflects the current tax rules. Review your will to ensure that it will form a valid will. Consider strategies for minimizing probate fees.
Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
Retirees
Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices!
Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits! Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.
Old Age Security – If you’re 65 or older, ensure you’re enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you’re running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this.
Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.
Students
Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.
Canada training credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Need some additional guidance?
Reach out to us if you have any questions. We’re here to help.
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Permanent versus Term Life Insurance – What are the Differences?
You know you need life insurance – but you’re not sure which kind is best for you. We can help you with that decision.
There are two main kinds of life insurance:
Permanent, which lasts for your entire life.
Term, which is only good for a set amount of time.
No matter which type of life insurance you buy – permanent or term – you can rest easy knowing you’ve provided financial protection for your family.
Permanent life insurance
Permanent life insurance is good for your entire life unless you choose to cancel it. It’s an excellent choice to give you peace of mind that you’ll always be covered, even if you develop major health issues later in life.
There are also benefits to having permanent life insurance beyond guaranteed lifelong coverage:
You can use the policy to build up a cash value – making it a good choice for low-risk investing.
You may be able to use your permanent life insurance policy as collateral for a loan, making it a good choice for business owners.
The main drawback to permanent life insurance policies is that the premiums are often more expensive than term life insurance premiums. If, however, you’re thinking long-term and can afford the premiums, permanent life insurance is a great way to ensure you’re always protected and can have some guaranteed money for your estate.
Term life insurance
Term life insurance is either valid for a set amount of time (such as five or ten years) or until you reach a set age – for example, 60. You should generally be able to renew your life insurance at the end of each term, but your premiums may go up.
Term life insurance premiums are cheaper than permanent life insurance premiums – at least, you are younger and healthier (as the risk of you dying is lower). Your premiums will increase as you age or develop health issues.
You can’t use term life insurance as collateral for a loan or use the policy to build up a cash value. There are lots of benefits to term life insurance, though – it’s a good choice for you if you want low premiums, easy-to-understand insurance, and only need it for a set amount of time – such as while you have a mortgage or young children.
We can help you decide between permanent and term life insurance
If you’re not sure what kind of life insurance is best for you, we can help. We’re happy to talk to you to get more information about your insurance needs. We can then discuss what each type of insurance will cost you and which type of insurance we feel is best for you.
Give us a call today!
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Essential tips and tricks for paying less tax and keeping more of your retirement income
Most of your retirement income sources are taxable; Canadian Pension Plan (CPP), your personal pension plan (if you have one) and income from your RRIFs. However, if you’ve set up a TFSA in addition to your RRSPs, then you’re in luck – money you take out of your TFSA isn’t taxable!
We have some tips on combining savvy withdrawal strategies with retirement-related tax deductions to keep more of your retirement income.
Make a Plan
Determine all the different sources of retirement income you’ll have – don’t forget about things like annuities, GICs or income from a rental property if you have one. Once you have a complete list, a professional financial advisor can give you tips on when it’s best to start collecting pension income as well as how much to withdraw from your taxable investments. A strong plan can help reduce the amount of tax you have to pay and extend the life of your retirement income!
Split your pension income
If you have reached the age of 65 and have a pension, you can split up to 50% of the pension income with your spouse. Splitting your pension with a lower-income spouse can add up to savings, as this will cut down on the amount of taxes you’ll have to pay overall.
While rewarding, the process to split your pension income can be complicated, so it’s best to get professional advice before starting this process.
Buy an annuity
Annuities are a financial product that will provide you with a guaranteed regular income – a good choice if you are worried about your retirement savings running out.
These are the most common types of annuities:
Life annuities provide you with a guaranteed lifetime income, with the option for the annuity to be paid to a beneficiary after you die.
Term-certain annuities provide guaranteed income payments for a fixed period. A beneficiary or your estate will receive regular payments if you die before the term ends.
Variable annuities will provide you with both a fixed income and a variable income. The variable income will be based on the return of the annuity provider on the performance of the investments your annuity provider invests your money in.
All types of annuities will spread out the income from your retirement savings to lessen the tax you pay each year.
Take advantage of tax breaks
Now that you’re retired, there are retirement-related tax breaks you need to know about. Here are some of the tax breaks or credits you may be eligible for:
The age amount
The home accessibility tax credit
The medical expense tax credit
The disability tax credit
The pension income tax credit
We can help!
We can put together a plan that helps you keep more of your retirement income – call us today!
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For a long time, there were limited options for most investors. But now, there are hundreds of investments for investors to choose. However, this amount of choice can be overwhelming. Fortunately, an investment advisor can help you figure out what the right investment choices are for you.
Meeting your investment advisor
When you first meet with your investment advisor, they will tell you about their obligations and responsibilities. They should:
Give you general information about your various investment choices (e.g. stocks, bonds, mutual funds)
Tell you how they are compensated for their services
Ask if you have any questions about specific investment vehicles (such as RRSPs or TFSAs)
Determining your goals and expectations
The next step is to for your investment advisor to fill out a “Know Your Client” type of worksheet. The information on this worksheet will help your investment advisor determine the most suitable investment options for you. You’ll need to provide information on your:
Income
Net worth
Investment knowledge
Risk tolerance
Time horizon (how long you want to invest for)
How frequently do you want to invest
Developing your investment plan
Once they have all the information they need, your investment advisor will suggest the investments they think are appropriate for you.
Implementing the plan
Once you approve your investment advisor’s suggestions, you will fill in all the appropriate paperwork to set things in motion. After that, you must provide a way to fund your investments. Your investment advisor can then make any initial purchases and set up any ongoing fund purchases or transfers from other investments.
Monitoring the plan
Your investment advisor should contact you at least once a year to make sure your plan is still suitable for you and discuss any changes you want to make to it. If you have any major life events, such as getting married or changing jobs, you should contact your investment advisor to see if you should revisit your plan.
The sooner you start your investment planning, the sooner you can reach your investment goals! So contact us today!
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Five Ways To Withdraw Money From Your Business In A Tax-Efficient Manner
You have worked long and hard to build up your business, and now you are ready to withdraw money from your business’ bank account. But you don’t want to get hit with a huge tax bill. So here are 5 ways to withdraw money from your business in a tax-efficient manner.
1) Pay Yourself And Your Family Members
You can pay yourself a salary from your business and pay any family members who work in your business. However, the salary you pay family members must not be excessive – it must be in line with what they would receive for doing the same work elsewhere.
You and your family members will be taxed at the regular personal marginal tax rates on your salaries. However, your corporation can make a deduction based on salaries paid when determining taxable income.
2) Pay Out Taxable Dividends
You can use dividends to distribute money from your corporation to both yourself and family members if everyone holds shares in your corporation. However, when distributing dividends to a shareholder, it is critical to consider both the tax on split income (TOSI) rules and the corporate attribution rules before any distribution is made.
TOSI rules – Under the current income tax rules, the TOSI applies the highest marginal tax rate (currently 33%) to “split income” of an individual under the age of 18. In general, an individual’s split income includes certain taxable dividends, taxable capital gains and income from partnerships or trusts. – Canada.ca
Corporate attribution rules – Corporate attribution rules may result in additional tax if a transfer or loan to a corporation is made to shift income to another family member. This can result in additional tax for the individual making the transfer or loan.
3) Pay Out Capital Dividends
Another way to pay out dividends is via your corporation’s capital dividend account (CDA). Money in your corporation’s CDA can be dispersed to Canadian resident shareholders as a tax-free dividend, but be sure you are clear on what can legally be allowed in your CDA before you do this.
4) Adjust Your Salary And Dividend Mix
Keeping the right mix when paying yourself a salary and paying yourself via dividends is essential. You need to consider various factors – such as your cash flow needs, earned income for RRSP contributions, and any impact on taxes and other regulatory requirements – paying out salaries and dividends can have.
5) Repay Any Outstanding Shareholder Loans
If you loaned money to your company in the form of a shareholder loan, now may be the time to have your company repay that loan. Any money you receive to settle your shareholder loan will be paid to you as a tax-free distribution.
The Takeaway
Regardless of why you need to take cash out of your business, it is crucial to plan how to withdraw the money so you can do it in the most tax-efficient manner possible. Unfortunately, there is no one-size-fits-all solution for this, which is why talking to a professional advisor is so important.
We can help design a tax-optimized compensation strategy for you. Contact us to set up a meeting today!
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Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:
Make the most of the lifetime capital gains exemption
Decrease your end-of-life tax bill
Look into Immediate Financing Arrangements
Lifetime capital gains exemption
The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.
End-of-life tax bill
As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.
Consider an Immediate Financing Arrangement
An Immediate Financing Arrangement (IFA) lets your business:
Get a life insurance premium on behalf of a shareholder
Create a tax deduction
Transfer assets tax-free from the business to a shareholder’s estate
Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.
The Takeaway
While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.
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Being a self-employed contractor can bring you a large cash flow and the satisfaction of being your own boss – but it can also make financial planning more complicated than being an employee.
When creating a financial plan, Self-employed contractors need to keep the following in mind:
Cash flow management – Knowing what money you have moving in and out of your business is essential. You never want to suddenly find out you are short on cash, especially if you are considering expanding your business.
Tax planning – Tax planning can be complicated for self-employed contractors. Working with a professional can help ensure you are aware of your options, such as claiming the correct tax deductions and the most tax-effective way to pay yourself.
Attracting and retaining good employees – Employees are looking for more than just a good paycheque; they also want a robust benefits program, work-life balance, and pension plans.
Risk management – You must protect yourself if something happens to you, such as being injured or falling ill. The best way to protect yourself is with the right insurance, such as disability, critical illness, and life insurance.
Retirement planning – As a self-employed contractor, this is a must as you won’t have a company pension plan to fall back on. You can’t work forever, so it’s essential to have a variety of income sources during your retirement years, including RRSPs, TFSAs, and an Individual Pension Plan (IPP).
Succession planning – This type of planning is critical and can be triggered by various events, including divorce, retirement, and your illness or death. You must put a plan in place that covers what will happen if any of these events occur. In addition, it’s essential to have the financial resources to ensure the plan can be successfully enacted.
Buy-sell agreement – If you are a self-employed contractor working with a partner, you must have a buy-sell agreement. This agreement stipulates what will happen if one partner leaves the business for any reason. Buy-sell agreements can be funded in various ways, including via life insurance.
The best way to ensure you’ve got a solid financial plan is to work with a good team who has your best interests in mind. No matter what aspect of financial planning you are interested in – from tax planning to succession planning – we can help you get started. So call us or contact us online today to get started!
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“I already have life insurance from work, so why do I need to get it personally?” or “Work has got me covered, I don’t need it.”
While it’s great to have group coverage from your employer or association, in most cases, people don’t understand that there are important differences when it comes to group life insurance vs. self owned life insurance.
Before counting on insurance from your group benefits plan, please take the time to understand the difference between group owned life insurance and personally owned life insurance. The key differences are ownership, premium, coverage, beneficiary and portability.
Ownership:
Self: You own and control the policy.
Group: The group owns and controls the policy.
Premium:
Self: Your premiums are guaranteed at policy issue and discounts are available based on your health.
Group: Premiums are not guaranteed and there are no discounts available based on your health. The rates provided are blended depending on your group.
Coverage:
Self: You choose based on your needs.
Group: In a group plan, the coverage is typically a multiple of your salary. If your coverage is through an association, then it’s usually a flat basic amount.
Beneficiary:
Self: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Group: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Portability:
Self: Your policy stays with you.
Group: Your policy is tied to your group and if you leave your employer or your association, you may need to reapply for insurance.
Talk to us, we can help you figure out what’s best for your situation.
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Many people put off planning for their financial future because they’re overwhelmed with all the decisions they have to make. The good news is that there’s help at hand – in the form of a certified financial planner. A certified financial planner is trained to focus on all aspects of your finances – everything from your taxes to retirement savings.
A certified financial planner will develop a plan that works for you both today and in the future.
Meeting your financial planner
When you first meet with your financial planner, they will tell you about their obligations and responsibilities. They should:
Give you a general overview of the financial planning process
Tell you what services they provide and how they are compensated for them
Let you know what they will expect from you as a client
You should let your financial planner know how involved you want to be in creating and executing your financial plan. You should also ask any questions about the process or how compensation works.
Determining your goals and expectations
Now you’re ready to make your plan. But first, you and your financial planner should discuss your personal and financial goals and your current and future needs and priorities.
Your financial planner will make sure they have all the details they need. They may ask you to fill in questionnaires or provide documentation on your current financial state.
Reviewing your current financial state
Before your financial planner can get started on your financial plan, they need to know about your current situation – including cash flow, net worth and any taxes you may owe in the future.
To customize your financial plan, so it works for you, your financial planner must know about anything that could impact it – for example, a dependent adult child.
Developing the financial plan
Once they have all the information they need, your financial planner will create a customized plan that aligns with your goals, objectives, and risk tolerance. They will also provide you with information on projected returns and recommended actions.
Implementing the plan
Once you approve it, your financial planner should implement your plan. They should also help you contact other professionals they’ve recommended to assist with your financial plan – such as a lawyer or an insurance agent.
Monitoring the plan
Your certified financial planner should periodically contact you to adjust your financial plan. In addition, a life change – such as the birth of a child or retirement – may require adjustments to your financial plan.
It can be hard to plan for the future – but you don’t have to do it alone. Contact a certified financial planner or us today!
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On April 7, 2022, the Federal Government released their 2022 budget. We have broken down the highlights of the financial measures in this budget into the following different sections:
Housing
Alternative minimum tax
Dental care
Small businesses
Tradespeople
Canada Growth Fund
Climate
Bank and insurer taxes
Housing
There were several tax measures related to housing introduced in the budget.
Budget 2022 introduced a new kind of savings account – a Tax-Free First Home Savings Account (FHSA).
These are the key things you need to know about the new FHSAs:
You must be at least 18 years of age and a resident of Canada to open an account. You must also not currently own a home or have owned one in the previous four calendar years.
You can only open and use an FHSA once, and you must close it within a year after your first withdrawal.
Contributions are tax-deductible, and income earned in an FHSA will not be either while it is in the account or when you withdraw it.
There is a lifetime contribution limit of $40,00, with an annual contribution limit of $8,000. You can’t carry contribution room forward.
If you don’t use the funds in your FHSA within 15 years of opening it, you can transfer them to an RRSP or RRIF tax-free. Transfers to an RRSP do not impact your RRSP contribution room.
Two existing tax credits were increased, and a new one was introduced:
The First-Time Home Buyers’ Tax Credit amount was increased from $5000 to $10,000, giving up to $1,500 in direct support to home buyers. This tax credit applies to all homes purchased on or after January 1, 2022.
The annual expense limit for the Home Accessibility Tax Credit has been increased to $20,000 for 2022 and subsequent tax years.
A new tax credit, the Multigenerational Home Renovation Tax Credit, was introduced, which will start in 2023. This tax credit is a 15% refundable credit for eligible expenses up to $50,000 (maximum tax credit is $7,500) for constructing a secondary suite for a senior or an adult with a disability to live with a qualifying relative.
Budget 2022 proposes new rules, effective January 1, 2023, that anyone who sells a residential property they have held for less than 12 months would be subject to full taxation on their profits as business income. However, there will be some exemptions to these rules due to life events such as a death, disability, the birth of a child, a new job, or a divorce.
Budget 2022 also announces restrictions that would help ensure that Canadians, instead of foreign investors, own housing. A two-year ban will be introduced on non-residents buying residential property, with some exceptions, such as individuals who have work permits and are living in Canada.
Alternative Minimum Tax
In Canada, the top federal tax rate is 33% and starts at an income of $221,708. However, many high-income filers end up paying less tax than this due to tax deductions and tax credits.
The goal of the Alternative Minimum Tax (AMT), which has been around since 1986, is to ensure high-income Canadians are paying their fair share of taxes. However, it has not been substantially updated since it was introduced. In Budget 2022, the government indicated they would be investigating changes to the AMT, which will likely be disclosed in the fall 2022 economic update.
Dental Care
For many Canadians without private coverage, going to the dentist is too expensive. Budget 2022 commits $5.3 billion to provide dental care for Canadians with family incomes of less than $90,000 annually. Coverage will start for children under 12 this year and expand to children under 18, seniors and those living with a disability in 2023, with the program will be fully implemented by 2025.
Small Businesses
Small businesses currently have a 9% tax rate on the first $500,000 of taxable income (compared to the corporate tax rate of 15%). However, after a small business’ capital employed in Canada reaches $15 million, it is no longer eligible for the 9% tax rate.
Budget 2022 proposes gradually phasing out the small business tax rate so that businesses are not discouraged from expanding. The new cut-off for the lower tax rate will be $50 million.
Budget 2022 also includes a proposal to create an Employee Ownership Trust. This would be a new, dedicated trust under the Income Tax Act to support employee ownership.
Tradespeople
Budget 2022 introduces the Labour Mobility Deduction. This would allow eligible tradespersons and apprentices to deduct up to $4,000 a year in eligible travel and temporary relocation expenses.
Budget 2022 also commits to providing $84.2 million over four years to double funding for the Union Training and Innovation Program, which would help 3,500 apprentices from underrepresented groups each year.
Canada Growth Fund
Budget 2022 introduces a new Canada Growth Fund, with the goals of both diversifying our economy and helping achieve our climate goals.
The Canada Growth Fund aims to attract considerable private sector investment, support the restructuring of vital supply chains, and bolster our exports. The Canada Growth Fund will also provide backing to reduce our emissions and invest in the growth of low-carbon industries.
Climate
Budget 2022 continues to confirm the government’s commitment to fighting climate change. It commits $1.7 billion over five years to extend the Incentives for Zero-Emission Vehicles Program until March 2025 and also provides funding to create a national network of electric vehicle charging stations.
Budget 2022 also commits $250 million over four years to support the development of clean electricity, including inter-provincial electricity transmission projects and Small Modular Reactors.
Bank And Insurer Taxes
Budget 2022 introduced a new financial measure called the Canada Recovery Dividend. Banks and insurers will have to pay a one-time, 15% tax on 2021 taxable income above $1 billion. This tax will be payable over five years.
Budget 2022 also proposes increasing the tax rate on income above $100 million for banks and insurers to 16.5% (currently 15% for other corporations).
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
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Tax Tips You Need To Know Before Filing Your 2021 Taxes
This year’s tax deadline is April 30, 2022. We’ve got a list of tips to help you save on your taxes!
Claiming home office expenses
You can claim up to $500 under the “flat rate” method if you worked at home due to COVID-19. To claim more, you must use the detailed method to claim home office expenses.
If you repaid COVID-19 benefits, you can deduct the amount on your tax return either for the year you received the benefit or the year you repaid it, or you can split the deduction between both years.
Climate Action incentive can no longer be claimed
As of 2021, this amount can’t be claimed as a refundable credit; instead, you’ll receive quarterly payments via the benefits system.
Disability tax credit(DTC)
If you or a family member are DTC claimants, then you should review the updated criteria for the tax credit in regards to mental functions, life-sustaining therapy and calculating therapy time.
Eligible educator school supply tax credit
This tax credit has been increased to 25 percent for eligible supplies (such as books and games) to a maximum of $1,000.
Tax deduction on interest payments
You can claim a tax deduction for the interest you’ve paid on any money you’ve borrowed to invest. However, you can only do this if you use the money to earn investment income (for example, a rental property).
Self-employed? Be sure to set aside enough for personal income tax!
If you’re self-employed, be sure you put aside enough money (we recommend 25% of your income) to pay your tax bill when the time comes. You’re taxed only on your net income (total income minus expenses).
You need to plan ahead for tax changes if you want to retireabroad
Planning to retire abroad? If so, you need to be aware of the tax implications and plan accordingly. If you sell your house and move, you may be considered a “non-resident” and be subject to capital gains taxes on non-registered investments (even if you have not sold them) or have your pension subjected to a withholding tax.
You can stop making CPP contributions if you’re over 65 but plan to keep working
If you’re 65 and already collecting Canada Pension Plan (CPP) benefits but also still working, you may be able to stop making CPP contributions. To do so, you need to fill in the form CPT30.
Need help?
Not sure if you qualify for a credit or deduction? Give us a call – we’re here to save you money on your taxes!
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On February 22, 2022, the B.C. Minister of Finance announced the 2022 budget. We have highlighted the most important things you need to know about this budget.
Budget 2022 contains several measures to help build a more robust economy, including $50 million to support growing sectors such as life sciences, manufacturing, and agriculture. In addition, the budget allocates funding to help industries impacted by COVID-19, including the tourism industry, the arts, and non-profit organizations. Budget 2022 supports workers looking to upgrade their skills or train for new jobs, with an emphasis on providing training for early childhood educators and health care assistants.
Offering Stronger Health Care
Budget 2022 includes funding to support the opening of new Urgent and Primary care centres and continuing Pathway to Hope from Budget 2021, which dedicated $500 million over two years to support mental health and addiction care. As well, Budget 2022 includes funding for B.C. Centre for Disease Control.
Expanding Child Care Options and Lowering Fees
Working with the federal government, the B.C. government will create 40,000 new licensed child care spaces for children under six over the next seven years. The budget also includes an investment in increasing before and after school spaces and expanding the Seamless Day program to include 44 school districts.
Fees for full-day infant and toddler care will be reduced by 50% by the end of 2022 (to an average of $20/day). Average preschool and before and after school care fees will be cut to less than $20/day for the 2023/2024 school year.
Supporting Capital Infrastructure
Budget 2022 commits to spending over $27 billion to support critical infrastructure, including schools, hospitals, affordable housing, and highways and bridges. This amount of capital spending will support the creation of over 100,000 jobs.
Providing Funding For Affordable Homes
Budget 2022 allocates 2 billion dollars to HousingHub. HousingHub is a program that provides low-interest loans to private developers and other community groups and is designed to give middle-income British Columbians more opportunities to rent or own homes.
Promoting Clean Transportation
Budget 2022 continues to build on the B.C. government’s plan to fight climate change. PST will no longer be charged on used Zero-Emission Vehicles (ZEVs). The luxury tax threshold on ZEVs has been increased, and rebates will be available for both ZEVs and ZEV charging infrastructure.
No Changes To Corporate or Personal Tax Rates
Budget 2022 does not include any changes to the province’s corporate tax rates or personal tax rates.
We can help!
We can help you assess the impact of this year’s budget changes on your finances or business. Give us a call today!
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TFSA versus RRSP – What you need to know to make the most of them in 2022
TFSAs and RRSPs can be significant savings vehicles. To help you understand their differences, we have put together this article to compare:
TFSA versus RRSP – Differences in deposits
TFSA versus RRSP – Differences in withdrawals
TFSA versus RRSP – Difference in deposits
There are four main areas to focus on when comparing differences in deposits for 2022:
Contribution Room
Carry Forward
Contributions and Tax Deductibility
Tax Treatment of Growth
How much contribution room do I have?
If you have never opened a TFSA before, you can contribute up to $81,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
For RRSPs, the contribution limit is always 18% of your previous year’s pre-tax earnings to a maximum of $29,210. For example, if you earned $60,000 in 2021 then your contribution limit for 2022 would be $10,800 (18% x $60,000). If you earned $200,000, your contribution limit would be capped at the maximum of $29,210.
How much contribution room can I carry forward?
If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. In addition, if you make a withdrawal, the amount you withdrew is added to your annual contribution room for the following calendar year.
For an RRSP, you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
Contributions and Tax Deductibility
Your TFSA contributions are not tax-deductible and are made with after-tax dollars. Your RRSP contributions are tax-deductible and are made with pre-tax dollars.
Tax Treatment of Growth
One of the reasons it is essential to make both RRSP and TFSA contributions is that investment value growth is treated differently.
A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation because the investment value growth is tax-free. In addition, when you make a withdrawal from your TFSA, you will not have to pay income tax on the amount withdrawn.
The growth in an RRSP is tax-deferred, meaning you will not pay any taxes on your RRSP gains until you withdraw money from your future RRIF account; the account you convert your RRSP into at age 71. As a result, RRSPs are better suited for long-term objectives, like retirement. In addition, since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and not pay much tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are four main areas to focus on when comparing differences in withdrawal for 2022:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA. However, if you have an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2022.
Tax Treatment Of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This ability to withdraw funds tax-free is why TFSAs are advantageous for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal before converting it to a RRIF, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it is essential to know how your withdrawals can impact any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the following calendar year. However, if you withdraw money from your RRSP, you do not open up additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. With this in mind, understanding the differences between these two types of tax-advantaged accounts can help you better plan for future purchases and your eventual retirement.
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Welcome to our 2022 financial calendar! This “at a glance” document lists important dates, including when government benefits are distributed and tax filing deadlines.
Be sure to bookmark this or add the dates listed to your personal calendar so you’re always in the loop!
Use our calendar to make sure you keep on track with your financial goals and avoid missing any critical tax or investment deadlines.
If you’re looking for help with your taxes, tax packages will be available in February 2022, so reach out to your accountant or us to book an appointment and get started on your taxes!
Important Dates
Dates to know:
January 1 is when the contribution room for your TFSA opens again. The maximum contribution for 2022 is $6,000.
The government will issue GST/HST credit payments on January 5, April 5, July 5, and October 5.
Canada Child Benefit payments (CCB) will be issued on the following dates: January 20, February 18, March 18, April 20, May 20, June 20, July 20, August 19, September 20, October 20, November 18, and December 13.
The government will issue CPP and OAS payments on the following dates: January 27, February 24, March 29, April 27, May 27, June 28, July 27, August 29, September 27, October 27, November 28, and December 21.
The final date for your RRSP contributions to be eligible for the 2021 tax year is March 1, 2022.
Bank of Canada’s interest rate announcements will be on January 26, March 2, April 13, June 1, July 13, September 7, October 26, and December 7.
May 2, 2022, is the last day to file personal income taxes, and tax payments are also due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2021.
May 3 to June 30 – The filing deadline for final tax returns if death occurred between November 1 and December 31. The due date for the final return is six months after the date of death.
The tax deadline for all self-employment returns is June 15, 2022. Any balance owing, however, is due May 2, 2022.
The deadline for final RESP, RDSP, and TFSA contributions is December 31.
December 31 is also the deadline for 2022 charitable contributions.
December 31 is also the deadline for individuals who turned 71 in 2022 to finish contributing to their RRSPs and convert them into RRIFs.
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The end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
Investment Considerations
Families
Retirees
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
If you have moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
If you are between the ages of 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021.
You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting.
Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.).
If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if:
a) at least $2,000 has already been contributed to the RESP and
b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Retirees
Are you turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a Registered Retirement Income Fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices.
65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits.
Do you not currently have any pension income? Then, you may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.
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Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary and Dividend Mix
As a business owner, one essential part of tax planning is determining the right mix of salary and dividends for both yourself and your family members.
The following are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket – This enables them to declare an income so that they can contribute to the Canada Pension Plan (CPP) and a Registered Retirement Savings Plan (RRSP). You must be able to prove the family members have provided services in line with the amount of compensation provided.
Pay dividends to family members who are shareholders in your company – The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling – This is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to Tax On Split Income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash – Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your personal tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes.
How much RRSP contribution room do you have.
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
An important part of year-end tax planning is determining appropriate ways to handle compensation. The following are the main things to consider:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose. The interest from the loan may be deductible if the proceeds of the shareholder loan were used to produce income from business or property.
Do you need to repay a shareholder loan to avoid paying personal income tax on the amount you borrowed?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying out a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Think about setting up a Retirement Compensation Arrangement (RCA) to help fund you or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-Controlled Private Corporations (CCPC) is the Small Business Deduction (SBD).
For qualifying businesses, the SBD reduces your corporate tax rate. Keep in mind that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any of the SBD is to make sure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could choose to hold more equity investments than fixed-income investments. Only 50% of the gains realized on shares sold is taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Another tactic you should consider for year-end tax planning is to hasten your purchase of any depreciable assets. A depreciable asset is a type of capital property that you can claim the Capital Cost Allowance (CCA) on.
These are two of the best ways to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. With this incentive, some depreciable assets are eligible for an enhanced first-year allowance.
Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.
Donations
Another essential part of tax planning is to make all of your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate securities.
Give a direct cash gift to a registered charity.
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of each of these types of charitable donations.
Make the Most of Covid-19 Relief Programs
While some COVID-19 relief programs, such as the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) have ended, others are still available. See if your business can benefit from any of the following relief programs:
Canada Recovery Hiring Program (CRHP). This program will continue to run until May 2022. If your business is eligible and continues to experience a decline in revenues as compared to pre-pandemic levels. In that case, the CRHP will provide support to assist in hiring new staff or increasing the wages of your existing staff.
Tourism and Hospitality Recovery Program. This new program provides wage and rent support to eligible businesses such as hotels and restaurants with an average monthly revenue reduction of at least 40% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 40%.
Hardest Hit Business Recovery Program. This provides rent and wage support of up to 50% for eligible entities. Eligible entities must meet two conditions – an average monthly revenue reduction of at least 50% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 50%.
General support in the event of a public health lockdown. If there is a public health lockdown and your business loses sufficient revenue, your business would be eligible for support at the same subsidy rates as the Tourism and Hospitality Recovery Program.
Know what’s included as taxable income. If you received assistance from the government assistance programs, including the CEWS, CERS, and CRHP, this assistance is taxable as income.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. Book some time with us today to learn how you can benefit from these tax tips and strategies.
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Life insurance can benefit you no matter what stage of life you’re at. It’s never too soon or too late to buy life insurance. Not only will it give you peace of mind, but it will also provide your loved ones with financial support after you die.
Types of life insurance
There are two main types of life insurance:
Term life provides temporary coverage for a set amount of time (for example, 10, 15, or 20 years).
Permanent coverage is life insurance that never expires.
Term life is generally cheaper as it is only good for a set amount of time. Permanent insurance will cost you more in the short run but may work out less expensive in the long run as your premiums do not tend to increase as you age.
Life insurance in your 20s
In your 20s, you may feel like you’re immortal and have lots of other things you want to spend your money on. But you also likely have responsibilities – such as student loans your parents may have co-signed for or a mortgage with your partner. If something happened to you, your loved ones would be left alone to pay for that debt. Life insurance could help fill this financial gap.
Also, another great reason to get life insurance in your 20s is that it’s very affordable! You will have a low insurance premium because you are considered low risk.
Life insurance in your 30s
By the time you’re in your 30s, you may have several financial responsibilities – including a mortgage and children. If you’ve only had term insurance up to this point, you may want to consider converting it to permanent to help give yourself lifelong protection.
Even if you have life insurance through your workplace, you may want to buy additional life insurance. Separate life insurance can help cover you if you lose your job or lock-in rates while you are relatively young and healthy.
Life insurance in your 40s, 50s, 60s and beyond
At this stage in your life, you may still have a mortgage or dependent children. You may have even bought a cottage or a vacation property. No matter your financial responsibilities, if your estate doesn’t have enough cash to cover them, it’s essential to have life insurance still.
Now is an excellent time to lock in permanent insurance. However, if you find the premiums too high or know you only need life insurance for a set amount of time, term life may still work for you.
Your next steps
Now you know about the two main types of life insurance and why it’s crucial to have it, no matter what age you are. If you’re not sure where to go from here, contact your insurance advisor or us – we can help you figure out your next steps!
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On Thursday, October 22nd, 2021 Deputy Prime Minister and Finance Minister Chrystia Freeland announced the “final pivot in delivering the support needed to deliver a robust recovery.” This “Final Pivot” means several existing pandemic support programs for individuals and businesses will expire on October 23rd, 2021:
The Tourism and Hospitality Recovery Program – provides support through the wage and rent subsidy programs, to hotels, tour operators, travel agencies, and restaurants, with a subsidy rate of up to 75%.
The Hardest-Hit Recovery Program – provides support through the wage and rent subsidy programs, would support other businesses that have faced deep losses, with a subsidy rate of up to 50%.
Canada Worker Lockdown Benefit– provides $300 a week to workers facing local lockdowns, including those not eligible for Employment Insurance. Anyone whose loss of income is due to their refusal to follow vaccination mandates will be excluded from accessing the aid.
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It’s great that you’ve taken the critical step of buying life insurance. But have you reviewed it recently to make sure that your policy is still suitable for you? It’s important to review your life insurance policy annually to check that your policy is up-to-date and see if you require any additional coverage.
There are several reasons you may need to change your life insurance policy. We’ve listed them below.
You’ve gone through a significant life event
You may have gone through a significant life event – such as getting married or divorced or having a child – in the past year. In this case, it’s important to consider changing your beneficiaries to make sure that your life insurance proceeds are distributed appropriately.
If you don’t update your beneficiaries, a previously named beneficiary could still be legally entitled to the money you want other people to receive.
You’ve changed jobs
Congratulations – you’ve got a new job or even started your own business! If you’ve started a new job, you may need more life insurance to account for extra income your family will be accustomed to or to account for a change in your employer-based life insurance policy.
If you’ve started a new business, you’ll likely need additional life insurance to help cover debts you may have taken on to start your new business. Plus, since you’re self-employed, you won’t have any employer-based life insurance anymore.
You’ve taken on some debt
If you’ve recently taken on some debt – such as a credit consolidation loan or a home equity loan – more life insurance may be a good idea. Additional life insurance can provide your loved ones with some much-needed extra income to help pay off debt or even pay for basic living expenses if you die.
You’re supporting family members
If your parents have moved in with you or have moved into assisted living, they may require financial support. Additional life insurance can help pay for this increased financial load.
If you have children ready for college or university, they’ll still need financial support from you. You can help secure their financial future with a life insurance policy that will help cover tuition costs.
You’ve bought a new home
You don’t want to leave your spouse or partner the burden of paying off a mortgage alone. Additional life insurance coverage can ensure they’ll have the funds they need after you pass and won’t be forced to sell at a stressful time.
A loved one has a change in health
If a loved one has recently had a change in their health or a significant medical diagnosis, then it’s essential to review your life insurance coverage. Your loved one may need expensive medical treatment or in-home support – which life insurance can help cover if you die.
If you have any questions about your life insurance coverage or want to make any changes, give us a call!
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Post-secondary education can be expensive, however having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easier to make financial decisions that align with your goals and provide peace of mind. In the infographic, we outline 7 sources of funds for paying for post-secondary education:
Registered Education Savings Plan
Tax Free Savings Account
Life Insurance
Scholarships, grants, bursaries
Personal Loans, Lines of Credit
Government Student Loan
Personal Savings
If you need help planning to save for your child’s post-secondary education, contact us!
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Starting a new business venture can be both exciting and nerve-racking at the same time. The hopes and dreams of success, financial freedom, and being your own boss are accompanied by many uncertainties and risks. To add to some of the anxiety comes the facts: about half of all new businesses will not be around within the next 5, and only about one-third will survive 10+ years. The situation often becomes more complex when there are multiple owners and the future success of a business is at risk if proper planning is not done. The unexpected ‘exit’ of a partner due to death, disability, illness, retirement, or just simply that ‘it’s not working out’ can create a very difficult situation for the remaining business owner(s) and the business itself. Many businesses operate under a ‘handshake’ sort of agreement, but those rarely are upheld when the situation starts to get challenging. In order to protect against all of these pitfalls, it is always advised to have the right structure in place to address any potential challenges that may arise. This is done by incorporating a Buy-Sell Agreement between the owners.
What is a Buy‐Sell Agreement?
A buy-sell agreement is a legally binding contract designed to establish a set of rules or actions for the remaining business owner(s) to carry on the business, in the event one of them is no longer involved in the business – this can be due to death, illness, injury, retirement or a simple desire to ‘get out’. In other words, this document dictates how the remaining owner(s) will interact with each other and how the business will operate when certain situations occur. This agreement creates certainty and a ‘game plan’ in case one or more of the partners are no longer able or willing to commit to the business.
Types of Buy‐Sell Agreements
Buy-sell agreements are generally structured as a cross purchase agreement, promissory note agreement, or share redemption agreement. With a cross-purchase agreement, each shareholder within the agreement agrees to purchase a specified percentage of the shares owned by the departing shareholder, and if it’s due to death, the deceased shareholder’s estate is obligated to sell the shares to the remaining shareholder(s). A shareholder will generally purchase insurance on the life of the other shareholder(s) and on death, will use the proceeds from the insurance to buy out the remaining shares from the deceased shareholder’s estate. With a promissory note agreement, corporate owned life insurance is placed on the life of each shareholder, with the corporation named as the payor and beneficiary. In the event that a shareholder dies, the surviving shareholder(s) purchases the deceased’s shares from their estate using a promissory note. Once the remaining shareholder(s) owns the deceased shareholder’s shares, the company collects the death benefit on the insurance policy with the excess amount above the adjusted cost basis of the policy in the capital dividend account. The company then provides the surviving shareholder(s) a capital dividend which provides the remaining shareholder(s) the necessary funds to pay off the promissory note. Under the share redemption arrangement corporate owned life insurance is placed on the life of each shareholder with the corporation named as the payor and beneficiary. In the event that a shareholder dies, the company collects the insurance proceeds and places the excess amount above the adjusted cost basis of the policy in the capital dividend account. The company uses the proceeds in the capital dividend account to redeem the shares held by the deceased shareholder’s estate. Once that is done, the remaining shareholder(s) takes over the ownership of those purchased shares. Each structure has their advantages and disadvantages and should be reviewed with a legal professional, tax professional as well as a knowledgeable Financial Advisor.
Why the business needs a buy‐sell agreement
A buy-sell agreement is a crucial component of a business that should be incorporated to protect the shareholders as well as the business itself. It is designed to ensure important things are taken care of if someone leaves the business for whatever reason, so that the business can continue to grow and run successfully. A buy-sell agreement offers several key benefits to your business:
It maintains the continuity of your business by ensuring members get to decide what happens to the business before any problems arise.
It protects company ownership by laying out a succession plan for departing members. This keeps remaining shareholders from being burdened by untested and unproven successors (like the widow or children of the departing co-owner).
It minimizes disputes between remaining co-owners and the family of the departing owner by having a strategy in place ahead of time to govern business operations.
It alleviates co-owner stress and uncertainty by specifically identifying which events would trigger a buyout.
It protects business assets and liquidity by providing a financial (and tax) plan for each of the different triggers addressed in the agreement.
It protects the interest of, not just the business entity itself, but also that of the business owners to ensure members (and their families, in the event of death or disability) are handled with respect, courtesy and the utmost fairness.
What to include in the buy‐sell agreement
Since a buy-sell agreement is a legally binding document, it generally should be drafted with a knowledgeable and experienced Legal Professional. Most agreements are started through a generic template, but then are customized for the needs of each business/partner and can be a fairly thorough and comprehensive document. There are several different components of a buy-sell agreement and several different aspects need to be addressed, such as the valuation of the company, ownership interests, buy-out clauses, and terms of payment. The agreement should generally be drafted at the very start of the business, so as to avoid any issues or misunderstandings later on. The agreement will also address certain ‘triggering events’, which are listed below.
Disagreement
The conflict between owners of a business in regards to the direction or management of the business can sometimes occur, and can even push the most successful business off-course. In a situation where no agreement or mediation can be reached, it may make sense to allow for one or more of the partners to be bought out. This would allow the business to continue moving forward and is often referred to as a ‘shot-gun clause’. Sometimes a situation where one owner offers to buy out the other would also offer to be bought out for the same value, thus ensuring fair treatment and value of the shares.
Divorce
An owner who is in the midst of a divorce may be bought out by other partners, to protect the company ownership. A divorce settlement will generally depend on the partner’s share of the business. It’s not uncommon for a family law judge to order a business owner to split his or her interest in a company with the former spouse. To protect the business from this event, a clause should require the shares held by the former spouse of a partner to be acquired by the company or one of the other owners.
Retirement
The value of the business comprises a significant component for the retirement of many business owners. Allowing the remaining partners to reclaim the interest in the business keeps the business intact and provides the retiring partner with a market to liquidate their ownership, thus providing the retiring partner with a cash infusion to enjoy their retirement. There may also be some distinction in the agreement between early retirement and regular retirement and how the shares of the departing owner are to be valued.
Bankruptcy
Borrowing money to expand or grow the company, or to purchase equipment or goods, is common for many companies. However, lending institutions often require personal guarantees from the owners/shareholders of the business. Having one or more owners that are not able to provide this guarantee can lead to higher fees and impact the overall financial well-being and growth of the business. Therefore, a provision should be considered to allow the other shareholders the opportunity to acquire shares of the defaulting shareholder(s).
Disability
An owner who has become disabled and unable to perform their duties can impact the overall well-being of the business. The agreement should address several situations and questions, such as whether the partner will continue to receive a salary, and for how long, or whether they will continue in the day-to-day management of the company.The buy-sell agreement also needs to clearly define what is considered a disability and should include a timeline for which the disabled partner would be given the opportunity to return. Often the business will purchase disability buy-sell insurance and link the definitions to the plan. This has the added benefit of providing an independent third party to determine when the criteria for the buy-out are satisfied.
Death
The death of a partner is an unfortunate and difficult situation for both the family and business partners alike. To deal with the stress of continuing the business, establishing the rules of business continuity upon death provides peace of mind to both the surviving partners and the family of the deceased. The surviving partners benefit from the assurance of not having to deal with an unwanted partner and the family is assured that they will be treated fairly. Generally, all partners/co-owners will be covered by a ‘key person’ life insurance policy, which can be paid by either the company or the other partners, where the death benefit would be used to buy out the deceased owner’s shares (as mentioned above).
Funding the buy‐sell agreement
Without sufficient resources to fund a potential buy-out, the agreement itself can fall apart. The partners need to decide where the money will come from to complete the buy-out – whether it will be the responsibility of individual owners or from the company itself. While not all events can be protected, two can: the death and disability of a shareholder. By using an insurance policy, funds can be made available at the time they are needed, thus minimizing potential liquidity issues, protecting the business and the impacted shareholders, as well as the family of the deceased shareholder. Using insurance provides the protection needed at a fraction of the cost to the alternatives and can provide immediate capital and significant tax benefits.
Working as a partnership between 2 or more individuals is never an easy task, and the situation only gets more complicated when one or more of them exits the business. Protecting not only the business, but your personal interests, as well as your family’s future are very important objectives for any business owner, and should not be overlooked. Although no business can be certain of success, there are strategies and structures that can help protect the business from failure in the future. Working with a knowledgeable and experienced Financial Advisor, Legal Professional and Tax Professional, you can be assured that you can have the proper Buy-Sell Agreement in place so that all parties involved benefit.
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You may have had life insurance for as long as you can remember. You wanted to make sure that your family would be taken care of and be able to pay their bills if anything happened to you.
But now that you’re older and your children are grown – and hopefully your mortgage is paid off – you may not feel you still need life insurance. This could be a valid assumption; however, there are some circumstances under which it may still make sense for you to have life insurance. They are:
You still have substantial debt.
You have dependent children or grandchildren.
You want to leave a financial legacy.
You still have substantial debt
No one likes the thought of leaving their loved ones to pay their debts if they die. If, however, someone has co-signed a loan with you – for example, for a mortgage or a car – and you die, then they will be on the hook for the entire amount.
If you have life insurance and name your co-signer as the beneficiary, this will help relieve any financial burden your death could cause them.
You have dependent children or grandchildren
If you have children who are still dependent on you because they have a mental or physical disability, life insurance can be an excellent way to ensure they will still have access to funds after you die. Lifelong care can be expensive, and a life insurance benefit will go a long way to helping fund it.
You may have grandchildren you are caring for or that you are not responsible for but want to leave money they can use towards higher education. A life insurance payout can be a great way to help a grandchild get a good start in life without having to go into debt.
You want to leave a financial legacy
You may not have dependent children or grandchildren but still want to leave them something when you die. Life insurance can be a great way to do this without cutting back on your spending during your lifetime.
Life insurance can also help make sure that you have something to leave everyone in your will. If you have a family cottage, it can be complicated to leave it to more than one person or family. Life insurance gives you the option to leave one person or family the cottage and another person or family the cash equivalent.
We can help you!
If you’re unsure whether or not it still makes sense to have life insurance after the age of 60, we’d be happy to sit down with you and talk through your options. Give us a call or email us today!
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In 2015, CIBC conducted a poll to see how many Canadian business owners had a business transition plan. Almost half of them didn’t have one.
No one likes to think about having to hand over the business they’ve built from the ground up. But the fact of the matter is, you’ll have to do it eventually. And the last thing you want to do is decide in a hurry if you become ill or otherwise incapacitated.
Your two main choices for passing on your business are:
Selling it
Transferring ownership to a successor of your choice (this can either be a family member or a non-family member such as a key employee)
When you die, all your capital property is deemed to have been sold immediately before your death. This includes your business. This means that capital gains taxes will be charged on whatever the fair market value (FMV) of your business is considered to be at the time of your death.
The higher the FMV of your business, the higher the capital gains taxes that will be charged on it. Your successors may not be able to afford these taxes – causing them not to reap the benefits of all your hard work properly.
The good news is that there’s a way to protect your business by doing an estate freeze.
What is an estate freeze?
An estate freeze can be an integral part of your estate planning strategy. The purpose of an estate freeze is to transfer any future increase in your business’s value (generally shares) that you own to someone else.
This is how an estate freeze works:
As a business owner, you can lock in or “freeze” the value of an asset as it stands today. Your successors will still have to pay taxes on your business when they inherit it – but not as much as if you hadn’t “frozen” your business and your company had increased in FMV.
You continue to maintain control of your business. As well, you can receive income from your business while it is frozen.
Your successor now benefits from the business’ future growth, but they won’t have to pay for any tax increases that occur before they inherit the business.
Freezing the value of your business can help you plan your tax spending properly. Selecting to “freeze” your business can help give you peace of mind that your successors won’t have to spend a considerable part of their inheritance on excessive taxes.
What happens when you freeze your estate?
When you execute an estate freeze, the first thing you need to do is exchange your common shares for preferred shares. Your new preferred shares will have a fixed (a.k.a. “frozen”) value equal to the company’s present fair market value. Make sure you have everything in place to properly determine the fair market value before you start changing your shares.
Your company will then issue common shares, which your successors subscribe to for a nominal price (for example, 1 dollar). Note that your successors don’t own the stock yet – subscribing to the stocks means they will take ownership of the stocks at a future date.
You must have a shareholders’ agreement ready to bring in new shareholders as part of your estate freeze. This agreement should list any terms and conditions related to the purchase, redemption, or transfer of your company’s common shares.
You can choose to receive some retirement income from your preferred shares by cashing in a fixed amount gradually. This action will reduce your preferred shares’ total value, reducing income tax liability upon death. For example:
Your shares are worth $10,000,000, and you need $100,000 annually. You can then redeem $100,000 worth of shares.
If you live for 30 more after you freeze your estate, you will have withdrawn $3,000,000 of your shares. This reduces the value of your shares to $7,000,000.
At your death, your tax liability is lower than it would have been had your shares remained at the original value of $10,000,000.
You can opt to maintain voting control in your company. This can be complicated (so you should consult a licensed professional), but you can set up your estate freeze so that you still have voting control in your business with your preferred stock.
How you can benefit from an estate freeze
You get peace of mind. The most important benefit to a tax freeze is that you know that whoever your successors are will receive what they are entitled to and no have to deal with any unpredictable tax burdens. Since an estate freeze fixes the maximum amount of taxes to be paid, you can properly plan how much money to set aside for this. One option to have a life insurance policy in the amount of the taxes, with your successor as the beneficiary, so you know they will have enough money to pay for these taxes.
You encourage participation in growing your business. Your chosen successors will be motivated to help the company grow, as they know they will benefit in the future.
Further tax reductions. If your shares qualify for lifetime capital gains exemption, then an estate freeze also helps further reduce your successor’s tax liability.
Is an estate freeze the right strategy for you?
There are a few things you need to consider when deciding if an estate freeze is right for you or not.
Retirement funding. What kind of retirement savings, if any, do you have? If you have money put aside in RRSPs, TFSAs, or even have a pension from a previous job, then an estate freeze may be the right choice for you. If you were planning to sell your company and live off the proceeds in retirement, then it likely is not the right choice for you.
Succession plans. Do you have someone in mind who would be a suitable successor? Just because you think your child, spouse, or best employee may want to take over your business doesn’t mean they do. Talk to anyone you are considering making a successor and see if they are both interested in and able to keep your business going.
Family relationships. Trying to figure out how to select a successor if you have several children may be challenging. It can cause a lot of strain amongst your children if they are all named successors if only some of them are actively interested in running the business. You may want to consider only making one child a successor and providing for your other children in different ways, such as making them a life insurance beneficiary.
If you select to pursue an estate freeze for your business, you are helping plan for your heirs’ future and cutting down on the amount of taxes that will eventually have to be paid. That being said – an estate freeze can be complicated, and all the steps must be performed correctly. Be sure to consult an experienced professional be taking any steps to freeze your estate.
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Business owners deal with a unique set of challenges. One of these challenges includes succession planning. A succession plan is the process of the transfer of ownership, management and interest of a business. When should a business owner have a succession plan? A succession plan is required through the survival, growth and maturity stage of a business. All business owners, partners and shareholders should have a plan in place during these business stages.
We created this infographic checklist to be used as a guideline highlighting main points to be addressed when starting to succession plan.
Needs:
Determine your objectives- what do you want? For you, your family and your business. (Business’ financial needs)
What are your shares of the business worth? (Business value)
What are your personal financial needs- ongoing income needs, need for capital (ex. pay off debts, capital gains, equitable estate etc.)
There are 2 sets of events that can trigger a succession plan: controllable and uncontrollable.
Controllable events
Sale: Who do you sell the business to?
Family member
Manager/Employees
Outside Party
There are advantages and disadvantages for each- it’s important to examine all channels.
Retirement: When do you want to retire?
What are the financial and psychological needs of the business owner?
Is there enough? Is there a need for capital to provide for retirement income, redeem or freeze shares?
Does this fit into personal/retirement plan? Check tax, timing, corporate structures, finances and family dynamics. (if applicable)
Uncontrollable Events
Divorce: A disgruntled spouse can obtain a significant interest in the business.
What portion of business shares are held by the spouse?
Will the divorced spouse consider selling their shares?
What if the divorced spouse continues to hold interest in the business without understanding or contributing to the business?
If you have other partners/shareholders- would they consider working with your divorced spouse?
Illness/Disability: If you were disabled or critically ill, would your business survive?
Determine your ongoing income needs for you, your spouse and family. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
Will the ownership interest be retained, liquidated or sold?
How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? Does the business have a savings or insurance program in place to address this?
Death: In the case of your premature death, what would happen to your business?
Determine your ongoing income needs for your dependents. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
Will the ownership interest be retained, liquidated or sold by your estate? Does your will address this? Is your will consistent with your wishes? What about taxes?
How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? How will this affect your employees? Does the business have a savings or insurance program in place to address this?
Execution: It’s good to go through this with but you need to get a succession plan done. Besides having a succession plan, make sure you have an estate plan and buy-sell/shareholders’ agreement.
Because a succession plan is complex, we suggest that a business owner has a professional team to help. The team should include:
Financial Planner/Advisor (CFP)
Succession Planning Specialist
Insurance Specialist
Lawyer
Accountant/Tax Specialist
Chartered Life Underwriter (CLU)
Next steps…
Contact us about helping you get your succession planning in order so you can gain peace of mind that your business is taken care of.
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On April 20, 2021, the B.C. Minister of Finance announced the 2021 budget. We have highlighted the most important things you need to know.
Requirement to repay B.C Emergency Benefit for Workers has been waived
If you are self-employed and received the B.C. Emergency Benefit for Workers, you will no longer be required to repay this benefit if you would have qualified for it based on your gross income (instead of your net income). This mirrors a federal change to the Canada Emergency Response Benefit.
Home Owner Grant threshold change
The budget confirmed a previously announced increase to the Home Owner Grant to $1.625 million (from $1.525 million) for the 2021 tax year. This grant helps reduce the amount of property taxes you pay.
PST exemption for electric bicycles
As of April 21, 2021, electric bicycles and tricycles will be exempt from provincial sales tax (PST). Also, electrical conversion kits and parts and services for bicycles and tricycles will be exempt from PST.
Elimination of provincial sales tax refunds on specific vehicle transactions
The provincial sales tax refund for motor vehicles purchased and resold within seven days has been eliminated. This elimination will apply on a date still to be set by regulation.
Carbon tax increase
The budget confirms a previously delayed increase to the carbon tax rate. As of April 1, 2021, carbon tax rates were set at $45 per tonne. They will increase to $50 per tonne on April 1, 2022.
Tobacco tax increase
The budget increases the tax rate on tobacco products as of July 1, 2021:
On cigarettes and heated tobacco products (vaping), taxes will increase from 29.5 cents to 32.5 cents per cigarette or heated tobacco product.
On loose tobacco, taxes increase from 39.5 cents per gram to 65 cents per gram.
Changes to the speculation and vacancy tax
Corporations owned by government agents are now exempt from the speculation and vacancy tax.
Also, the following changes have been made and are retroactive to November 27, 2018:
Properties owned by a trustee for a trust that benefits a registered charity can claim an exemption from the speculation and vacancy tax.
If someone has a beneficial interest in a property contingent on the death of another individual, they will no longer be included in the definition of “beneficial owners” for this tax.
We can help you assess the impact of tax changes in this year’s budget on your finances or business. Give us a call today!
https://familyinsuranceplans.com/wp-content/uploads/2021/04/BC-Budget-Highlights-2021.jpg281500Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2021-04-29 00:57:042021-04-29 23:57:05British Columbia 2021 Budget Highlights
On April 19, 2021, the Federal Government released their 2021 budget. We have broken down the highlights of the financial measures in this budget into three different sections:
Business Owners
Personal Tax Changes
Supplementary Highlights
Business Owners
Extending Covid -19 Emergency Business Supports
All of the following COVID-19 Emergency Business Supports will be extended from June 5, 2021, to September 25, 2021, with the subsidy rates gradually decreasing:
Canada Emergency Wage Subsidy (CEWS) – The maximum wage subsidy is currently 75%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Canada Emergency Rent Subsidy (CERS) – The maximum rent subsidy is currently 65%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Lockdown Support Program – The Lockdown Support Program rate of 25% will be extended from June 4, 2021, to September 25, 2021.
Only organizations with a decline in revenues of more than 10% will be eligible for these programs as of July 4, 2021. The budget also includes legislation to give the federal government authority to extend these programs to November 20, 2021, should either the economy or the public health situation make it necessary.
Canada Recovery Hiring Program
The federal budget introduced a new program called the Canada Recovery Hiring Program. The goal of this program is to help qualifying employers offset costs taken on as they reopen. An eligible employer can claim either the CEWS or the new subsidy, but not both.
The proposed subsidy will be available from June 6, 2021, to November 20, 2021, with a subsidy of 50% available from June to August. The Canada Recovery Hiring Program subsidy will decrease down to 40% for September, 30% for October, and 20% for November.
Interest Deductibility Limits
The federal budget for 2021 introduces new interest deductibility limits. This rule limits the amount of net interest expense that a corporation can deduct when determining its taxable income. The amount will be limited to a fixed ratio of its earnings before interest, taxes, depreciation, and amortization (sometimes referred to as EBITDA).
The fixed ratio will apply to both existing and new borrowings and will be phased in at 40% as of January 1, 2023, and 30% for January 1, 2024.
Support for small and medium-size business innovation
The federal budget also includes 4 billion dollars to help small and medium-sized businesses innovate by digitizing and taking advantage of e-commerce opportunities. Also, the budget provides additional funding for venture capital start-ups via the Venture Capital Catalyst Program and research that will support up to 2,500 innovative small and medium-sized firms.
Personal Tax Changes
Tax treatment and Repayment of Covid-19 Benefit Amounts
The federal budget includes information on both the tax treatment and repayment of the following COVID-19 benefits:
Canada Emergency Response Benefits or Employment Insurance Emergency Response Benefits
Individuals who must repay a COVID-19 benefit amount can claim a deduction for that repayment in the year they received the benefit (by requesting an adjustment to their tax return), not the year they repaid it. Anyone considered a non-resident for income tax purposes will have their COVID-19 benefits included in their taxable income.
Disability Tax Credit
Eligibility changes have been made to the Disability Tax Credit. The criteria have been modified to increase the list of mental functions considered necessary for everyday life, expand the list of what can be considered when calculating time spent on therapy, and reduce the requirement that therapy is administered at least three times each week to two times a week (with the 14 hours per week requirement remaining the same).
Old Age Security
The budget enhances Old Age Security (OAS) benefits for recipients who will be 75 or older as of June 2022. A one-time, lump-sum payment of $500 will be sent out to qualifying pensioners in August 2021, with a 10% increase to ongoing OAS payments starting on July 1, 2022.
Waiving Canada Student Loan Interest
The budget also notes that the government plans to introduce legislation that will extend waiving of any interest accrued on either Canada Student Loans or Canada Apprentice Loans until March 31, 2023.
Support for Workforce Transition
Support to help Canadians transition to growing industries was also included in the budget. The support is as follows:
$250 million over three years to Innovation, Science and Economic Development Canada to help workers upskill and redeploy to growing industries.
$298 million over three years for the Skills for Success Program to provide training in skills for the knowledge economy.
$960 million over three years for the Sectoral Workforce Solutions Program to help design and deliver training relevant to the needs of small and medium businesses.
Supplementary Highlights
Federal Minimum Wage
The federal budget also introduces a proposed federal minimum wage of $15 per hour that would rise with inflation.
New Housing Rebate
The GST New Housing Rebate conditions will be changed. Previously, if two or more individuals were buying a house together, all of them must be acquiring the home as their primary residence (or that of a relation) to qualify for the GST New Housing Rebate. Now, the GST New Housing Rebate will be available as long as one of the purchasers (or a relation of theirs) acquires the home as their primary place of residence. This will apply to all agreements of purchase and sale entered into after April 19, 2021.
Unproductive use of Canadian Housing by Foreign Non-Resident Owners
A new tax was introduced in the budget on unproductive use of Canadian housing by non-resident foreign owners. This tax will be a 1% tax on the value of non-resident, non-Canadian owned residential real estate considered vacant or underused. This tax will be levied annually starting in 2022.
All residential property owners in Canada (other than Canadian citizens or permanent residents of Canada) must also file an annual declaration for the prior calendar year with the CRA for each Canadian residential property they own, starting in 2023. Filing the annual declaration may qualify owners to claim an exemption from the tax on their property if they can prove the property is leased to qualified tenants for a minimum period in a calendar year.
Excise Duty on Vaping and Tobacco
The budget also includes a new proposal on excise duties on vaping products and tobacco. The proposed framework would consist of:
A single flat rate duty on every 10 millilitres of vaping liquid as of 2022
An increase in tobacco excise duties by $4 per carton of 200 cigarettes and increases to the excise duty rates for other tobacco products such as tobacco sticks and cigars as of April 20, 2021.
Luxury Goods Tax
Finally, the federal budget proposed introducing a tax on certain luxury goods for personal use as of January 1, 2022.
For luxury cars and personal aircraft, the new tax is equal to the lesser of 10% of the vehicle’s total value or the aircraft, or 20% of the value above $100,000.
For boats over $250,000, the new tax is equal to the lesser of 10% of the full value of the boat or 20% of the value above $250,000.
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
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Tax season is upon us once again. But since 2020 was a year like no other, the 2021 tax-filing season will also be different. Both how we worked and where we worked changed for a lot of us in 2020.
Some Canadians got to work from home for the first time but saw no other disruption to their jobs. There was a much bigger disruption for other Canadians – they faced temporary or permanent job losses and had to supplement their incomes wide side gigs and emergency government programs.
The Canadian government has introduced some new tax credits and deductions in response to these changes. We’ve covered some of the highlights below.
Claiming home office expenses
With a sudden shutdown happening across the country in March 2020, many Canadians stopped commuting to the office and started working from home. As a response to this, the Canada Revenue Agency (CRA) has offered a new way to claim home office expenses. If you:
Worked from home due to COVID-19 – for a minimum of 50 percent of the time for at least four consecutive weeks AND
Your employer did not reimburse you for your home office expenses.
You can claim $2 for each day – to a maximum of $400 for the year.
If you have more complicated or higher home office expenses, then your employer must provide you with a T2200 form, with a list of deductions included.
New Canada Training Credit
Suppose you are between the ages of 25 and 65 and taking courses to upgrade your skills from a college, university, or other qualifying institution. In that case, you can claim this new, refundable tax credit.
You can automatically accumulate $250 annually – and the new Canada Training Credit has a lifetime maximum of $5,000. You can claim this credit when you file your taxes.
Pandemic emergency funds
The emergency support programs helped a lot of Canadians avoid financial disaster. If you were one of the Canadians who received pandemic emergency funds, you must be aware of the tax implications.
If you received the Canada Emergency Response Benefit (CERB) or the Canada Emergency Student Benefit (CESB), no taxes were withheld at source, so you will be taxed on the full amount. If you received the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), or Canada Recovery Caregiver Benefit (CRCB), the CRA withheld a 10% tax at source, so you may not owe additional taxes on this income.
New digital news subscription tax credit
This is a new, non-refundable tax credit that is calculated at 15 percent – and is eligible for up to a maximum of $500 in qualifying subscription expenses. To qualify for this credit, you must subscribe to one or more qualified Canadian journalism organizations – and you could save up to $75 a year thanks to this credit.
I’m here to help you understand where you owe taxes and how you can lower your tax bill. Give me a call today!
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You most likely do, but the more important question is, What kind? Whether you’re a young professional starting out, a devoted parent or a successful CEO, securing a life insurance policy is probably one of the most important decisions you will have to make in your adult life. Most people would agree that having financial safety nets in place is a good way to make sure that your loved ones will be taken care of when you pass away. Insurance can also help support your financial obligations and even take care of your estate liabilities. The tricky part, however, is figuring out what kind of life insurance best suits your goals and needs. This quick guide will help you decide what life insurance policy is best for you, depending on who needs to benefit from it and how long you’ll need it.
Permanent or Term?
Life insurance can be classified into two principal types: permanent or term. Both have different strengths and weaknesses, depending on what you aim to achieve with your life insurance policy.
Term life insurance provides death benefits for a limited amount of time, usually for a fixed number of years. Let’s say you get a 30-year term. This means you’ll only pay for each year of those 30 years. If you die before the 30-year period, then your beneficiaries shall receive the death benefits they are entitled to. After the period, the insurance shall expire. You will no longer need to pay premiums, and your beneficiaries will no longer be entitled to any benefits.
Term life insurance is right for you if you are:
The family breadwinner. Death benefits will replace your income for the years that you will have been working, in order to support your family’s needs.
A stay-at-home parent. You can set your insurance policy term to cover the years that your child will need financial support, especially for things that you would normally provide as a stay-at-home parent, such as childcare services.
A divorced parent. Insurance can cover the cost of child support, and the term can be set depending on how long you need to make support payments.
A mortgagor. If you are a homeowner with a mortgage, you can set up your term insurance to cover the years that you have to make payments. This way, your family won’t have to worry about losing their home.
A debtor with a co-signed debt. If you have credit card debt or student loans, a term life insurance policy can cover your debt payments. The term can be set to run for the duration of the payments.
A business owner. If you’re a business owner, you may need either a term or permanent life insurance, depending on your needs. If you’re primarily concerned with paying off business debts, then a term life insurance may be your best option.
Unlike term life insurance, a permanent life insurance does not expire. This means that your beneficiaries can receive death benefits no matter when you die. Aside from death benefits, a permanent life insurance policy can also double as a savings plan. A certain portion of your premiums can build cash value, which you may “withdraw” or borrow for future needs. You can do well with a permanent life insurance policy if you:
…Have a special needs child. As a special needs child will most likely need support for health care and other expenses even as they enter adulthood. Your permanent life insurance can provide them with death benefits any time within their lifetime.
…Want to leave something for your loved ones. Regardless of your net worth, permanent life insurance will make sure that your beneficiaries receive what they are entitled to. If you have a high net worth, permanent life insurance can take care of estate taxes. Otherwise, they will still get even a small inheritance through death benefits.
…Want to make sure that your funeral expenses are covered. Final expense insurance can provide coverage for funeral expenses for smaller premiums.
…Have maximized your retirement plans. As permanent life insurance may also come with a savings component, this can also be used to help you out during retirement.
…Own a business. As mentioned earlier, business owners may need either permanent or term, depending on their needs.
A permanent insurance policy can help pay off estate taxes, so that the successors can inherit the business worry-free. Different people have different financial needs, so there is no one-sized-fits-all approach to choosing the right insurance policy for you. Talk to us now, and find out how a permanent or term life insurance can best give you security and peace of mind.
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On Friday, February 19, 2021, Prime Minister Justin Trudeau announced an extension to several of the COVD-19 federal emergency benefits. The goal of this extension is to support Canadians who are still being financially impacted by the COVID-19 pandemic.
The following benefits are impacted:
Canada Recovery Benefit
Canada Recovery Caregiving Benefit
Canada Recovery Sickness Benefit
Employment Insurance
Canada Recovery Benefit
The Canada Recovery Benefit (CRB) provides income support to anyone who is:
Employed or self-employed, but not entitled to Employment Insurance (EI) benefits.
Has had their income reduced by at least 50 percent due to COVID-19.
You can receive up to $1,000 ($900 after taxes withheld) a week every two weeks for the CRB. The recent changes now allow you to apply for this benefit for a total of 38 weeks – previously the maximum was 26 weeks.
Canada Recovery Caregiving Benefit
The Canada Recovery Caregiving Benefit (CRCB) helps support people who cannot work because they must supervise a child under 12 or other family members due to COVID-19. For example, a school is closed due to COVID-19 or your child must self-isolate because they have COVID-19.
You can receive $500 ($450 after taxes withheld) for each 1-week period you claim the CRCB. The recent extension made now allows you to apply for this benefit for a total of 38 weeks instead of the previous 26 weeks.
Canada Recovery Sickness Benefit
The $500 a week ($450 after taxes) Canada Recovery Sickness Benefit (CRSB) is also getting a boost. If you cannot work because you are sick or need to self-isolate due to COVID-19, you can now apply for this benefit for a total of four weeks. Previously, this benefit would only cover up to two missed weeks of work.
Employment Insurance
Finally, the government will also be increasing the amount of time you can claim Employment Insurance (EI) benefits. You will now be able to claim EI for a maximum of 50 weeks – this is an increase of 24 weeks from the previous eligibility maximum.
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Great news for some ineligible self-employed Canadians who received the Canada Emergency Response Benefit (CERB). As per canada.ca:
“Today, the Government of Canada announced that self-employed individuals who applied for the Canada Emergency Response Benefit (CERB) and would have qualified based on their gross income will not be required to repay the benefit, provided they also met all other eligibility requirements. The same approach will apply whether the individual applied through the Canada Revenue Agency or Service Canada.
This means that, self-employed individuals whose net self-employment income was less than $5,000 and who applied for the CERB will not be required to repay the CERB, as long as their gross self-employment income was at least $5,000 and they met all other eligibility criteria.
Some self-employed individuals whose net self-employment income was less than $5,000 may have already voluntarily repaid the CERB. The CRA and Service Canada will return any repaid amounts to these individuals. Additional details will be available in the coming weeks.”
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If you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can provide significant tax savings. To help you understand the differences, we compare:
TFSA versus RRSP – Differences in deposits
TFSA versus RRSP – Differences in withdrawals
1) TFSA versus RRSP – Difference in deposits
There are several areas to focus on when comparing differences in deposits for 2021:
● Contribution Room
● Carry Forward
● Contribution and Tax Deductibility
● Tax Treatment of Growth
How much contribution room do I have?
If you have never contributed to a TFSA before, you can contribute up to $75,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
For RRSPs, the deduction limit is always 18% of your previous year’s pre-tax earnings to a maximum of $27,830. For example, if you earned $60,000 in 2020 then your deduction limit for 2021 would be $10,800 (18% x $60,000). If you earned $200,000, your deduction limit would be capped at the maximum of $27,830.
How much contribution room can I carry forward?
If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. If you make a withdrawal, then the amount you withdrew is added on top of your annual contribution room for the next calendar year.
For an RRSP, you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
Contributions and Tax Deductibility
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
One of the reasons it’s essential to make both RRSP and TFSA contributions is that any growth in them is treated differently.
A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation – because all of the growth in it is tax-free. When you make a withdrawal from your TFSA, you won’t have to pay income tax on the amount withdrawn.
The growth in an RRSP is tax-deferred. This means you won’t pay any taxes on your RRSP gains until age 71, at which time, you convert RRSP into a RRIF and begin withdrawing money. RRSPs are better suited for long-term objectives, like retirement. Since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and, thus, not pay as much tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal for 2021:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2021.
Tax Treatment of withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This is why they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are making a withdrawal from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the next calendar year. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
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We’ve put together a financial calendar for 2021. It contains all the dates you need to know to make the most of your government benefits and investment options. Whether you want to bookmark this or print it out and post it somewhere prominent, you’ll have everything you need to know in one place!
We’ve provided information on:
The dates when the government distributes payments for the Canada Child Benefit, the Canada Pension Plan (CPP) and Old Age Security (OAS).
When GST/HST credit payments are issued – usually on the fifth day of January, April, July and October.
All the dates the Bank of Canada makes an interest rate announcement. A change in this interest rate (up or down) can impact a bank’s prime interest rates. This can then affect anything from the interest rate charged on your mortgage and line of credit to how much the Canadian dollar is worth against other currencies.
When you can start contributing to your Tax Free Savings Account (TFSA) for 2021, the contribution limit for 2021 is $6,000.
March 1st is the last day for your 2020 Registered Retirement Savings Plan (RRSP).
December 31st , 2021 is the last day for 2021 charitable contributions.
December 31st is the deadlines for various investment savings vehicle contributions, including your Registered Disability Savings Plan (RDSP) and Registered Education Savings Plan (RESP), as well as your RRSP if you turned 71 in 2021.
Tax filing deadlines for personal income tax, terminal tax returns for someone who died in 2020, self-employed individuals
Knowing all of this information here can help you keep on top of your finances if you’re expecting any government benefits. It can also make sure you don’t miss any critical tax or investment deadlines!
Tax packages will be available starting February 2021 – reach out to your accountant to get started on your taxes!
If you have any questions on how we can help with your 2021 finances, please contact us.
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For the 2020 tax year, the Government of Canada introduced a temporary flat rate method to allow Canadians working from home this year due to Covid-19 to claim expenses of up to $400. Taxpayers will still be able to claim under the existing rules if they choose using the detailed method.
Each employee working from home who meets the eligibility criteria can use the temporary flat rate method to calculate their deduction for home office expenses.
To use this method to claim the home office expenses you paid, you must meet all of the following conditions:
You worked from home in 2020 due to the COVID-19 pandemic
You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020
You are only claiming home office expenses and are not claiming any other employment expenses
Your employer did not reimburse you for all of your home office expensesWhat if your employer has reimbursed you for some of your home office expenses
You need to meet all of the above conditions to be eligible to use the Temporary flat rate method.
New eligible expenses
For the detailed method, the CRA has expanded the list of eligible expenses that can be claimed as work-space-in-the-home expenses to include reasonable home internet access fees. A comprehensive list of eligible home office expenses has also been created.
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It’s a great time to review your business finances now that we are nearing year-end. Your business may be affected by recent tax changes or new measures to help with financial losses due to COVID-19. Figuring out the tax ramifications of these new measures can be complicated, so please don’t hesitate to consult your accountant and us to determine how this may affect your business finances.
We’re assuming that your corporate year-end is December 31. If it’s not, then this information will be useful when your business year-end comes up.
Below, we have listed some of the critical areas to consider and provide you with some helpful guidelines to make sure that you cover all the essentials. We have divided our tax planning tips into four sections:
Year-end tax checklist
Remuneration
Business tax
Estate
Business Year-End Tax Checklist
Remuneration
Salary/dividend mix
Accruing your salary/bonus
Stock option plan
Tax-free amounts
Paying family members
COVID-19 wage subsidy measures for employers
Business Tax
Claiming the small business deduction
Shareholder loans
Passive investment income including eligible and ineligible dividends
Corporate reorganization
Estate
Will review
Succession plan
Lifetime capital gains exemption
Remuneration
What is your salary and dividend mix?
Individuals who own incorporated businesses can elect to receive their income as either salary or as dividends. Your choice will depend on your situation. Consider the following factors:
Your current and future cash flow needs
Your personal income level
The corporation’s income level
Tax on income splitting (TOSI) rules. When TOSI rules apply, be aware that dividends are taxed at the highest marginal tax rate.
Passive investment income rules
Also consider the difference between salary and dividends:
Salary
Can be used for RRSP contribution
Reduces corporate tax bill
Subject to payroll tax
Subject to CPP contribution
Subject to EI contribution
Dividend
Does not provide RRSP contribution
Does not reduce a corporate tax bill
No tax withholdings
No CPP contribution
No EI Insurance contribution
Depending on the province¹, receive up to $50,000 of eligible dividends at a low tax rate provided you have no other sources of income
¹The amount and tax rate will vary based on province/territory you live in.
It’s worth considering ensuring that you receive a salary high enough to take full advantage of the maximum RRSP annual contribution that you can make. For 2020, salaries of $154,611 will provide the maximum RRSP room of $27,830 for 2021.
Is it worth accruing your salary or bonus this year?
You could consider accruing your salary or bonus in the current year but delaying payment of it until the following year. If your company’s year-end is December 31, your corporation will benefit from a deduction for the year 2020. The source deductions are not required to be remitted until actual salary or bonus payment in 2021.
Stock Option Plan
If your compensation includes stock options, check if you will be affected by the stock option rules that went into effect on January 1, 2020. These new rules cap the amount of specific employee stock options eligible for the stock option deduction at $200,000 as of January 1, 2020. These rules will not affect you if a Canadian controlled private corporation grants your stock options.
Tax-Free Amounts
If you own your corporation, pay yourself tax-free amounts if you can. Here are some ways to do so:
Pay yourself rent if the company occupies space in your home.
Pay yourself capital dividends if your company has a balance in its capital dividend account.
Return “paid-up capital” that you have invested in your company
Do you employ members of your family?
Employing and paying a salary to family members who work for your incorporated business is worth considering. You could receive a tax deduction against the salary you pay them, providing that the salary is “reasonable” with the work done. In 2020, the individual can earn up to $13,229 (increased for 2020 from $12,298) and pay no federal tax. This also provides the individual with RRSP contribution room, CPP and allows for child-care deductions. Bear in mind there are additional costs incurred when employing someone, such as payroll taxes and contributions to CPP.
COVID-19 wage subsidy measures for employers
To deal with the financial hardships introduced by COVID-19, the federal government introduced two wage subsidy measures:
The Canada Emergency Wage Subsidy (CEWS) program. With this, you can receive a subsidy of up to 85% of eligible remuneration that you paid between March 15 and December 19, 2020, if you had a decrease in revenue over this period. You must submit your application for the CEWS no later than January 31, 2021.
The Temporary Wage Subsidy (TWS) program. With this program, which reduces the amount of payroll deductions you needed to remit to the CRA, you can qualify for a subsidy equal to 10% of any remuneration that you paid between March 18, 2020, and June 19, 2020. You can claim up to a maximum of $1,375 per employee and $25,000 in total.
You can apply for both programs if you are eligible. If you qualify for the TWS but did not reduce your payroll remittances, you can still apply. The CRA will then either pay the subsidy amount to you or transfer it over to your next year’s remittance.
Business Tax
Claiming the Small Business Deduction
Are you able to claim a small business deduction? The federal small business tax rate decreased to 9% in 2019. It did not increase in 2020, nor is it expected to increase in 2021. From a provincial level, there will be changes in the following provinces:
Therefore, a small business deduction in 2020 is worth more than in 2021 for these provinces.
Should you repay any shareholder loans?
Borrowing funds from your corporation at a low or zero interest rate means that you are considered to have received a taxable benefit at the CRA’s 1% prescribed interest rate, less actual interest that you pay during the year or thirty days after the end of the year. You need to include the loan in your income tax return unless it is repaid within one year after the end of your corporation’s taxation year.
For example, if your company has a December 31 year-end and loaned you funds on November 1, 2020, you must repay the loan by December 31, 2021; otherwise, you will need to include the loan as taxable income on your 2020 personal tax return.
Passive investment income
If your corporation has a December year-end, then 2020 will be the second taxation year that the current passive investment income rules may apply to your company.
New measures were introduced in the 2018 federal budget relating to private businesses, which earn passive investment income in a corporation that also operates an active business.
There are two key parts to this:
Limiting access to dividend refunds. Essentially, a private company will be required to pay ineligible dividends to receive dividend refunds on some taxes. In the past, these could have been refunded when an eligible dividend was paid.
Limiting the small business deduction. This means that, for impacted companies, the small business deduction will be reduced at a rate of $5 for every $1 of investment income over $50,000. It is eliminated if investment income exceeds $150,000. Ontario and New Brunswick are not following these federal rules. Therefore, the provincial small business deduction is still available for income up to $500,000 annually.
Suppose your corporation earns both active business and passive investment income. In that case, you should contact your accountant and us directly to determine if there are any planning opportunities to minimize the new passive investment income rules’ impact. For example, you can consider a “buy and hold” strategy to help defer capital gains.
Think about when to pay dividends and dividend type
When choosing to pay dividends in 2020 or 2021, you should consider the following:
Difference between the yearly tax rate
Impact of tax on split income
Impact of passive investment income rules
Except for two provinces, Quebec and Alberta, the combined top marginal tax rates will not change from 2020 to 2021 at a provincial level. Therefore, it will not make a difference for most locations if you choose to pay in 2020 or 2021.
In Quebec and Alberta, as there will be increases in the combined marginal tax rate, you will have potential tax savings available if you choose to pay dividends in 2020 rather than 2021.
When deciding to pay a dividend, you will need to decide whether to pay out eligible or ineligible dividends. Consider the following:
Dividend refund claim limits: Eligible refundable dividend tax on hand (ERDTOH) vs Ineligible Refundable dividend tax on hand (NRDTOH)
Personal marginal tax rate of eligible vs. ineligible dividends (see chart below)
Given the passive investment income rules, typically, it makes sense to pay eligible dividends to deplete the ERDTOH balance before paying ineligible dividends. (Please note that ineligible dividends can also trigger a refund from the ERDTOH account.)
Eligible dividends are taxed at a lower personal tax rate than ineligible dividends (based on top combined marginal tax rate). However, keep in mind that when ineligible dividends are paid out, they are subject to the small business deduction; therefore, the dividend gross-up is 15% while eligible dividends are subject to the general corporate tax rate, a dividend gross-up is 38%. It’s important to talk to a professional to determine what makes the most sense when selecting the type of dividend to pay out of your corporation.
Corporate Reorganization
It might be time to revisit your corporate structure, given recent changes to private corporation rules on income splitting and passive investment income to provide more control on dividend income distribution.
Before you issue dividends to other shareholders in your private company (this includes your spouse, children, or other relatives), review the TOSI rules’ impact with us or your tax and legal advisors.
Another reason to reassess your structure is to segregate investment assets from your operating company for asset protection. You don’t want to trigger TOSI, so make sure you structure this properly. If you are considering succession planning, this is the time to evaluate your corporate structure as well.
Another aspect of corporate reorganization can be loss consolidation – where you consolidate losses from within related corporate groups.
Estate
Ensure your will is up to date
If your estate plan includes an intention for your family members to inherit your business using a trust, ensure that this plan is still tax-effective; income tax changes from January 1, 2016 eliminated the taxation at graduated rates in testamentary trusts and now taxes these trusts at the top marginal personal income tax rate. Review your will to ensure that any private company shares that you intend to leave won’t be affected by the most recent TOSI rules.
Succession plan
Consider a succession plan to ensure your business is transferred to your children, key employees or outside party in a tax-efficient manner.
Lifetime Capital Gains Exemption
If you sell your qualified small business corporation shares, you can qualify for the lifetime capital gains exemption (In 2020, the exemption is $883,384), where the gain is entirely exempt from tax. The exemption is a cumulative lifetime exemption; therefore, you don’t have to claim the entire amount at once.
The issues we discussed above can be complicated. Contact your accountant and us if you have any questions. We can help.
https://familyinsuranceplans.com/wp-content/uploads/2020/12/Business-Owners_-2020-Tax-Planning-Tips.png5631000Samuel J. Esawhttps://familyinsuranceplans.com/wp-content/uploads/2018/08/combinedLogo.jpgSamuel J. Esaw2020-12-11 06:00:552020-12-11 06:39:23Business Owners: 2020 Tax Planning Tips for the End of the Year
Understanding the Registered Education Savings Plan (RESP)
/in Blog, Family, Investment, Registered Education Savings PlanPlanning for your child’s education can be both exciting and overwhelming. The rising costs of post-secondary education make it important for parents and families to consider the financial tools available to help ensure children have the opportunity to pursue their educational dreams. One such tool is the Registered Education Savings Plan (RESP), a tax-deferred savings account specifically designed to help save for a child’s post-secondary education in Canada.
Eligibility and How to Open an RESP
You can open a Single Plan for an individual beneficiary, such as your child, or a Family Plan if you wish to contribute to the education of multiple children in your family. The great news is that anyone can open an RESP for a child, whether you’re a parent, grandparent, or other family member, making it a versatile option for educational savings.
RESP Withdrawals and Beneficiary Requirements
RESPs can be used to cover a broad range of educational expenses. The only stipulation is that the beneficiary must attend a qualifying educational institution, which could be a university, college, or technical or vocational school. Withdrawals from the RESP will help support tuition, textbooks, living expenses, and more, as long as the student is enrolled part-time or full-time.
Key Benefits of an RESP
RESPs come with a range of benefits that make them an attractive savings vehicle for education:
– Lifetime Contribution Limit: You can contribute up to $50,000 over the lifetime of the plan for each beneficiary.
– Tax-Deferred Growth: While contributions to an RESP are not tax-deductible, the investment growth within the plan is tax-deferred. This allows your savings to grow faster, as taxes on the earnings are deferred until the funds are withdrawn.
– RESP Duration: You can keep the plan open for up to 35 years, giving you ample flexibility for when the funds may be needed.
Canadian Education Savings Grant (CESG)
One of the biggest incentives for opening an RESP is the Canadian Education Savings Grant (CESG). Through this program, the government will match 20% of your annual contributions, up to a maximum of $500 per year. Over time, this can accumulate to a lifetime maximum of $7,200 in CESG funds for each child. If you’re unable to contribute the maximum amount in a given year, the unused CESG contribution room is carry-forwardable, and you may be able to receive up to $1,000 in grant payments annually in future years.
Eligibility for CESG
To qualify for the CESG, the beneficiary must be:
– 17 years of age or younger
– A Canadian resident
– In possession of a valid Social Insurance Number (SIN)
A Smart Way to Save for the Future
Starting an RESP early can make a significant difference in how much you can save for your child’s education. With contributions that grow tax-deferred, along with generous government grants like the CESG, the RESP is a valuable tool to help ease the financial burden of post-secondary education. Planning for your child’s future today ensures that when the time comes, they can focus on their studies without worrying about the costs.
Consider opening an RESP to take advantage of the substantial benefits and opportunities this plan offers. Start investing in your child’s future today!
What is disability insurance?
/in Blog, business owners, disability, disability insurance, Family, farmers, financial advice, health benefits, incorporated professionals, individuals, Insurance, ProfessionalsIf you cannot work because you are seriously injured or ill, disability insurance will provide you with a monthly, tax-free income to help replace your lost wages. An injury does not have to be as blatant as a broken leg or arm – suffering from chronic pain or dealing with mental health issues can also qualify you for a disability insurance payout.
Why do I need disability insurance?
Unfortunately, people become disabled – whether temporarily or permanently – quite often. In 2017, over 20 percent of Canadians had one or more disabilities.
If you’re disabled, you may lose one of your most valuable assets – your ability to work and bring in a paycheck. Disability insurance can help replace that paycheck for as long as you need it to. Being able to rely on a disability insurance payout means you won’t have to dip into your savings if anything happens to you.
Disability insurance is especially important if you are self-employed, particularly if you are the family’s sole income earner.
What if I already have disability insurance through work?
If you have disability insurance through work, that’s great – but it may not replace 100 percent of your paycheck, especially if you’re off work for a long time. If you purchase private disability insurance, you can:
Having private disability insurance will give you peace of mind that you either have additional coverage if you are employed and at least some disability coverage if you lose your job.
How does disability insurance work?
We’d be happy to answer any questions you have about disability insurance. There are five main steps to disability insurance:
We’re Here To Help
If you’d like to know more about disability insurance – from how much it would cost you to what you can file a claim for – we’re here to help! Give us a call today.
Getting Ready for Money Emergencies
/in Blog, Debt, Family, financial advice, Financial Planning, incorporated professionals, individuals, Investment, personal finances, ProfessionalsLife can throw unexpected events your way that can hit you in the wallet. Whether it’s falling ill, getting laid off, or facing hefty repair bills for your car or home, these situations can strain your finances. To stay ahead and avoid falling into debt, it’s a good idea to have an emergency fund. This is cash you set aside specifically to handle unforeseen expenses, so you’re not left scrambling for money when the unexpected happens.
Why Emergency Funds Matter
An emergency fund is like an insurance policy for unexpected expenses that everyone can benefit from. It’s a stash of money specifically saved to cover daily living costs during emergencies that catch you off guard, such as:
Sudden car repairs
Vet visits
Losing your job
Sudden home repairs
Medical emergencies
Creating an emergency fund helps you to:
Deal with surprise costs without going into debt
Stay away from expensive loans like payday loans or credit card cash advances
Keep control of your finances
Feel less worried about unexpected expenses.
An emergency fund offers peace of mind during life’s surprises, preventing debt by covering costs without needing to use up savings or retirement funds, which could result in extra fees.
How much do you need?
The amount you should save depends on your financial situation, like how much you earn, what you spend each month, and if you have any dependents. A good rule is to have enough money to cover three to six months of necessary expenses, like rent, groceries, bills, and childcare.
How to Build Your Emergency Fund
Building an emergency fund to cover three to six months of essential living expenses might feel overwhelming, but the key is to start saving gradually. Even putting away a small amount regularly can add up significantly over time.
Here are some ways to build up your emergency fund:
Automate your savings: Pick how much money you want to save, when you want to save it, and how often. Then, arrange for the money to be automatically moved from your regular account to your savings account. You can set up this automatic transfer to happen on your payday. That means the money you’ve chosen to save will be moved as soon as your paycheque is put into your account.
Take advantage of opportunities to boost your emergency fund whenever you can. This might happen when you get extra money, like a tax refund, a pay raise at work, or when you sell things such as a car. Even receiving money as a gift or getting a bonus from your job can help. Additionally, when you finish paying off a loan, consider putting the money you used for payments into your emergency fund instead. Since you’re already used to budgeting for those payments, it’s an easy way to increase your savings without much extra effort.
Make it a habit: Make saving a regular part of your routine by incorporating it into your daily habits. Here are some simple tips to help you get started: drop any loose change into a container whenever you come home, set up a savings, mark your saving dates in advance on your calendar, and use sticky notes on your fridge to remind yourself to save regularly. These small actions can make a big difference in building your savings over time.
Where to keep your emergency fund?
Given that emergencies can occur unexpectedly, having quick access to your funds is important. Although a regular chequing account may offer immediate access to your money, it’s best to keep your emergency fund separate from your regular account. This prevents accidental spending on non-emergencies. Look for an account that:
Is distinct from your regular spending account
Has minimal or no transaction fees
Permits penalty-free withdrawals
Earns interest on your savings
Consider exploring “cash equivalents” as an option to invest your money. They’re a bit like cash but can also help your money grow with interest. They’re safe and easy to get your money from. But before you decide, make sure you understand how and when you can take your money out and if there are any extra fees or charges. Examples of cash equivalents include:
Savings accounts
Chequing accounts
High-interest rate savings accounts (HISA)
Guaranteed Investment Certificates (GIC)
Money market funds
Having an emergency fund can be a lifeline during tough financial times, preventing you from falling into debt. While there’s no fixed amount you should stash away, assessing your financial situation can guide you in determining your ideal emergency fund size. If you need assistance in planning your emergency fund, don’t hesitate to reach out to us for personalized guidance and support.
Network of Professionals
/in Accountants, Blog, business owners, Center of Influences, Estate Planning, Family, farmers, financial advice, Financial Planning, incorporated professionals, individuals, Insurance, Investment, life insuranceOur Network of Professionals
As a financial advisor, my primary goal is to help you achieve financial clarity. I do this by accessing a network of dedicated professionals, each bringing their unique expertise to the table. Together, we provide personalized advice and services that help you make informed decisions and secure your future.
Financial Advisor
Think of me as your financial coordinator. I help you figure out your goals, create plans to achieve them, and keep everything on track. Whether it’s planning for retirement, managing investments, or saving for a major purchase, I have access to a network of professionals who ensure every aspect of your financial life works together smoothly.
Accountant/Tax Professional
Having an accountant or tax professional in your financial network is essential for keeping your financial records in order. They handle tasks like bookkeeping, preparing financial statements, and assisting with tax planning. Their role is particularly important during tax season. They help you file your taxes accurately and on time, taking the stress out of the process. By optimizing your tax strategies and ensuring everything is reported correctly, they help you save money. Their skills are invaluable for both your immediate needs and long-term financial planning.
Investment Advisor
Investment advisors focus on building and managing investment portfolios tailored to your short-term, medium-term, and long-term goals. They thoroughly research the market, evaluate investment opportunities, and offer valuable insights to help you create a well-rounded portfolio. Whether you’re saving up for a major purchase, planning for retirement, or aiming for other financial milestones, they assist in choosing the right investment vehicles, such as RRSPs, TFSAs, RRIFs, and non-registered accounts, to support your financial stability and future needs.
Life Insurance and Living Benefits Advisor
Life insurance and living benefits advisors are here to help you protect your greatest asset: yourself. Their job is to make sure you and your family are financially secure if unexpected events occur. These advisors walk you through different insurance options, including disability insurance, critical illness insurance, and life insurance, to find the coverage that fits your needs best. By understanding your unique situation and recommending the right policies, they provide you with peace of mind, knowing that you have a safety net in place for life’s uncertainties.
General Insurance Specialist
General insurance specialists cover a wide range of insurance needs, including auto, property, travel, and liability insurance. They assess your risks and recommend policies that provide the protection you need. Their advice helps you understand your options, compare quotes, and select the best policies to safeguard your assets, ensuring you are well-protected in various aspects of your life.
Banker
Bankers are there to help you navigate a wide range of financial services, especially when it comes to getting loans and credit products. They offer advice on securing personal loans, understanding credit options, and managing debt effectively. Whether you’re looking to finance a major purchase, consolidate debt, or build your credit, bankers provide the support and guidance you need to make informed financial decisions.
Mortgage Broker
Mortgage brokers assist you in securing financing for property purchases by accessing multiple lenders on your behalf. They assess your financial situation, compare mortgage products from various sources, and recommend the best options for you. With their ability to shop around and understand different interest rates, loan terms, and application processes, they ensure you get the best possible mortgage deal, making homeownership more accessible and affordable.
Realtor
Realtors are your go-to professionals for buying or selling property. They provide market insights, negotiate deals, and manage the legal aspects of real estate transactions. With their knowledge of local market trends and property values, realtors help you make informed decisions whether you’re purchasing a home, investing in real estate, or selling property.
Legal & Estate Professional
Legal and estate professionals play a vital role in your financial planning by handling the legal side of things, such as estate planning, wills, trusts, and probate. They make sure your assets are distributed according to your wishes and that all the necessary legal documents are properly set up. Their guidance helps you reduce estate taxes and smoothly navigate the legal processes, ensuring your wealth is transferred to future generations just as you intended.
Having a network of financial professionals is essential for achieving financial well-being. Each member brings their own expertise to address different aspects of your finances, from investments and insurance to legal and real estate matters. As your financial advisor, I act as the coordinator, ensuring that all these professionals work together seamlessly. By leveraging their combined knowledge and skills, you can gain financial clarity and know that every aspect of your financial life is taken care of.
Ready to take control of your financial future? Contact us today.
The Benefits of Working With An Employee Benefits Specialist
/in Blog, Group BenefitsWe understand that when looking for employee benefits, you’re looking to do so cost-effectively. But it’s essential to make sure you work with an employee benefits specialist, no matter what the price tag is on your benefits package.
We’ll explain how an employee benefits specialist differs from a generalist and why working with an employee benefits specialist is so important.
How does an employee benefits specialist differ from a generalist?
You may have approached financial advisors who can handle various tasks, such as selling you insurance products, investments, and employee benefits. However, this kind of financial advisor would be considered a generalist, and they lack in-depth knowledge of how complex employee benefits can be.
An employee benefits specialist is the opposite of a generalist. They are licensed advisors who have dedicated their practice to employee benefits. Employee benefits specialist prides themselves on understanding all the nuances associated with employee benefits. A specialist undergoes further training and acquires in-depth knowledge about employee benefits.
Why is it essential to work with an employee benefits specialist?
Employee benefits plans are complex, and your business could be at risk if your employee benefits program isn’t administered correctly. As you know, employee benefits form a part of an employee’s compensation package.
These are the benefits of working with an employee benefits specialist:
The bottom line is that working with an employee benefits specialist means you’ll have access to a well-designed and administered benefits plan.
How can I get started working with an employee benefits specialist?
Ready to make a move to working with an employee benefits specialist? We’re here to help you get the benefits program to attract and retain employees. Call us today to get started!
Video link: https://vimeo.com/770504723/50ba274537
Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates
/in 2024, Blog, business owners, Family, financial advice, Financial Planning, individuals, Investment, Retirees, retirementWith the upcoming 2024 Canadian tax rule changes, it’s important to review your financial strategies. We’ve identified the key changes that we expect to influence financial decisions for investors, business owners, incorporated professionals, retirees, and individuals with high income or net worth.
Capital Gains Inclusion Rate
Starting on June 25, 2024, the tax on capital gains is changing. Until now, you would only have to include half of your capital gains in your income for tax purposes. But after that date, you’ll have to include two-thirds of any capital gains over $250,000 on your tax return. This is also the case for employee stock options.
Consequently, for corporations and trusts, they will have to include two-thirds of all their capital gains, no matter the amount. This is a significant change.
Lifetime Capital Gains Exemption (LCGE)
The budget proposes increasing the LCGE for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. This change increases tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.
Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, suggesting revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.
Employee Ownership Trust (EOT)
The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met.
Canadian Entrepreneurs’ Incentive
This new tax measure offers a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years. However, it’s important to know that not all businesses qualify—this doesn’t apply to businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care.
Below is a checklist to help you navigate the tax adjustments and ensure your financial plans are updated and aligned with the new rules.
Investors
Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate.
Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.
Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.
Employee Stock Options: Adjust the timing of exercising stock options to align with the upcoming changes in inclusion rates.
Business Owners:
Corporate Investments: Assess the impact of increased inclusion rates on corporately held assets, exploring the timing of gains realization. Review trust-held investments.
Lifetime Capital Gains Exemption: Maximize the benefits of the increased LCGE for qualifying business assets.
Employee Ownership Trust: Consider the advantages of transferring business ownership via an EOT.
Succession Planning: Update your succession plans to consider the potential impact of capital gains tax changes.
Entrepreneurs Incentive: Check if you are eligible to reduce capital gains taxes.
Incorporated Professionals:
Investments: Assess both personal and corporate investments for the new inclusion rate. Determine the most tax-effective structure for holding and realizing gains from investments.
Succession Planning: Time the potential sale of your professional corporation to capitalize on the current LCGE.
Retirees:
Estate Planning: Update estate plans considering the impending increase in capital gains rates.
Life Insurance Coverage: Ensure life insurance is adequate to cover increased capital gains tax liabilities upon death.
Non-Registered Investments and Retirement Income: Review your strategy for non-registered investments to manage taxes on gains and adjust your retirement income plans to accommodate the upcoming changes in capital gains rates.
Individuals with High Income or Net Worth:
Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate. Review trust-held investments.
Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.
Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.
Charitable Contributions: Align your charitable giving strategies with the new tax benefits and AMT considerations.
Please reach out to us to review your financial strategy together and ensure it aligns with the upcoming changes.
2024 Federal Budget Highlights
/in Blog, business owners, Estate Planning, Family, Financial Planning, incorporated professionals, individuals, Investment, mortgage, personal finances, Professional Corporations, Professionals, Retirees, retirement, taxOn April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget.
While there are no changes to federal personal or corporate tax rates, the budget introduces:
An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate.
The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs.
The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions.
This year’s budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants.
Introduces new support measures to aid people buying their first homes.
Costs for specific patents and tech equipment and software can now be written off immediately.
Canada carbon rebate for small business.
Capital Gains Inclusion Rate
The budget suggests raising the inclusion rate on capital gains after June 24, 2024:
Corporations and trusts, from 50% to 66.67%.
Individuals, on capital gains over $250,000 annually, also from 50% to 66.67%.
For individuals, the $250,000 annual threshold that applies to net capital gains—the amount remaining after offsetting any capital losses. This includes gains acquired directly by an individual or indirectly through entities such as partnerships or trusts. Essentially, this threshold acts as a deductible, considering various factors to determine the net gains eligible for the increased capital gains tax rate.
Individuals in the highest income bracket, who earn above the top marginal tax rate threshold, will face a higher tax rate on capital gains exceeding $250,000 due to these changes. Furthermore, the budget modifies the tax deduction for employee stock options to align with the updated capital gains taxation rates yet maintains the initial 50% deduction for the first $250,000 in gains. Regarding previously incurred financial losses, the budget plans to adjust the value of these net capital losses from past years so that they are consistent with the current gains, upholding the uniformity with the new inclusion rate.
The budget outlines transitional rules for the upcoming tax year that straddles the implementation date of the new capital gains rates. If the tax year begins before June 25, 2024, but ends afterward, capital gains realized before June 25 will be taxed at the existing rate of 50%. However, gains accrued after June 24, 2024, will be subject to the increased rate of 66.67%. It’s important to note that the new $250,000 threshold for higher tax rates will only apply to gains made after June 24.
Consequently, for individuals earning capital gains beyond the $250,000 threshold and who fall into the highest income tax bracket, new rates will be effective as outlined in the table below. Specifically, this pertains to individuals with taxable incomes exceeding $355,845 in Alberta, $252,752 in British Columbia, $1,103,478 in Newfoundland and Labrador, $500,000 in the Yukon, and $246,752 in all other regions.
Further details and guidance on these new rules are expected to be provided in future announcements.
Lifetime Capital Gains Exemption
The budget proposes raising the Lifetime Capital Gains Exemption (LCGE) for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. Additionally, the exemption will once again be adjusted for inflation starting in 2026. This change aims to increase the tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.
Canadian Entrepreneurs’ Incentive
The Canadian Entrepreneurs’ Incentive is a new tax measure which provides a reduced inclusion rate on capital gains from the disposition of qualifying small business shares.
Qualifications for the incentive include:
Shares must be of a small business corporation directly owned by an individual.
For 24 months before selling, over half the corporation’s assets must be actively used in a Canadian business or be certain connected assets.
The seller needs to be a founding investor who held the shares for at least five years.
The seller must have been actively involved in the business continuously for five years.
The seller must have owned a significant voting share throughout the subscription period.
The incentive does not apply to shares linked to professional services, financial, real estate, hospitality, arts, entertainment, or personal care services sectors.
The shares must have been acquired at their fair market value.
The incentive allows for a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years.
This measure will apply to dispositions after December 31, 2024.
Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, with proposed changes outlined in the summer of 2023. The budget suggests revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.
Further proposed changes to the AMT include:
Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation benefits.
Exempting employee ownership trusts (EOTs) entirely from AMT.
Allowing certain tax credits, like federal political contributions, investment tax credits (ITCs), and labour-sponsored funds tax credit, to be carried forward if disallowed under the AMT.
These changes would take effect for tax years beginning after December 31, 2023. Additionally, the budget proposes technical amendments that would exempt specific trusts benefiting Indigenous groups from the AMT.
Employee Ownership Trust (EOT) Tax Exemption
The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met:
Sale of shares must be from a non-professional corporation.
The seller, or their spouse or common-law partner, must have been actively involved in the business for at least two years prior to the sale.
The business shares must have been solely owned by the seller or a related person or partnership for two years before the sale, and mainly used in active business.
At least 90% of the EOT’s beneficiaries must be Canadian residents after the sale.
If multiple sellers are involved, they must jointly decide how to divide the $10 million exemption
If the EOT doesn’t maintain its status or if the business assets used in active business drop below 50% at any point within 36 months after the sale, the tax exemption may be revoked.
For Alternative Minimum Tax purposes, the exempted gains will face a 30% inclusion rate.
The normal reassessment period for the exemption is extended by three years.
The measure now also covers the sale of shares to a worker cooperative corporation.
This exemption is valid for sales occurring from January 1, 2024, to December 31, 2026.
Home Buyers Plan (HBP)
The budget proposes enhancements to the HBP for 2024 and beyond, effective for withdrawals after April 16, 2024. These include:
Raising the RRSP withdrawal limit from $35,000 to $60,000 to support first-time homebuyers and purchases for those with disabilities.
Extending the grace period before repayment starts from two to five years for withdrawals made between January 1, 2022, and December 31, 2025, deferring the start of the repayment period and thereby providing new homeowners additional time before they need to commence repayments
Interest Deductions and Purpose-Built Rental Housing
The budget proposes a selective exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules for certain interest and financing expenses related to arm’s length financing. This exemption is for the construction or purchase of eligible purpose-built rental housing in Canada and applies to expenses incurred before January 1, 2036. To qualify, the housing must be a residential complex with either at least four private apartment units, each with its own kitchen, bathroom, and living areas, or 10 private rooms or suites. Additionally, at least 90% of the units must be designated for long-term rental. This exemption will be effective for tax years starting on or after October 1, 2023, in line with the broader EIFEL regulations.
Accelerated Capital Cost Allowance (CCA) – Purpose built rental housing
The budget introduces an accelerated CCA of 10% for new rental projects that start construction between April 16, 2024, and December 31, 2030, and are completed by December 31, 2035. This accelerated depreciation applies to projects that convert commercial properties into residential complexes or expand existing residential buildings that meet specific criteria under the EIFEL rules. However, it does not cover renovations to existing residential complexes.
Additionally, these investments will benefit from the Accelerated Investment Incentive, which allows for immediate depreciation deductions for properties put into use before 2028. Starting in 2028, the regular depreciation rules, including the half-year rule, will apply.
Accelerated Capital Cost Allowance (CCA)- Productivity-enhancing assets
The budget introduces immediate expensing for newly acquired properties that become operational between April 16, 2024, and December 31, 2026. This applies to specific categories such as:
Class 44- Patents and rights to patented information
Class 46- Data network infrastructure and related software
Class 50- General electronic data-processing equipment and software
Properties that are put into use between 2027 and 2028 will continue to benefit from the Accelerated Investment Incentive.
To qualify for this accelerated depreciation, the property must not have been previously owned by the taxpayer or someone closely connected to them, and it must not have been received as part of a tax-deferred deal. Also, if a tax year is shorter, the depreciation will be adjusted accordingly and will not carry over to the next year.
Canada Carbon Rebate for Small Businesses
The budget introduces a Canada Carbon Rebate for small businesses, offering a new refundable tax credit automatically. To be eligible, a Canadian-controlled private corporation must:
File a tax return for its 2023 tax year by July 15, 2024, for the fuel charge years from 2019-20 to 2023-24. For subsequent fuel charge years, it must file a tax return for the tax year that ends within that fuel charge year.
Employ 499 or fewer people across Canada during the year that corresponds with the fuel charge year.
The amount of the tax credit for each eligible business will depend on:
The province where the company had employees during the fuel charge year.
The number of employees in that province multiplied by a rate set by the Minister of Finance for that year.
The CRA will automatically calculate and issue the tax credit to qualifying businesses.
We can help!
Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!
Tax tips to know before filing your 2023 income tax
/in 2024, Blog, corporate, Family, financial advice, Financial Planning, taxThis year’s tax deadline is April 30, 2024. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. We’ve separated this article into 2 sections:
What’s new for 2023
Individuals and Families
What’s New for 2023
Advanced Canada Workers Benefit (ACWB)
Automatic advance payments of the Canada Workers Benefit (CWB) are now seamlessly distributed through the ACWB program to individuals who received the benefit in the last tax year. However, it’s important to note that not everyone who received the CWB in the previous tax year will automatically receive the ACWB payments. Only individuals who filed their 2022 tax return before November 1, 2023, are eligible for the ACWB payments.
Furthermore, it’s worth mentioning that the ACWB program eliminates the need to file Form RC201. Recipients are no longer required to fill out this form. Instead, starting in 2023, individuals should report the amounts from their RC210 slip on Schedule 6, Canada Workers Benefit, of their tax return. Additionally, for eligible spouses, the option to claim the basic amount for the CWB is available regardless of who received the RC210 slip.
Deduction for Tools (Tradespersons and Apprentice Mechanics)
Starting in 2023, the maximum employment deduction for eligible tools of tradespersons has risen from $500 to $1,000. Consequently, the threshold for expenses eligible for the apprentice mechanics tools deduction has also been adjusted.
Temporary Flat Rate Method for Home Office Expenses
For the year 2023, the temporary flat rate method for claiming home office expenses is not applicable. Consequently, taxpayers seeking to claim such expenses for 2023 must utilize the detailed method and obtain a completed Form T2200, Declaration of Conditions of Employment, from their employer.
Federal, Provincial, and Territorial COVID-19 repayments
Repayments of COVID-19 benefits at the federal, provincial, and territorial levels, made after December 31, 2022, can be deducted and claimed.
First Home Savings Account (FHSA)
The FHSA is a registered plan designed to aid individuals in saving for their first home. Starting April 1, 2023, contributions made to an FHSA are typically deductible, and eligible withdrawals made from an FHSA for purchasing a qualifying home are tax-free.
Property Flipping
Starting January 1, 2023, any profit generated from the sale of a housing unit (including rental properties) situated in Canada, or a right to acquire a housing unit in Canada, that you owned or held for less than 365 consecutive days prior to its sale is considered business income rather than a capital gain. This is applicable unless the property was already classified as inventory or the sale occurred due to, or in anticipation of specific life events.
Multigenerational Home Renovation Tax Credit (MHRTC)
The MHRTC is a refundable tax credit designed to enable eligible individuals to seek reimbursement for specific renovation expenses incurred in establishing a secondary unit within an eligible dwelling. This enables a qualifying individual to live with their qualifying relative. If eligible, you can claim up to $50,000 in qualifying expenditures for each renovation project completed, with a maximum credit of $7,500 for each eligible claim.
Fuel Charge Proceeds Return to Farmers Tax Credit
The Fuel Charge Proceeds Return to Farmers Tax Credit is now accessible to self-employed farmers and individuals involved in a partnership operating a farming business with one or more permanent establishments located in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, or Saskatchewan. If eligible, you may be entitled to a refund of a portion of your fuel charge proceeds.
For Individuals and Families
Canada Training Credit (CTC)
The CTC is a refundable tax credit available to help Canadians with the cost of eligible training fees.
To qualify for the CTC, you need to fill out Schedule 11 for the following:
Tuition fees and other applicable fees paid to an eligible educational institution in Canada for courses taken in 2023.
Fees paid to specific organizations for occupational, trade, or professional examinations undertaken in 2023.
To be eligible for the CTC, you must meet all these conditions:
You resided in Canada for the entire year of 2023.
You were at least 26 years old but less than 66 years old at the end of the year.
Your most recent notice of assessment or reassessment for 2022 shows a Canada Training Credit Limit for 2023.
Canada Caregiver Credit (CCC)
The CCC is a non-refundable tax credit aimed at assisting individuals who provide support to a spouse, common-law partner, or dependent with a physical or mental impairment, as outlined by the CRA.
You might be eligible for the CCC if you aid:
Your spouse or common-law partner dealing with a physical or mental impairment.
Dependents such as children, grandchildren, parents, grandparents, siblings, uncles, aunts, nieces, or nephews residing in Canada, who rely on you for consistent provision of basic needs like food, shelter, and clothing.
The amount you can claim varies depending on your relationship to the individual, your circumstances, their net income, and whether other credits are claimed for them.
Child Care Expenses
Child care expenses encompass payments made by you or someone else to arrange care for an eligible child. This care allows you to participate in income-earning activities, pursue education, or conduct research funded by a grant.
If you qualify, you can claim certain childcare expenses as deductions when you file your personal income tax return.
Disability Tax Credit (DTC)
The DTC is a non-refundable tax credit designed to support individuals with disabilities, or their family members who provide support, by reducing their income tax responsibilities.
To be eligible for this credit, individuals must have a significant and enduring impairment. Once approved, they can apply the credit when filing their taxes.
The DTC aims to ease some of the extra costs linked with the disability by lessening the individual’s income tax burden.
Moving
You can claim moving expenses you paid during the year if you meet these conditions
You moved to a new residence for work reasons, to start a business in a different area, or to attend a post-secondary program as a full-time student at a university, college, or other educational institution.
Your new residence must be at least 40 kilometres closer, determined by the shortest public route, to your new work location or educational institution.
Interest Paid on Student Loans
You might qualify to claim an amount for the interest paid on your student loan for post-secondary education if it was obtained under the following acts:
Canada Student Loans Act
Canada Student Financial Assistance Act
Apprentice Loans Act
Provincial or territorial government laws that are similar to the aforementioned acts.
Only you, or a person related to you, can claim the interest paid on the loan within the tax year 2023 or the preceding 5 years.
Donations and Gifts
When you or your spouse/common-law partner donate to eligible institutions, you might be eligible for federal and provincial/territorial non-refundable tax credits when you file your income tax and benefit return.
Normally, you can claim a portion or the full eligible donation amount, capped at 75% of your net income for the tax year.
Seeking guidance?
Wondering if you qualify for valuable tax credits or deductions? Reach out to us – as your financial advisor, we’re here to assist you in optimizing your finances and maximizing your savings.
Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/whats-new.html
Canada Training Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-45350-canada-training-credit.html
Canada Caregiver Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/canada-caregiver-amount.html
Child Care Expense: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21400-child-care-expenses.html
Disability Tax Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit.html
Moving: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21900-moving-expenses.html
Interest Paid on Student Loans: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31900-interest-paid-on-your-student-loans.html
Donations and Gifts: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-34900-donations-gifts.html
Why A Buy-Sell Agreement Is Vital For Your Business
/in Blog, business owners, buy sellWhy A Buy-Sell Agreement Is Vital For Your Business
The purpose of a buy-sell agreement is to establish a set of rules or actions (that are legally binding) for what must happen to a business if one or more of the business owners is no longer involved.
Why does my business need a buy‐sell agreement?
A buy-sell agreement is vital for your business as it protects the shareholders and the business itself if one of the partners exits the business for any reason.
A buy-sell agreement offers so many benefits for your business. It:
What are the different types of buy-sell agreements?
These are the most common types of buy-sell agreements:
What do I need to cover in my buy‐sell agreement?
Your buy-sell agreement must address the following:
What is the best way to fund my buy-sell agreement?
This needs to be addressed when putting the buy-sell agreement together and can be challenging in the case of some “triggers,” such as a business owner getting a divorce or a disagreement between business owners.
In the case of the death of a business owner or a business owner becoming disabled, the buy-sell agreement can be funded by insurance. Insurance provides both immediate capital and significant tax benefits.
We Can Help!
Buy-sell agreements can be complex and challenging, but they are vital to protect your business and your personal interests. We can explain the best way to set one up – reach out to us today to get started!
The Health Spending Account for Business Owners and Incorporated Professionals
/in Blog, financial advice, Financial Planning, InsuranceAre you tired of using your hard-earned after-tax dollars to cover medical expenses? As a business owner, the burden of managing healthcare costs can be overwhelming. However, there’s a little-known solution that can alleviate this financial strain – the Health Spending Account.
Designed specifically for entrepreneurs like you, the Health Spending Account offers a tax-efficient way to manage medical expenses. Say goodbye to paying out of pocket with after-tax dollars for your healthcare needs, and let’s explore the advantages of this specialized account tailored to meet the unique needs of business owners and incorporated professionals.
Who’s eligible?
The Health Spending Account is available to a wide range of businesses, making it an inclusive and flexible solution. Small businesses, professional corporations, and corporations that wish to supplement an existing health plan are all eligible to participate in this program. Whether you run a small family-owned enterprise, a professional practice, or a larger corporate entity, the Health Spending Account can cater to your specific needs and provide valuable healthcare benefits for you and your employees.
What are the benefits?
Tax Deductibility for Corporations
As a business owner or incorporated professional, you know the significance of minimizing tax burdens. The Health Spending Account allows your corporation to make contributions that are 100 percent tax-deductible. By taking advantage of this tax benefit, you can reduce your corporation’s taxable income, resulting in lower overall taxes. This leaves you with more funds to reinvest in your business, expand operations, or reward your hardworking employees.
Tax-Free Benefits for You and Your Employees
The Health Spending Account offers tax-free reimbursements for both you, as the business owner or incorporated professional, and your employees. Any medical expense covered through the account is received as tax-free income. This means you get to retain more of your earnings while providing valuable healthcare benefits to your workforce without increasing their taxable income. It’s a win-win situation that fosters employee satisfaction and loyalty.
No monthly premium to pay and cost-efficient
A Health Spending Account (HSA) offers a highly cost-efficient approach to managing medical expenses, providing individuals and businesses with significant financial advantages. One of the key benefits of an HSA is that there is no monthly premium to pay, unlike traditional health insurance plans. This means that participants can access valuable healthcare benefits without the burden of regular premium payments. With no ongoing costs, the HSA allows individuals and businesses to allocate their funds more strategically, ensuring that their healthcare budget is utilized efficiently. This cost-effective feature makes the Health Spending Account an attractive option for those seeking to optimize their healthcare spending while enjoying comprehensive medical coverage.
How it works
The Health Spending Account simplifies the process of managing healthcare expenses:
1. Employees pay for medical services out of pocket.
2. The employee submits the claim for reimbursement.
3. The claim amount is then reimbursed tax-free through the corporation’s account.
4. The claim is reimbursed to the employee.
This streamlined process eliminates the complexities associated with traditional health insurance plans, saving you time and effort.
To learn more about how a health spending account can benefit you, please reach out today to book a meeting, and we would be happy to help.
British Columbia’s 2024 Budget Highlights
/in 2024, BlogOn February 22, 2024, the B.C. Minister of Finance announced the province’s 2024 budget. This article highlights the most important things you need to know about this budget, broken into 3 sections:
Real Estate
Personal Tax Changes
Business Tax Changes
Real Estate
Home Flipping Tax Introduced
Effective January 1, 2025, the home flipping tax applies to properties sold within a short holding period of 365 days. Sellers who dispose of residential properties within this timeframe will incur a 20% tax on the income generated from the sale. The tax rate gradually decreases to 0% for properties held between 366 and 730 days. It’s important to note that this tax applies globally, affecting both British Columbia residents and non-residents selling properties within the province.
The tax encompasses various types of residential properties, including those with housing units and properties zoned for residential use. Additionally, income generated from contract assignments is also subject to this tax. However, the tax does not apply to land or portions of land used for non-residential purposes.
Property Transfer Tax Exemption Thresholds Increased:
Effective April 1, 2024, first-time home buyers can benefit from an increased threshold of $835,000, with properties valued under $500,000 being fully exempt from the tax. Furthermore, purchasers of qualifying newly built homes see an increase in the exemption threshold to $1.1 million for principal residences. This measure aims to alleviate the financial burden on first-time buyers and encourage investment in new housing developments.
Speculation and Vacancy Tax – Registered Occupier:
Starting January 1, 2024, individuals holding residential properties under a registered lease will be considered the registered occupiers of these properties for taxation purposes. This means that leaseholders will be required to declare the use of the property annually, with declarations for activities occurring in 2024 commencing in 2025. This measure aims to ensure that registered leaseholders accurately report their property usage.
Personal tax changes
There are no changes to the province’s personal tax rates in Budget 2024.
As a result, the B.C.’s personal income tax rate remains as follows:
BC Family Benefit Bonus:
Effective July 1, 2024, the annual benefit amounts and income thresholds used to determine eligibility for the B.C. Family Benefit are increased by 25%. However, these adjustments are temporary and will revert to previous levels at the end of the 12-month benefit period. This enhancement aims to provide additional financial assistance to families facing economic challenges during the specified period.
Provincial Sales Tax Changes:
Several amendments to the Provincial Sales Tax (PST) rules are introduced to streamline tax administration and ensure fairness in taxation:
Reduction in PST refunds for goods intended for export but resold within British Columbia aims to prevent abuse of export-related tax benefits.
Broadening of the “software” definition for PST purposes, retroactive to April 1, 2013, addresses ambiguities and aligns with the evolving landscape of digital products and services.
Clarification on PST refunds for self-assessed goods returned to non-PST collecting sellers aims to simplify tax refund processes and reduce administrative burdens.
Inclusion of clean energy production machinery in PST exemptions aims to incentivize investment in renewable energy infrastructure and support climate action initiatives.
Clarification on taxable services provided with leased goods ensures consistency and clarity in tax treatment, reducing potential disputes and improving compliance.
Expansion of administrative penalties’ application aims to deter non-compliance and ensure adherence to tax laws, thereby safeguarding revenue integrity.
Climate Action Tax Credit Payment Increase:
Effective July 1, 2024, adult recipients will see an increase to $504, spouses or common-law partners to $252, and children to $126. Furthermore, income thresholds for credit phase-outs are adjusted upwards, allowing more individuals and families to benefit from the tax credit. These adjustments aim to alleviate financial burdens associated with climate action initiatives and promote environmental sustainability
Business tax changes
There are no changes to the province’s personal or corporate tax rates in Budget 2024.
As a result, B.C.’s Corporate income tax rate remains as follows:
Employer Health Tax Exemption Increased:
In response to feedback from businesses, the budget raises the employer health tax exemption threshold to $1 million, effective January 1, 2024. Additionally, the notch rate for remuneration between $1 million and $1.5 million increases to 5.850%. These adjustments aim to reduce the tax burden on small and medium-sized enterprises while ensuring adequate funding for healthcare services.
Tax Credit Extensions:
Recognizing the role of tax credits in promoting economic growth and investment, the budget extends several business tax credits:
The training tax credit for employers is extended to the end of 2027, encouraging businesses to invest in employee training and skills development.
The training tax credit for individuals is extended to the end of 2025, supporting lifelong learning and workforce development initiatives.
We can help!
Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!
Source: https://www.bcbudget.gov.bc.ca/2024/default.htm
TFSA vs RRSP – 2024
/in 2024, Blog, business owners, Estate Planning, Family, financial advice, Financial Planning, individuals, Investment, personal finances, Professionals, retirement, rrsp, Tax Free Savings AccountTax-Free Savings Account vs Registered Retirement Savings Plan
When looking to save money in a tax-efficient manner, Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) can offer significant tax benefits. To assist you in understanding the distinctions, we will compare the following:
The differences in deposits between TFSAs and RRSPs
The differences in withdrawals between TFSAs and RRSPs
TFSA versus RRSP – Difference in deposits
When comparing deposit differences between TFSAs and RRSPs, there are several key considerations:
The amount of contribution room available
The ability to carry forward unused contributions
The tax deductibility of contributions
The tax treatment of growth in the account
How much contribution room do I have?
If you have never contributed to a TFSA, you can contribute up to $95,000 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
Regarding RRSPs, the limit for tax deductions is 18% of your pre-tax earned income from the previous year, with a maximum limit of $31,560. To illustrate, if your pre-tax income in 2023 was $60,000, your deduction limit for 2024 would be $10,800 (18% x $60,000). If your pre-tax income was $200,000, the maximum limit of $31,560 would apply.
How much contribution room can I carry forward?
Suppose you opt not to contribute to your TFSA each year or do not contribute the maximum amount. In that case, you can carry forward your unused contribution room indefinitely, provided you are a Canadian resident, over 18 years of age, and have a valid social insurance number. If you make a withdrawal, the amount withdrawn will be added to your annual contribution room for the next calendar year.
In contrast, for an RRSP, you can carry forward your unused contribution room until age 71. Once you reach 71, you are required to convert your RRSP into an RRIF. Withdrawals from an RRSP do not create additional contribution room.
The tax deductibility of contributions
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
It is essential to contribute to both RRSP and TFSA because of the different tax treatment of the growth within them.
A TFSA is ideal for short-term goals, such as saving for a down payment on a house or a vacation, as its growth is entirely tax-free. When withdrawing from your TFSA, you will not have to pay any income tax on the amount withdrawn. On the other hand, the growth within an RRSP is tax-deferred. This means you will not pay taxes on your RRSP gains until age 71, at which point you convert the RRSP into an RRIF and start withdrawing money.
RRSPs are more suitable for long-term goals such as retirement because, in retirement, you will have a lower income and be in a lower tax bracket, resulting in less tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st, 2024.
Tax Treatment of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! Therefore, they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you withdraw from your TFSA, the amount you withdrew will be added on top of your annual contribution room for the following calendar year. If you withdraw from your RRSP, you do not open any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
2024 Financial Calendar
/in 2024, Blog, business owners, financial advice, Financial Planning, individuals, personal finances, Professional Corporations, Professionals, Retirees, tax2024 Financial Calendar
Welcome to our 2024 financial calendar! This calendar is designed to help you keep track of important financial dates and deadlines, such as tax filing and government benefit distribution. You can bookmark this page for easy reference or add these dates to your personal calendar to ensure you don’t miss any important financial obligations.
If you need help with your taxes, tax packages will be available starting February 2024. Don’t wait until the last minute to get started on your tax return – make an appointment with your accountant to ensure you’re ready to go when tax season arrives.
Important 2024 Dates to Know
On January 1, 2024 the contribution room for your Tax Free Savings Account opens again. The maximum contribution for 2024 is $7,000.
If you qualify, on January 1, 2024 the contribution room for your First Home Savings Account opens. The maximum contribution for 2024 is $8,000.
For your Registered Retirement Savings Plan contributions to be eligible for the 2023 tax year, you must make them by February 29, 2024.
GST/HST credit payments will be issued on:
January 5
April 5
July 5
October 4
Canada Child Benefit payments will be issued on the following dates:
January 19
February 20
March 20
April 19
May 17
June 20
July 19
August 20
September 20
October 18
November 20
December 13
The government will issue Canada Pension Plan and Old Age Security payments on the following dates:
January 29
February 27
March 26
April 26
May 29
June 26
July 29
August 28
September 25
October 29
November 27
December 20
The Bank of Canada will make interest rate announcements on:
January 24
March 6
April 10
June 5
July 24
September 4
October 23
December 11
April 30, 2024 is the last day to file your personal income taxes, and tax payments are due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2023.
May 1 to June 30, 2024 would be the filing deadline for final tax returns if death occurred between November 1 and December 31, 2023. The due date for the final return is six months after the date of death.
The tax deadline for all self-employment returns is June 17, 2024. Payments are due April 30, 2024.
The final Tax-Free Savings Account, First Home Savings Account, Registered Education Savings Plan and Registered Disability Savings Plan contributions deadline is December 31.
December 31 is also the deadline for 2024 charitable contributions.
December 31 is also the deadline for individuals who turned 71 in 2024 to finish contributing to their RRSPs and convert them into RRIFs.
Please reach out if you have any questions.
Sources:
https://www.canada.ca/en/services/benefits/calendar.html
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/important-dates-rrsp-rrif-rdsp.html
https://www.bankofcanada.ca/2023/07/2024-schedule-policy-interest-rate-announcements-major-publications/
2023 Year-End Tax Tips and Strategies for Business Owners
/in 2023, Blog, business owners, tax2023 Year-End Tax Tips and Strategies for Business Owners
Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary/Dividend Mix
As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.
When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room.
As a general guideline, if you find yourself needing to take money out of your corporation, like for personal expenses, it’s a good idea to consider withdrawing a salary to create room for contributing to your Registered Retirement Savings Plan (RRSP). By receiving a salary of up to $175,333 in 2023, you can potentially generate RRSP contribution room for the following year, amounting to a maximum of $31,560 (the 2024 limit).
If you don’t have an immediate need to withdraw funds from your corporation, you might still want to take out enough money to maximize your contributions to RRSPs and Tax-Free Savings Accounts (TFSAs). These plans can offer an effective way to earn a return on your investments without incurring taxes.
Lastly, it’s worth considering the option of leaving any surplus funds in your corporation to take advantage of substantial tax deferral benefits. This strategy may potentially result in more substantial investment income over the long term compared to personal investing.
The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends.
In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.
Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes
How much RRSP contribution room do you have?
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.
These are the main things to consider when determining how you want to handle compensation:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.
Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12% to 21%, depending on the province or territory.
With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold is taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).
Here’s how to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.
Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2023 taxation year.
Qualified Small Business Corporation (QSBC) Share Status
Ensure your corporate shares are eligible to get you the $971,190 (for 2023) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.
Suppose you sell QSBC shares scheduled to close in late December 2023 to January 2024. In that case, you may want to consider deferring the sale to access a higher LCGE for 2024 and therefore defer the tax payable on any gain arising from the sale.
Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you.
Business Transition
When considering the transfer of your business, family farm, or fishing corporation to your children or grandchildren, it is advisable to engage in a discussion with your advisor. This conversation should encompass an examination of recent and upcoming proposed changes to the Income Tax Act. These changes include the introduction of additional requirements that must be fulfilled for transfers taking place after 2023. The purpose of this discussion is to assess how these amendments may affect the tax implications associated with the sale of your assets.
Donations
Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate Securities
Give a direct cash gift to a registered charity
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of these types of charitable donations.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.
2023 Personal Year-End Tax Tips
/in 2023, Blog, individuals, taxThe end of 2023 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!
In this article, we’ve covered five different major types of 2023 personal tax tips:
Investment Considerations
Individuals
Families
Retirees
Students
Investment Considerations
Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6,500 for 2023. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $88,000 (including 2023) if you have been at least 18 years old and resident in Canada since 2009.
Registered Retirement Savings Plan (RRSP) – For the 2023 tax year, you have until February 29, 2024, to contribute to your Registered Retirement Savings Plan (RRSP) or a spousal RRSP. However, contributing earlier can benefit you more due to tax-deferred growth. Your deduction limit for 2023 is 18% of your 2022 income, up to $30,780, but this will reduce if you have pension adjustments. Don’t forget, any unused contribution room from previous years or pension adjustment reversals can increase your limit.
Also, you can deduct contributions on your 2023 income if they are made within the first 60 days of 2024. It’s possible to defer these deductions to a later year if that suits your financial strategy better. To optimize your RRSP, consider holding investments that have the potential for growth outside of your RRSP to take advantage of lower taxes on capital gains and dividends. Within your RRSP, keep investments that generate regular interest income. If you’re unsure about the best investment strategy for your RRSP, our team is ready to provide expert advice to help you maximize your retirement savings.
Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely.
Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.
Tax Loss Selling- Tax-loss selling is when you sell investments that have lost value by the end of the year from accounts that are not tax-deferred. This helps to offset any profits you made from other investments. If your losses are greater than your profits, you can use these extra losses to reduce taxes on profits from the last three years or save them to lower taxes on future profits.
For your losses in 2023 (or the past three years) to count, you need to complete the sale by December 27, 2023. This is because it needs to be settled by the end of the year, and December 30th and 31st are on a weekend in 2023.
If you sell an investment at a loss and plan to buy it again soon, you should know about the “superficial loss” rule. This rule applies if you sell something for a loss and buy it back within 30 days before or after selling it. It also applies if someone close to you, like your spouse or partner, a company they or you control, or a trust where you or they are the main beneficiaries (like your RRSP or TFSA), buys it within 30 days and still has it after 30 days. If this happens, you can’t use that loss to reduce your taxes right away. Instead, the loss gets added to the cost of the investment you bought back. You’ll only get the tax benefit from this loss when you sell this investment later.
When it comes to transferring investments, you might think about moving one with a loss into your RRSP or TFSA to count the loss without really selling it. But the tax rules don’t allow this, and there are big penalties for swapping an investment from a regular account to a registered account like an RRSP or TFSA.
To avoid these issues, it’s better to sell the investment that’s lost value and, if you have room, put the money from the sale into your RRSP or TFSA. Then, if you want, your RRSP or TFSA can buy the investment again after waiting for 30 days since the initial sale. This way, you avoid the superficial loss rule.
Individuals
The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.
COVID-19 federal benefits – If you return any amounts you received from COVID-19 benefits before the year 2023, you have the option to deduct the amount you paid back from your income for the year when you originally received the benefit, rather than the year in which you repay it.
Income Timing – If your marginal personal tax rate is lower in 2024 than in 2023, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2024 than in 2023, accelerate.
Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.
Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
Alternative Minimum Tax (AMT)- The AMT framework is a taxation system that sets a minimum amount of tax for individuals who utilize specific tax deductions, exemptions, or credits to substantially reduce their tax liabilities to exceedingly low levels. With AMT, there’s a parallel tax calculation that doesn’t allow as many deductions, exemptions, or credits as the regular way of calculating taxes. If the tax amount computed under the AMT system exceeds the tax liability determined under the regular tax system, the surplus amount becomes payable as AMT for the year.
Recent government proposals have outlined forthcoming adjustments to the AMT system, set to take effect in 2024. These proposed modifications encompass elevating the AMT tax rate, enhancing the AMT exemption threshold, and expanding the AMT tax base by constraining specific exemptions, deductions, and credits that serve to reduce overall tax obligations.
For individuals whose taxable income surpasses approximately $173,000, and who derive income subject to lower tax rates than standard income, or those who benefit from deductions or credits that mitigate their tax liabilities (such as capital gains, stock options, Canadian dividends, unused non-capital losses from preceding years, or non-refundable tax credits like the donation tax credit), it is anticipated that their AMT liabilities in 2024 may exceed those incurred in 2023.
To navigate these impending changes effectively and make financial decisions, it is advisable for individuals to seek counsel from a tax professional.
Families
Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.
Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.
Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.
Estate planning arrangements
Periodic Review: It is imperative to conduct an annual review of your estate planning arrangements to verify that they are in alignment with your objectives and compliant with current tax regulations.
Probate Fee Mitigation: Deliberate strategies should be explored to minimize probate fees.
Will Examination: Regularly reviewing your will is crucial to ensure it remains valid and aligns with your evolving life and estate planning requirements.
Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
First Home Savings Account (FHSA) – If you are a Canadian resident, age 18 or older and planning to become first-time homebuyers. Starting from April 1, 2023, this account serves as a valuable tool for saving towards the purchase of a qualifying first home.
The FHSA program comes with an annual contribution limit of $8,000, and a cumulative lifetime cap of $40,000, with the flexibility to carry forward up to $8,000 in unused contributions. Importantly, contributions made to the FHSA are tax-deductible, offering potential tax benefits. Additionally, the returns earned on your savings within this account are not subject to taxation, which can enhance the overall growth of your savings. Most notably, when you make qualifying withdrawals to buy your first home, these withdrawals are non-taxable.
Retirees
Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices.
Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits. Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.
Old Age Security – For individuals aged 65 or older, securing enrollment in Old Age Security (OAS) benefits is essential. It’s important to note that retroactive OAS payments are limited to a maximum of 11 months plus the month in which you apply for your OAS benefits. Moreover, if you encounter OAS clawback challenges due to exceeding income thresholds, there are strategic measures you can take including income splitting or reduction.
If eligible, you can opt to defer the initiation of your OAS benefits for up to 60 months after turning 65. This choice results in a permanent increase of 0.6% in your monthly OAS payment for each month of deferral.
These financial strategies, when combined with timely enrollment in OAS benefits, can help you navigate OAS-related matters effectively, ensuring you receive the maximum benefits available to you while optimizing your retirement income.
Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.
Students
Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.
Canada tuition credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 per year, $5,000 maximum lifetime tax credit. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Need some additional guidance?
Reach out to us if you have any questions. We’re here to help.
Protecting Key Talent using Group Benefits
/in Blog, business owners, dental benefits, Group Benefits, health benefitsBuilding a Sustainable Future Together
As specialists in group benefits, the primary goal is to cultivate a sustainable future by collaborating closely with clients. The belief is that an informed and engaged workforce is pivotal for the success of any organization. A key component of this vision is the protection of the organization’s essential talent. This article delves into how group benefits can be instrumental in safeguarding an organization’s most treasured resource: its people.
The Importance of Essential Talent
Essential talent encompasses those employees who bring critical skills, expertise, and knowledge that propel an organization’s growth and success. These individuals form the core of any organization, ensuring its prosperity in the competitive market. Retaining such invaluable members is crucial as their absence can significantly affect business operations, productivity, and overall morale.
Challenges in Retaining Essential Talent
In the ever-evolving job market, holding onto essential talent can be a daunting task. Numerous factors, including enticing offers from rivals, opportunities for personal growth, work-life equilibrium, and employee well-being, can influence retention. For employers, recognizing and addressing these challenges is vital to safeguard top performers and sustain a competitive advantage.
The Significance of Group Benefits
Group benefits serve as a potent strategy in attracting and retaining essential talent. By presenting comprehensive and tailored benefits packages, organizations showcase their dedication to the well-being, security, and future of their employees. Here are some pivotal aspects of group benefits that aid in retaining essential talent:
Health and Wellness Coverage: Offering comprehensive health and wellness benefits, such as medical, dental, and vision plans, not only fosters a healthy workforce but also signifies an organization’s commitment to overall employee well-being. Employees who feel this support are more inclined to stay loyal.
Income Protection: Many group benefits packages encompass disability insurance, offering financial security for employees facing injuries or illnesses that hinder their work. Such provisions alleviate financial concerns during tough times, fostering a sense of stability and encouraging talent to remain with the organization.
Retirement Planning: A meticulously crafted retirement plan appeals to essential talent. It signifies an organization’s concern for their future and dedication to ensuring their financial comfort during retirement. Contributing to such plans also strengthens the bond between employers and employees.
Support for Work-Life Balance: Benefits that champion work-life balance, like flexible work schedules, paid leaves, and family leaves, reflect an organization’s understanding of the significance of a balanced life. Employees who sense this flexibility are more likely to remain devoted.
Career Advancement: Benefits can also encompass professional development and training opportunities. Investing in employee growth not only sharpens their skills but also underlines an organization’s commitment to their long-term achievements.
Educational Approach and Teamwork
The role of group benefits specialists is to offer educational support and foster collaboration with clients. Through open dialogues about an organization’s aspirations and needs, it’s possible to design group benefits packages that resonate with specific demands. The collective goal is to nurture and protect essential talent, ensuring a sustainable future.
Protecting essential talent through group benefits is more than a strategic move; it embodies a dedication to employee welfare. By investing in the well-being, security, and future of employees, organizations not only boost loyalty and retention but also lay the foundation for a robust and sustainable future. The journey ahead is one of partnership, aiming for a flourishing and vibrant workforce.
Investing as a Business Owner 2023
/in 2023, Blog, business owners, corporate, InvestmentInvesting as a Business Owner
Many business owners have built up earnings in their corporation and are looking for tax efficient ways to pull the earnings out to achieve their personal and business financial goals such as:
building and protecting your savings
providing for loved ones
planning for retirement
Factors to consider when investing as a corporation:
What’s the purpose of the investment? First, think about what you’ll be doing with your savings. This will help dictate what savings vehicle is best suited for your situation. Then consider the following factors:
Taxes: As a small business owner, you have access to the small business tax rate which is typically lower than your personal tax rate. (See table below.) Also, as of January 1, 2019, the Federal Budget decreased the small business limit for corporations with a set threshold of income generated from passive investments.
Taxes on investment growth: Depending on what you invest in, you will want to review this as different asset types are taxed at different rates.
Timing: You can control the timing of the payout which means you could potentially defer paying out the money until you need it and determine if you’d like to pay it out as salary or dividend.
Creditor Protection: Sometimes, investments held inside a corporation can be vulnerable to creditors, therefore you may want to consider using a holding company or trust or pay out money to yourself personally. This can be complex and requires professional advice.
Capital Gains Exemption: If your investment grows too large, it may endanger your qualification for the lifetime capital gains exemption that’s available when shares of a qualified small business corporation are sold or transferred.
For business owners, before investing personally or corporately, it’s certainly worth talking to us to ensure that it suits your individual circumstances.
Understanding Registered Education Savings Plans (RESPs) in Canada
/in 2023, Blog, Family, financial advice, Financial Planning, Registered Education Savings PlanWhat is an RESP?
A Registered Education Savings Plan (RESP) is a unique savings account available in Canada, designed to assist individuals, such as parents or guardians, in saving for a child’s post-secondary education. Notably, anyone can open an RESP for a child. There are two main types of RESPs: single and family plans. Single plans cater to one beneficiary who doesn’t necessarily have to be related to the contributor. In contrast, family plans can cater to multiple beneficiaries, who must be related to the contributor by blood or adoption. This special account type offers significant tax benefits and is structured explicitly to fund a child’s future educational needs.
What are the eligibility requirements to open an RESP?
Opening an RESP requires both the contributor and the beneficiary (the child for whom you’re saving) to be Canadian residents with a valid Social Insurance Number (SIN). The plan can be opened for up to 35 years, and the RESP has a lifetime contribution limit of $50,000. To qualify for the Canada Education Savings Grant (CESG), the beneficiary must be aged 17 or under.
How can my child access their RESP funds for school?
The beneficiary can start withdrawing funds from the RESP as Educational Assistance Payments (EAPs) once they enrol in an eligible post-secondary educational program. EAPs comprise the income earned in the RESP and any government grants. The original contributions made to the RESP can be withdrawn tax-free by the contributor or given to the beneficiary. Given the student’s income level and personal tax credits, they typically remain tax-free.
What are the benefits of an RESP?
RESPs offer numerous benefits. Key among them is tax-deferred growth, which means the investment income generated within the account isn’t taxed as long as it remains in the plan. Also, through programs like the CESG and the Canada Learning Bond (CLB), the Canadian government contributes to your RESP, thereby enhancing your savings. Lastly, RESPs provide a structured path to save for a child’s future education, encouraging consistent savings and financial planning.
How does the Canada Education Savings Grant work?
The CESG is a government grant that matches a portion of your annual RESP contributions. The standard matching rate is 20% on the first $2,500 contributed each year, leading to a maximum annual grant of $500. However, low-income families may qualify for a higher matching rate. Unused CESG contribution room can be carried forward, allowing for a potential maximum grant payment of $1,000 in a single year. The CESG is available until the beneficiary turns 17, with a lifetime limit of $7,200 per beneficiary.
What is the Canada Learning Bond?
The Canada Learning Bond (CLB) is another program to promote long-term savings for a child’s post-secondary education. It targets children born after 2003 from low-income families. Eligible families receive an initial $500 from the government, directly deposited into the child’s RESP. An additional $100 is added annually until the child turns 15, for a potential total of $2,000. The CLB does not require any contributions to the RESP, making it accessible even for those in a tight financial position.
What are the BCTESG and QESI?
Provincial programs such as the British Columbia Training and Education Savings Grant (BCTESG) and the Quebec Education Savings Incentive (QESI) provide additional incentives for education savings. The BCTESG offers a one-time grant of $1,200 for eligible children, and the QESI provides a refundable tax credit paid directly into an RESP for qualifying Quebec residents.
How do I open an RESP?
Opening an RESP can be done through a financial advisor. You need to provide your SIN and the SIN of the beneficiary. Understanding the terms, conditions, and potential fees linked with the RESP offered by your chosen institution is crucial. You can make regular contributions or contribute lump sums as you see fit. Inquiring about the types of investments available within the RESP is vital, as they can significantly impact the growth of your savings.
In conclusion, while RESPs offer a structured and tax-efficient way of saving for a child’s post-secondary education, they also require careful planning and consistent contributions. Be sure to understand all aspects of an RESP and consider contacting us before starting one.
Retirement Planning
/in Blog, Family, health benefits, life insurance, retirementMost of us understand the benefits of sensible retirement planning. Still, it doesn’t feel relatively straightforward when it comes to creating your retirement strategy and putting it into effect. The reality is that, while there are lots of variables to consider, it isn’t as challenging to create an effective plan for retirement as you may think.
Firstly, let’s consider the merits of a retirement plan. Firstly, the plan will aid you in setting clear goals for your retirement, such as the age that you want to finish work and what you want your retirement to look like in terms of lifestyle. Secondly, it will help you establish how much you need to save to have a retirement that meets your objectives. Thirdly, a plan will allow you to choose your investment options wisely.
How you know how much you need to save is a common question. This depends on three factors:
Your age. It makes sense that starting to save for retirement when you are younger means that you need to save less money than starting later in life.
Benefits available to you. There is a range of federal government benefits that you might be eligible for, such as the Canada Pension Plan or Old Age Security.
Your plans for your retirement will inevitably affect how much you need to save to fund it.
If you haven’t started saving for your retirement yet or have less in your retirement savings plan than you would like, take a look at our top tips to accelerate your savings.
Make the most of RRSPs and TFSAs to minimize your tax bill and make your money grow faster.
Take advantage of any pensions or savings plans that your workplace offers, as your employer’s contributions can add extra value to your fund.
Look at your spending habits to identify opportunities to cut back outgoings and save more.
Think about putting spare money into your retirement fund.
Taking steps to create an effective retirement plan is a decision that will pay off as you approach later life, allowing you to have the savings for the retirement that you deserve.
Talk to us; we can help.
Understanding Tax-Free Savings Accounts (TFSAs)
/in Blog, InvestmentA Tax-Free Savings Account (TFSA) is an investment vehicle available to Canadian residents. It offers numerous benefits, including tax-free growth of your investments and tax-free withdrawals. Before you decide to open a TFSA, it’s essential to understand the eligibility requirements, contribution limits, eligible investments, and withdrawal rules.
Eligibility Requirements
To open a TFSA, you must be a resident of Canada with a valid Social Insurance Number (SIN) and be at least 18 years old. However, in some provinces and territories, the legal age to enter a contract (which includes opening a TFSA) is 19. The TFSA contribution room for the year an individual turns 18 is carried over to the following year if the individual resides in a jurisdiction where the legal age is 19.
Benefits
One of the primary benefits of a TFSA is that it allows your investments to grow tax-free. Any income you earn from your investments within the TFSA is not taxed, even upon withdrawal. This includes interest, dividends, and capital gains.
Additionally, you can withdraw any amount from your TFSA at any time, and the withdrawals are tax-free. It’s important to note that withdrawing funds from your TFSA does not reduce the total amount of contributions you have made for the year. The amount withdrawn in a year will be added back to your TFSA contribution room at the beginning of the following year.
Contribution Limit
The annual TFSA dollar limit has varied over the years. From 2009 to 2012, it was $5,000; in 2013 and 2014, it was $5,500; in 2015, it increased to $10,000; from 2016 to 2018, it was $5,500; from 2019 to 2022, it was $6,000, and in 2023, it is $6,500. This annual limit will be indexed to inflation and rounded to the nearest $500.
The maximum amount you can contribute to a TFSA is determined by your TFSA contribution room. This room is the sum of the TFSA dollar limit of the current year, any unused TFSA contribution room from previous years, and any withdrawals made from the TFSA in the previous year.
Let’s look at two examples to better understand this:
Example #1: Carry Forward Unused Room to Your Current Contribution
In 2020, the annual TFSA contribution limit is $6,000. If you only contribute $5,000, you would have $1,000 of unused room. This unused room gets carried over to the next year. So, in 2021, the annual contribution room is $6,000, but because of the unused room from 2020, you actually have a total contribution room of $7,000 ($6,000 for 2021 + $1,000 carried over from 2020).
Example #2: Reclaim Your Contribution Room in the Following Year When You Make a Withdrawal
In 2021, you have $7,000 in contribution room and decide to contribute the full amount. However, you also decide to make a withdrawal of $1,000 in 2021. In 2022, the annual contribution limit is $6,000, but because of the withdrawal made in 2021, you actually have a total contribution room of $7,000 ($6,000 for 2022 + $1,000 withdrawn in 2021).
Please note that if you exceed your available TFSA contribution room at any time in the year, you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.
Eligible Investments
The types of investments that are permitted in a TFSA are generally the same as those allowed in a Registered Retirement Savings Plan (RRSP). These include cash, segregated funds, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, and bonds.
Withdrawals
As mentioned earlier, you can generally withdraw any amount from the TFSA at any time, depending on the type of investment held in your TFSA. However, if you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room.
For example, if in 2023 you withdraw $1,000 from your TFSA and later in the same year decide to re-contribute that amount, you can only do so if your contribution room for 2023 allows for it. If it doesn’t and you re-contribute the $1,000 anyway, you will be considered to have over-contributed to your TFSA in that year. This will result in a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account
Beneficiary
When establishing a Tax-Free Savings Account (TFSA), you are given the choice to designate a beneficiary. This person will be the recipient of the investments within your TFSA in the event of your death. The assets inherited by the beneficiary are not considered income, and as such, are received tax-free. It’s important to note, though, that while the inherited amount is tax-free, the beneficiary will be responsible for any tax on earnings that the TFSA generates after the original account holder’s death.
Start Planning for Your Future Today!
Demystifying MER’s (Management Expense Ratio)
/in Blog, InvestmentInvesting in a fund requires a good understanding of its associated costs, including the Management Expense Ratio (MER). In this article and infographic, we’ll break down the different components of the MER.
Understanding the Management Expense Ratio
The Management Expense Ratio is a percentage of the total assets in an investment fund that covers the cost of managing and operating the fund. It’s essential to remember that the MER is deducted from your investment returns. Therefore, a higher MER means lower net returns for you.
For instance, if a fund’s expenses added up to 2% of its assets, its MER would be 2%. It’s essential to keep in mind that your returns are reported after the MER is deducted. Therefore, a higher MER can lead to lower net returns for you. Understanding a fund’s MER is important in making informed investment decisions and ensuring you’re getting the most value for your money.
Components of the Management Expense Ratio
There are several components of the MER, including:
Investment Management Fee
The investment management fee is the cost of professional investment management, fund administration, and support services. Investment fund managers and analysts conduct research and analysis of current and potential holdings for the fund, providing investors access to their expertise, education, and experience.
Trailing Commission
The trailing commission compensates the investment dealer and financial advisor for selling the fund and providing ongoing financial advice and service to the investor. The commission also covers trade confirmation, account openings and closing, issuance of statements and communications, and regulatory compliance activities.
Operating Expenses
Operating expenses are essential for the smooth operation of the investment fund, and they ensure that investors receive the information they need to make informed investment decisions. These expenses cover day-to-day costs, including record-keeping fees, accounting and fund valuation costs, custody fees, audit and legal fees, reports and prospectuses, and filing fees.
Taxes
Investment funds are required to pay taxes on their management and administration fees. In addition, they must also include GST/HST in their fees.
It’s essential to comprehend the different factors that comprise the Management Expense Ratio to make informed investment decisions and maximize your investment’s value.
To obtain further details, please do not hesitate to contact us.
First Home Savings Account (FHSA): What You Need to Know
/in Blog, InvestmentThe First Home Savings Account (FHSA) is a savings plan designed for first-time home buyers in Canada, which allows them to save up to $40,000 tax-free. Contributions to an FHSA are tax-deductible, similar to Registered Retirement Savings Plans (RRSP). Additionally, income and gains earned inside the account and withdrawals are tax-free, like a Tax-Free Savings Account (TFSA).
In this article and accompanying infographic, we will provide you with the necessary information you need to know about FHSA, including eligibility requirements, contributions and deductions, income and gains, qualifying investments, withdrawals, and transfers.
Eligibility Requirements
To be able to open an FHSA, you need to meet all the following eligibility requirements:
Residency: You must be an individual who is a resident of Canada.
Age: You must be at least 18 and not reach 72 in the current year.
First-time Home Buyer: You must be a first-time home buyer, which means that neither you nor your spouse had owned a qualifying home that was your principal residence at any point during the calendar year or the preceding four calendar years before the account was opened.
Contributions and Deductions
There are limits to the amount you can contribute to your FHSA.
The annual contribution limit is $8,000.
The lifetime contribution limit is $40,000.
If you do not contribute the full amount each year, the contribution room carries forward to the following year. However, carry-forward amounts only start accumulating after you open an FHSA for the first time, and they do not automatically begin when you turn 18.
Any excess contributions are subject to a penalty of 1% per month.
Tax Deductions
By claiming contributions made to FHSA accounts as a deduction against all taxable income sources, the amount of taxable income for the year can be reduced, resulting in a decrease in the amount of taxes payable.
Suppose you choose not to claim the FHSA deduction in the year. In that case, you can carry forward the unused contribution amounts indefinitely and claim them as a deduction later, like RRSP deductions.
Qualifying Investments
Qualifying investments for an FHSA are like those allowed in RRSPs and TFSAs, including mutual funds, segregated funds, ETFs, stocks, bonds, and GICs.
Incomes and Gains
The income and capital gains earned in an FHSA are not included in your annual income for tax purposes and therefore are not deductible. This means that the investment can continue to grow and compound within the FHSA tax-free like a TFSA.
Qualifying Withdrawals
Withdrawals from an FHSA are subject to specific rules and conditions. Qualifying withdrawals made to purchase a home are tax-free but must meet specific criteria:
The person making the withdrawal must be a first-time home buyer and a Canadian resident.
They must also intend to use the property as their primary residence within one year of purchasing or building it.
The home being purchased must be in Canada, and a written agreement to buy or build the home must be in place before October 1st of the year following the withdrawal.
It is not possible to restore FHSA contribution limits by making withdrawals or transfers.
Transfers
Unused funds in an FHSA account following a qualifying withdrawal can be transferred tax-free to an RRSP or Registered Retirement Income Fund (RRIF) until the end of the following year from the year of the first withdrawal. Transfers do not affect the available RRSP contribution room, but the transferred funds will be taxable when withdrawn from the account.
It’s important to remember that there are limitations on how long you can keep your FHSA account. You must close your FHSA after you’ve held it for 15 years or by the end of the year in which you turn 71, whichever comes first.
If you’re considering opening an FHSA or saving for a home, we can help; contact us.
Tax Tips You Need To Know Before Filing Your 2022 Taxes
/in 2023, Blog, disability, taxTax Tips You Need To Know Before Filing Your 2022 Taxes
This year’s tax deadline is May 1, 2023, as April 30 falls on a Sunday this year. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. In this article, we’ll provide you with tips to help you maximize your tax refund and ensure you’re taking advantage of all the available tax benefits.
Canada Workers Benefit
The Canada Workers Benefit (CWB) is a refundable tax credit designed to help low-income working families and individuals. The credit is made up of two parts:
The basic amount
A disability supplement (if you qualify).
To determine whether you qualify for the tax credit, you’ll need to consider your net income and where you live. The CRA website provides full details about the net income qualification amounts.
The maximum amounts you can qualify for are as follows:
The maximum basic amount is $1,428 for single individuals and $2,461 for families.
The maximum amount for the disability supplement is $737 for single individuals and $737 for families.
Claiming Home Office Expenses Due To COVID-19
You can still claim home office expenses if you’re not self-employed but worked from home due to the pandemic. You can:
Claim the temporary flat amount if you worked more than 50% of the time from home for at least four consecutive weeks in 2022. You can claim $2 for each day worked from home, up to a maximum of $500. No paperwork or forms are required!
Use the detailed method and claim the actual amounts. In this case, you’ll need supporting documentation, plus a completed and signed T2200S form from your employer. You can claim various applicable expenses, including home Internet access fees.
The Tax Deduction for Zero-Emissions Vehicles
A capital cost allowance (CCA) is a tax deduction that helps cover the cost of an asset’s depreciation over time. The CRA created two new capital cost allowances, which apply to zero-emission vehicles bought after March 18, 2019.
They are as follows:
Class 54. This class is for motor and passenger vehicles, excluding taxis or vehicles used for lease or rent. It has a CCA rate of 30%. For 2022, capital costs will be deductible up to $55,000, plus sales tax. This amount will be reassessed every year.
Class 55 is for leased and rented vehicles or taxis. The CCA rate is 40%.
Return Of Fuel Charge Proceeds To Farmers Tax Credit
You may be eligible for this tax credit if you are either self-employed or part of a farming partnership in Alberta, Manitoba, Ontario and Saskatchewan.
This tax credit aims to help farmers offset the high cost of the carbon tax.
Eligible Educator School Supply Tax Credit
You can claim up to $1,000 of eligible supplies and expenses if you qualify for the educator school supply tax credit.
The tax credit rate for the 2022 tax year is 25%, with a maximum credit of $250.
Need help?
Do you qualify for a credit or deduction? Call us – we’re here to save you money on your taxes!
Federal Budget 2023 Highlights
/in 2023, Blog, business owners, dental benefits, Family, Financial Planning, individualsOn March 28, 2023, the Federal Government released their 2032 budget. This article highlights the following financial measures:
New transfer options associated with Bill C-208 for intergenerational transfer.
New rules for employee ownership trusts.
Changes to how the Alternative Minimum Tax is calculated.
Improvements to Registered Education Savings Plans.
Expanding access to Registered Disability Savings Plans.
Grocery rebate.
Deduction for tradespeople tool expenses.
Automatic tax filing.
New Canadian Dental Care Plan.
Amendments To Bill C-208 Intergenerational Transfer Introduces Two New Transfer Options
Budget 2023 introduces two transfer options associated with the intergenerational transfer of a business:
An immediate intergenerational business transfer (three-year test) based on arm’s length sales terms.
A gradual intergenerational business transfer (five-to-ten-year test) based on estate freeze characteristics.
For the three-year test, the parent must transfer both legal and factual control of the business, including an immediate transfer of a majority of voting shares and the balance, within 36 months. The parent must also transfer a majority of the common growth shares within the same time frame. Additionally, the parent must transfer management of the business to their child within a reasonable time, with a 36-month safe harbour. The child or children must retain legal control for 36 months following the share transfer, and at least one child must remain actively involved in the business during this period.
For the gradual transfer option, the conditions are similar to the immediate transfer, but with a few differences. The parent must transfer legal control, including an immediate transfer of a majority of voting shares and the balance, within 36 months. They must also transfer a majority of the common growth shares and the balance of common growth shares within the same time frame. As well, within 10 years of the initial sale, parents must reduce the economic value of their debt and equity interests in the business to 50% of the value of their interest in a farm or fishing corporation at the initial sale time, or 30% of the value of their interest in a small business corporation at the initial sale time. The child or children must retain legal control for the greater of 60 months or until the business transfer is completed, and at least one child must remain actively involved in the business during this period.
The extended intergenerational transfer now applies to children, grandchildren, stepchildren, children-in-law, nieces and nephews and grandnieces and grandnephews.
The changes apply to transactions that occur on or after January 1, 2024. If the election is made, the capital gain reserve period is extended to ten years, and the limitation period for assessing a return is extended to three years for an immediate transfer and ten years for a gradual business transfer.
New Rules for Employee Ownership Trusts
The employees of a business can use an employee ownership trust (EOT) to purchase the business without having to pay the owner directly to acquire shares. Business owners can use an EOT as part of their succession planning.
Budget 2023 introduces new rules for using ownership trusts (EOTs) as follows:
Extending the five-year capital gains reserve to ten years for qualifying business transfers to an EOT.
A new exception to the current shareholder loan rule which extends the repayment period from one to fifteen years for amounts loaned to the EOT from a qualifying business to purchase shares in a qualifying business transfer.
Exempts EOTs from the 21-year deemed disposition rule that applies to some trusts. This means that shares can be held indefinitely for the benefit of employees.
Clean Energy Credits
The upcoming Budget 2023 is set to introduce a series of measures aimed at encouraging the adoption of clean energy. These measures include several business tax incentives such as:
Clean Electricity Investment Tax Credit: This is a refundable tax credit of 15% for investments in equipment and activities for generating electricity and transmitting it between provinces. The credit will be available to new and refurbished projects starting from March 28, 2023, and will end in 2034.
Clean Technology Manufacturing Credit: This tax credit is worth 30% of the cost of investments in new machinery and equipment for processing or manufacturing clean technologies and critical minerals. It applies to property acquired and put into use after January 1, 2024. The credit will be phased out starting in 2032 and fully eliminated in 2034.
Clean Hydrogen Investment Tax Credit: It offers a refundable tax credit ranging from 15% to 40% of eligible project expenses that produce clean hydrogen, as well as a 15% tax credit for certain equipment.
Clean Technology Investment Tax Credit: This tax credit will be expanded to include geothermal systems that qualify for capital cost allowance under Classes 43.1 and 43.2. The phase-out will begin in 2034, and it will not be available after that date.
Carbon Capture, Utilization and Storage Investment Tax Credit (CCUS): The budget broadens and adjusts specific criteria for the refundable Investment Tax Credit (ITC) for CCUS. Qualified equipment now includes dual-purpose machinery that generates heat and/or power or utilizes water for CCUS and an additional process, as long as it meets all other requirements for the credit. The expense of such equipment is eligible on a proportionate basis, based on the anticipated energy or material balance supporting the CCUS process during the project’s initial 20 years.
Reduced rates for zero-emission technology manufacturers: The reduced tax rates of 4.5% and 7.5% for zero-emission technology manufacturers will be extended for three years until 2034, with phase-out starting in 2032. The eligibility will expand to include the manufacturing of nuclear energy equipment and processing and recycling of nuclear fuels and heavy water for taxation years starting after 2023.
Lithium from brines: Allow producers of lithium from brines to issue flow-through shares and expand the Critical Mineral Exploration Tax Credit’s eligibility to include lithium from brines.
Changes To How Alternative Minimum Tax Is Calculated
Budget 2023 proposed several changes to calculating the Alternative Minimum Tax (AMT), including the following:
The capital gains inclusion rate will increase from 80 percent to 100 percent, while capital losses and allowable business investment losses will apply at a rate of 50 percent.
The inclusion rate for employee stock option benefits will be altered to 100 percent, and for capital gains resulting from the donation of publicly listed securities, it will be modified to 30 percent.
The 30 percent inclusion rate will also apply to employee stock option benefits if any deduction is available because underlying shares are also publicly listed securities that were donated.
Certain deductions and expenses will now be limited to 50 percent, and only 50 percent of non-refundable credits (excluding a special foreign tax credit) will be permitted to reduce the AMT.
The AMT tax rate will increase from 15 percent to 20.5 percent.
The AMT exemption will rise from the present allowable deduction of $40,000 for individuals to an amount indexed to the fourth tax bracket, expected to be $173,000 in 2024.
The AMT carryforward period will remain unaltered at seven years.
Improving Registered Education Savings Plans (RESPs)
Budget 2023 introduces the following changes to RESPs:
As of March 28, 2023, beneficiaries may withdraw Educational Assistance Payments (EAPs) up to $8,000 (from $5,000) for full-time programs and $4,000 (from $2,500) for part-time programs.
Individuals who withdrew EAPs before March 28, 2023, may be able to withdraw an additional EAP amount, subject to the new limits and the plan terms.
Divorced or separated parents can now open joint RESPs for one or more of their children.
Expanding Access to Registered Disability Savings Plans
Qualifying family members, such as a parent, a spouse, or a common-law partner, can open an RDSP and be the plan holder for an adult with mental disabilities whose ability to enter into an RDSP contract is in doubt and who does not have a legal representative.
Budget 2023 announces the government’s intention to extend the provision that allows this until December 31, 2026. To further increase access to RDSPs, the government also intends to expand the provision to include adult siblings of an RDSP beneficiary.
Grocery Rebate
The Budget 2023 will implement the Grocery Rebate, which will be a one-time payment managed through the Goods and Services Tax Credit (GSTC) system. The maximum amount that can be claimed under the Grocery Rebate is:
$153 for each adult
$81 for each child
$81 for a single supplement.
The implementation of the Grocery Rebate will be gradual and will follow the same income thresholds as the present GSTC regulations.
Deduction for Tradespeople’s Tool Expenses
Budget 2023 increases the employment deduction for tradespeople’s tools to $1,000 from $500. This is effective for 2023 and subsequent taxation years.
Automatic Tax Filing
The Canada Revenue Agency (CRA) will pilot a new automatic filing service for Canadians who currently do not file their taxes to help them receive certain benefits to which they are entitled.
The CRA also plans to expand taxpayer eligibility for the File My Return service, which allows taxpayers to file their tax returns by telephone.
Canadian Dental Care Plan
In Budget 2023, the federal government is investing in dental care for Canadians with the new Canadian Dental Care Plan. The plan will provide dental coverage for uninsured Canadians with annual family incomes of less than $90,000, with no co-pays for those under $70,000.
The budget allows the CRA to share taxpayer information for the Canadian Dental Care Plan with an official of Employment and Social Development Canada or Health Canada solely to administer or enforce the plan.
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
British Columbia 2023 Budget Highlights
/in Blog, business owners, corporate, Family, financial advice, Financial Planning, incorporated professionals, individuals, personal finances, retirement, taxOn February 28, 2023, the B.C. Minister of Finance announced the province’s 2023 budget. This article highlights the most important things you need to know about this budget.
No Changes To Corporate or Personal Tax Rates
There are no changes to the province’s personal or corporate tax rates in Budget 2023.
Tax Credits Changes
Budget 2023 extends two corporate tax credits – the Farmers’ Food Donation Tax Credit until 2026 and the Interactive Digital Media Tax Credit to August 31, 2028.
As of July 1, 2023, the maximum annual Climate Action Tax Credit will be increased to $447 for an adult, $223.50 for a spouse or common-law partner, and $111.50 per child.
Renters with household incomes under $60,000 can apply for a new refundable Renter’s Tax Credit up to a maximum of $400. Renters with a household income of over $60,000 and less than $80,000 are eligible for a reduced credit.
Increased B.C Family Benefit
The B.C Family Benefit will increase as of July 1, 2023:
• The maximum annual benefit is now $1,750 for a family’s first child, $1,100 for a second child, and $900 for each subsequent child for families with an adjusted net income of under $27,354.
• The minimum benefit will now be $775 for a family’s first child, $750 for a second child, and $725 for each subsequent child for families with an adjusted family net income of more than $27,354 and less than $87,533.
The budget also includes a maximum annual supplement of $500 to single-parent families on top of the maximum annual benefit.
Carbon Tax Changes
Effective April 1, 2023, carbon tax rates will increase annually by $15 per tonne of carbon dioxide equivalent emissions. Qualifying commercial greenhouse growers will be eligible for a reduced point-of-sale reduced carbon tax on purchases of natural gas and propane.
The 2023 budget verifies that B.C. plans to implement an output-based pricing system (OBPS) that meets updated federal requirements to replace the current carbon pricing as of April 1, 2024.
Other Tax Changes
The budget introduces new taxation rules for online marketplace services and now excludes automated external defibrillators from provincial sales taxes.
Budget 2023 indicates refund rates for International Fuel Tax Agreement licensees will increase effective April 1, 2023. New purpose-built rental buildings will be exempt from the further 2% property transfer tax applied to transactions that exceed $3 million as of January 1, 2024.
Healthcare and Housing Spending
Budget 2023 contains several commitments to support health care and housing:
Various contraception options, including birth control prescriptions, will be free as of April 1, 2023.
One billion dollars has been committed to new treatment beds and treatment support for mental health and addictions.
$2.3 billion will go towards enhancing core services, recruiting staff, implementing a new pay model for family doctors, and fighting COVID-19.
In housing, $1.1 billion will be used to purchase land near transit hubs and improve student housing.
Over $569 million will be allocated to building projects and $454 million towards homelessness support and response programs.
We can help!
Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!
TFSA versus RRSP – What you need to know to make the most of them in 2023
/in 2023, Blog, rrsp, Tax Free Savings AccountWhen looking to save money in a tax-efficient manner, Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) can offer significant tax benefits. To assist you in understanding the distinctions, we will compare the following:
The differences in deposits between TFSAs and RRSPs
The differences in withdrawals between TFSAs and RRSPs
TFSA versus RRSP – Difference in deposits
When comparing deposit differences between TFSAs and RRSPs, there are several key considerations:
The amount of contribution room available
The ability to carry forward unused contributions
The tax deductibility of contributions
The tax treatment of growth in the account
How much contribution room do I have?
If you have never contributed to a TFSA, you can contribute up to $88,000 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
Year
TFSA dollar limit
2023
$6,500
2022
$6,000
2021
$6,000
2020
$6,000
2019
$6,000
2018
$5,500
2017
$5,500
2016
$5,500
2015
$10,000
2014
$5,500
2013
$5,500
2012
$5,000
2011
$5,000
2010
$5,000
2009
$5,000
Regarding RRSPs, the limit for tax deductions is 18% of your pre-tax income from the previous year, with a maximum limit of $30,780. To illustrate, if your pre-tax income in 2022 was $60,000, your deduction limit for 2023 would be $10,800 (18% x $60,000). If your pre-tax income was $200,000, the maximum limit of $30,780 would apply.
How much contribution room can I carry forward?
Suppose you opt not to contribute to your TFSA each year or do not contribute the maximum amount. In that case, you can carry forward your unused contribution room indefinitely, provided you are a Canadian resident, over 18 years of age, and have a valid social insurance number. If you make a withdrawal, the amount withdrawn will be added to your annual contribution room for the next calendar year.
In contrast, for an RRSP, you can carry forward your unused contribution room until age 71. Once you reach 71, you are required to convert your RRSP into an RRIF. Withdrawals from an RRSP do not create additional contribution room.
The tax deductibility of contributions
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
It is essential to contribute to both RRSP and TFSA because of the different tax treatment of the growth within them.
A TFSA is ideal for short-term goals, such as saving for a down payment on a house or a vacation, as its growth is entirely tax-free. When withdrawing from your TFSA, you will not have to pay any income tax on the amount withdrawn. On the other hand, the growth within an RRSP is tax-deferred. This means you will not pay taxes on your RRSP gains until age 71, at which point you convert the RRSP into an RRIF and start withdrawing money.
RRSPs are more suitable for long-term goals such as retirement because, in retirement, you will have a lower income and be in a lower tax bracket, resulting in less tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st, 2023.
Tax Treatment of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! Therefore, they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits, including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you withdraw from your TFSA, the amount you withdrew will be added on top of your annual contribution room for the following calendar year. If you withdraw from your RRSP, you do not open any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
2023 Financial Calendar
/in 2023, Blog, Financial Planning, retirement, rrsp, Tax Free Savings AccountWelcome to our 2023 financial calendar! This calendar is designed to help you keep track of important financial dates and deadlines, such as tax filing and government benefit distribution. You can bookmark this page for easy reference or add these dates to your personal calendar to ensure you don’t miss any important financial obligations.
If you need help with your taxes, tax packages will be available starting February 2023. Don’t wait until the last minute to get started on your tax return – make an appointment with your accountant to ensure you’re ready to go when tax season arrives.
2022 Year End Tax Tips and Strategies for Business Owners
/in 2022, 2022 Only, Blog, business owners, Financial Planning, taxNow that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary/Dividend Mix
As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.
When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room.
The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends.
In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.
Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes
How much RRSP contribution room do you have?
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.
These are the main things to consider when determining how you want to handle compensation:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.
Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12 to 21 percent, depending on the province or territory.
With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold are taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).
Here’s how to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.
Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.
Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2022 taxation year.
Qualified Small Business Corporation (QSBC) Share Status
Ensure your corporate shares are eligible to get you the $913,630 (for 2022) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.
Suppose you sell QSBC shares scheduled to close in late December 2022 to January 2023. In that case, you may want to consider deferring the sale to access a higher LCGE of $971,190 for 2023 and therefore defer the tax payable on any gain arising from the sale.
Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you.
Donations
Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate Securities
Give a direct cash gift to a registered charity
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of these types of charitable donations.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.
2022 Personal Year-End Tax Tips
/in 2022 Only, Blog, individualsThe end of 2022 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!
In this article, we’ve covered four different major types of 2022 personal tax tips:
Investment Considerations
Individuals
Families
Retirees
Students
Investment Considerations
Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6000 for 2022. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $81,500 (including 2022).
Registered Retirement Savings Plan (RRSP)- Contribute to your RRSP or a spousal RRSP. Remember that you can deduct contributions made within the first sixty days of the following calendar year from your 2022 income. You also have the option of carrying forward deductions. Consider the best mix of investments for your RRSP: hold growth investments outside the plan (to benefit from lower tax rates on capital gains and eligible dividends), and hold interest-generating investments inside. We can help if you need advice on how to make the most of your RRSP.
Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely.
Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.
Individuals
The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.
COVID-19 federal benefits – If you repay any COVID-19 benefit amounts before 2023, you can deduct from your income the repayment amount in the year in which the benefit amount was received instead of the year it was repaid. (You can also split the deduction between the two years.)
Income Timing – If your marginal personal tax rate is lower in 2023 than in 2022, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2023 than in 2022, accelerate.
Worked at home in 2022?-You may be able to deduct an income tax deduction for home office expenses. The Canada Revenue Agency (CRA) has extended the availability of the simplified method—claiming a flat rate of $2 per day working at home due to the COVID-19 pandemic—to 2022. Consider what’s more advantageous for you to claim: the simplified or traditional method.
Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage! Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.
Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
Families
Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.
Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.
Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.
Estate planning arrangements – Review your estate plan annually to ensure it reflects the current tax rules. Review your will to ensure that it will form a valid will. Consider strategies for minimizing probate fees.
Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
Retirees
Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices!
Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits! Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.
Old Age Security – If you’re 65 or older, ensure you’re enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you’re running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this.
Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.
Students
Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.
Canada training credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Need some additional guidance?
Reach out to us if you have any questions. We’re here to help.
Permanent versus Term Life Insurance – What are the Differences?
/in Blog, life insurancePermanent versus Term Life Insurance – What are the Differences?
You know you need life insurance – but you’re not sure which kind is best for you. We can help you with that decision.
There are two main kinds of life insurance:
Permanent, which lasts for your entire life.
Term, which is only good for a set amount of time.
No matter which type of life insurance you buy – permanent or term – you can rest easy knowing you’ve provided financial protection for your family.
Permanent life insurance
Permanent life insurance is good for your entire life unless you choose to cancel it. It’s an excellent choice to give you peace of mind that you’ll always be covered, even if you develop major health issues later in life.
There are also benefits to having permanent life insurance beyond guaranteed lifelong coverage:
You can use the policy to build up a cash value – making it a good choice for low-risk investing.
You may be able to use your permanent life insurance policy as collateral for a loan, making it a good choice for business owners.
The main drawback to permanent life insurance policies is that the premiums are often more expensive than term life insurance premiums. If, however, you’re thinking long-term and can afford the premiums, permanent life insurance is a great way to ensure you’re always protected and can have some guaranteed money for your estate.
Term life insurance
Term life insurance is either valid for a set amount of time (such as five or ten years) or until you reach a set age – for example, 60. You should generally be able to renew your life insurance at the end of each term, but your premiums may go up.
Term life insurance premiums are cheaper than permanent life insurance premiums – at least, you are younger and healthier (as the risk of you dying is lower). Your premiums will increase as you age or develop health issues.
You can’t use term life insurance as collateral for a loan or use the policy to build up a cash value. There are lots of benefits to term life insurance, though – it’s a good choice for you if you want low premiums, easy-to-understand insurance, and only need it for a set amount of time – such as while you have a mortgage or young children.
We can help you decide between permanent and term life insurance
If you’re not sure what kind of life insurance is best for you, we can help. We’re happy to talk to you to get more information about your insurance needs. We can then discuss what each type of insurance will cost you and which type of insurance we feel is best for you.
Give us a call today!
Essential tips and tricks for paying less tax and keeping more of your retirement income
/in Blog, retirementEssential tips and tricks for paying less tax and keeping more of your retirement income
Most of your retirement income sources are taxable; Canadian Pension Plan (CPP), your personal pension plan (if you have one) and income from your RRIFs. However, if you’ve set up a TFSA in addition to your RRSPs, then you’re in luck – money you take out of your TFSA isn’t taxable!
We have some tips on combining savvy withdrawal strategies with retirement-related tax deductions to keep more of your retirement income.
Make a Plan
Determine all the different sources of retirement income you’ll have – don’t forget about things like annuities, GICs or income from a rental property if you have one. Once you have a complete list, a professional financial advisor can give you tips on when it’s best to start collecting pension income as well as how much to withdraw from your taxable investments. A strong plan can help reduce the amount of tax you have to pay and extend the life of your retirement income!
Split your pension income
If you have reached the age of 65 and have a pension, you can split up to 50% of the pension income with your spouse. Splitting your pension with a lower-income spouse can add up to savings, as this will cut down on the amount of taxes you’ll have to pay overall.
While rewarding, the process to split your pension income can be complicated, so it’s best to get professional advice before starting this process.
Buy an annuity
Annuities are a financial product that will provide you with a guaranteed regular income – a good choice if you are worried about your retirement savings running out.
These are the most common types of annuities:
Life annuities provide you with a guaranteed lifetime income, with the option for the annuity to be paid to a beneficiary after you die.
Term-certain annuities provide guaranteed income payments for a fixed period. A beneficiary or your estate will receive regular payments if you die before the term ends.
Variable annuities will provide you with both a fixed income and a variable income. The variable income will be based on the return of the annuity provider on the performance of the investments your annuity provider invests your money in.
All types of annuities will spread out the income from your retirement savings to lessen the tax you pay each year.
Take advantage of tax breaks
Now that you’re retired, there are retirement-related tax breaks you need to know about. Here are some of the tax breaks or credits you may be eligible for:
The age amount
The home accessibility tax credit
The medical expense tax credit
The disability tax credit
The pension income tax credit
We can help!
We can put together a plan that helps you keep more of your retirement income – call us today!
The Five Steps to Investment Planning
/in Blog, Financial Planning, InvestmentThe Five Steps to Investment Planning
For a long time, there were limited options for most investors. But now, there are hundreds of investments for investors to choose. However, this amount of choice can be overwhelming. Fortunately, an investment advisor can help you figure out what the right investment choices are for you.
Meeting your investment advisor
When you first meet with your investment advisor, they will tell you about their obligations and responsibilities. They should:
Give you general information about your various investment choices (e.g. stocks, bonds, mutual funds)
Tell you how they are compensated for their services
Ask if you have any questions about specific investment vehicles (such as RRSPs or TFSAs)
Determining your goals and expectations
The next step is to for your investment advisor to fill out a “Know Your Client” type of worksheet. The information on this worksheet will help your investment advisor determine the most suitable investment options for you. You’ll need to provide information on your:
Income
Net worth
Investment knowledge
Risk tolerance
Time horizon (how long you want to invest for)
How frequently do you want to invest
Developing your investment plan
Once they have all the information they need, your investment advisor will suggest the investments they think are appropriate for you.
Implementing the plan
Once you approve your investment advisor’s suggestions, you will fill in all the appropriate paperwork to set things in motion. After that, you must provide a way to fund your investments. Your investment advisor can then make any initial purchases and set up any ongoing fund purchases or transfers from other investments.
Monitoring the plan
Your investment advisor should contact you at least once a year to make sure your plan is still suitable for you and discuss any changes you want to make to it. If you have any major life events, such as getting married or changing jobs, you should contact your investment advisor to see if you should revisit your plan.
The sooner you start your investment planning, the sooner you can reach your investment goals! So contact us today!
Five Ways To Withdraw Money From Your Business In A Tax-Efficient Manner
/in Blog, Business Owners, corporate, taxFive Ways To Withdraw Money From Your Business In A Tax-Efficient Manner
You have worked long and hard to build up your business, and now you are ready to withdraw money from your business’ bank account. But you don’t want to get hit with a huge tax bill. So here are 5 ways to withdraw money from your business in a tax-efficient manner.
1) Pay Yourself And Your Family Members
You can pay yourself a salary from your business and pay any family members who work in your business. However, the salary you pay family members must not be excessive – it must be in line with what they would receive for doing the same work elsewhere.
You and your family members will be taxed at the regular personal marginal tax rates on your salaries. However, your corporation can make a deduction based on salaries paid when determining taxable income.
2) Pay Out Taxable Dividends
You can use dividends to distribute money from your corporation to both yourself and family members if everyone holds shares in your corporation. However, when distributing dividends to a shareholder, it is critical to consider both the tax on split income (TOSI) rules and the corporate attribution rules before any distribution is made.
TOSI rules – Under the current income tax rules, the TOSI applies the highest marginal tax rate (currently 33%) to “split income” of an individual under the age of 18. In general, an individual’s split income includes certain taxable dividends, taxable capital gains and income from partnerships or trusts. – Canada.ca
Corporate attribution rules – Corporate attribution rules may result in additional tax if a transfer or loan to a corporation is made to shift income to another family member. This can result in additional tax for the individual making the transfer or loan.
3) Pay Out Capital Dividends
Another way to pay out dividends is via your corporation’s capital dividend account (CDA). Money in your corporation’s CDA can be dispersed to Canadian resident shareholders as a tax-free dividend, but be sure you are clear on what can legally be allowed in your CDA before you do this.
4) Adjust Your Salary And Dividend Mix
Keeping the right mix when paying yourself a salary and paying yourself via dividends is essential. You need to consider various factors – such as your cash flow needs, earned income for RRSP contributions, and any impact on taxes and other regulatory requirements – paying out salaries and dividends can have.
5) Repay Any Outstanding Shareholder Loans
If you loaned money to your company in the form of a shareholder loan, now may be the time to have your company repay that loan. Any money you receive to settle your shareholder loan will be paid to you as a tax-free distribution.
The Takeaway
Regardless of why you need to take cash out of your business, it is crucial to plan how to withdraw the money so you can do it in the most tax-efficient manner possible. Unfortunately, there is no one-size-fits-all solution for this, which is why talking to a professional advisor is so important.
We can help design a tax-optimized compensation strategy for you. Contact us to set up a meeting today!
Don’t lose all your hard-earned money to taxes
/in Blog, taxDon’t lose all your hard-earned money to taxes
Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:
Make the most of the lifetime capital gains exemption
Decrease your end-of-life tax bill
Look into Immediate Financing Arrangements
Lifetime capital gains exemption
The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.
End-of-life tax bill
As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.
Consider an Immediate Financing Arrangement
An Immediate Financing Arrangement (IFA) lets your business:
Get a life insurance premium on behalf of a shareholder
Create a tax deduction
Transfer assets tax-free from the business to a shareholder’s estate
Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.
The Takeaway
While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.
Financial Planning For Self-Employed Contractors
/in Blog, Business OwnersFinancial Planning for Self-Employed Contractors
Being a self-employed contractor can bring you a large cash flow and the satisfaction of being your own boss – but it can also make financial planning more complicated than being an employee.
When creating a financial plan, Self-employed contractors need to keep the following in mind:
The best way to ensure you’ve got a solid financial plan is to work with a good team who has your best interests in mind. No matter what aspect of financial planning you are interested in – from tax planning to succession planning – we can help you get started. So call us or contact us online today to get started!
Group Insurance vs Individual Life Insurance
/in Blog, Group Benefits, life insuranceGroup Insurance vs Individual Life Insurance
“I already have life insurance from work, so why do I need to get it personally?” or “Work has got me covered, I don’t need it.”
While it’s great to have group coverage from your employer or association, in most cases, people don’t understand that there are important differences when it comes to group life insurance vs. self owned life insurance.
Before counting on insurance from your group benefits plan, please take the time to understand the difference between group owned life insurance and personally owned life insurance. The key differences are ownership, premium, coverage, beneficiary and portability.
Ownership:
Self: You own and control the policy.
Group: The group owns and controls the policy.
Premium:
Self: Your premiums are guaranteed at policy issue and discounts are available based on your health.
Group: Premiums are not guaranteed and there are no discounts available based on your health. The rates provided are blended depending on your group.
Coverage:
Self: You choose based on your needs.
Group: In a group plan, the coverage is typically a multiple of your salary. If your coverage is through an association, then it’s usually a flat basic amount.
Beneficiary:
Self: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Group: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Portability:
Self: Your policy stays with you.
Group: Your policy is tied to your group and if you leave your employer or your association, you may need to reapply for insurance.
Talk to us, we can help you figure out what’s best for your situation.
The Six Steps to Financial Planning
/in Blog, Financial PlanningMany people put off planning for their financial future because they’re overwhelmed with all the decisions they have to make. The good news is that there’s help at hand – in the form of a certified financial planner. A certified financial planner is trained to focus on all aspects of your finances – everything from your taxes to retirement savings.
A certified financial planner will develop a plan that works for you both today and in the future.
Meeting your financial planner
When you first meet with your financial planner, they will tell you about their obligations and responsibilities. They should:
Give you a general overview of the financial planning process
Tell you what services they provide and how they are compensated for them
Let you know what they will expect from you as a client
You should let your financial planner know how involved you want to be in creating and executing your financial plan. You should also ask any questions about the process or how compensation works.
Determining your goals and expectations
Now you’re ready to make your plan. But first, you and your financial planner should discuss your personal and financial goals and your current and future needs and priorities.
Your financial planner will make sure they have all the details they need. They may ask you to fill in questionnaires or provide documentation on your current financial state.
Reviewing your current financial state
Before your financial planner can get started on your financial plan, they need to know about your current situation – including cash flow, net worth and any taxes you may owe in the future.
To customize your financial plan, so it works for you, your financial planner must know about anything that could impact it – for example, a dependent adult child.
Developing the financial plan
Once they have all the information they need, your financial planner will create a customized plan that aligns with your goals, objectives, and risk tolerance. They will also provide you with information on projected returns and recommended actions.
Implementing the plan
Once you approve it, your financial planner should implement your plan. They should also help you contact other professionals they’ve recommended to assist with your financial plan – such as a lawyer or an insurance agent.
Monitoring the plan
Your certified financial planner should periodically contact you to adjust your financial plan. In addition, a life change – such as the birth of a child or retirement – may require adjustments to your financial plan.
It can be hard to plan for the future – but you don’t have to do it alone. Contact a certified financial planner or us today!
2022 Federal Budget Highlights
/in Blog, Insurance, InvestmentFederal Budget 2022 – Highlights
On April 7, 2022, the Federal Government released their 2022 budget. We have broken down the highlights of the financial measures in this budget into the following different sections:
Housing
Alternative minimum tax
Dental care
Small businesses
Tradespeople
Canada Growth Fund
Climate
Bank and insurer taxes
Housing
There were several tax measures related to housing introduced in the budget.
Budget 2022 introduced a new kind of savings account – a Tax-Free First Home Savings Account (FHSA).
These are the key things you need to know about the new FHSAs:
You must be at least 18 years of age and a resident of Canada to open an account. You must also not currently own a home or have owned one in the previous four calendar years.
You can only open and use an FHSA once, and you must close it within a year after your first withdrawal.
Contributions are tax-deductible, and income earned in an FHSA will not be either while it is in the account or when you withdraw it.
There is a lifetime contribution limit of $40,00, with an annual contribution limit of $8,000. You can’t carry contribution room forward.
If you don’t use the funds in your FHSA within 15 years of opening it, you can transfer them to an RRSP or RRIF tax-free. Transfers to an RRSP do not impact your RRSP contribution room.
Two existing tax credits were increased, and a new one was introduced:
The First-Time Home Buyers’ Tax Credit amount was increased from $5000 to $10,000, giving up to $1,500 in direct support to home buyers. This tax credit applies to all homes purchased on or after January 1, 2022.
The annual expense limit for the Home Accessibility Tax Credit has been increased to $20,000 for 2022 and subsequent tax years.
A new tax credit, the Multigenerational Home Renovation Tax Credit, was introduced, which will start in 2023. This tax credit is a 15% refundable credit for eligible expenses up to $50,000 (maximum tax credit is $7,500) for constructing a secondary suite for a senior or an adult with a disability to live with a qualifying relative.
Budget 2022 proposes new rules, effective January 1, 2023, that anyone who sells a residential property they have held for less than 12 months would be subject to full taxation on their profits as business income. However, there will be some exemptions to these rules due to life events such as a death, disability, the birth of a child, a new job, or a divorce.
Budget 2022 also announces restrictions that would help ensure that Canadians, instead of foreign investors, own housing. A two-year ban will be introduced on non-residents buying residential property, with some exceptions, such as individuals who have work permits and are living in Canada.
Alternative Minimum Tax
In Canada, the top federal tax rate is 33% and starts at an income of $221,708. However, many high-income filers end up paying less tax than this due to tax deductions and tax credits.
The goal of the Alternative Minimum Tax (AMT), which has been around since 1986, is to ensure high-income Canadians are paying their fair share of taxes. However, it has not been substantially updated since it was introduced. In Budget 2022, the government indicated they would be investigating changes to the AMT, which will likely be disclosed in the fall 2022 economic update.
Dental Care
For many Canadians without private coverage, going to the dentist is too expensive. Budget 2022 commits $5.3 billion to provide dental care for Canadians with family incomes of less than $90,000 annually. Coverage will start for children under 12 this year and expand to children under 18, seniors and those living with a disability in 2023, with the program will be fully implemented by 2025.
Small Businesses
Small businesses currently have a 9% tax rate on the first $500,000 of taxable income (compared to the corporate tax rate of 15%). However, after a small business’ capital employed in Canada reaches $15 million, it is no longer eligible for the 9% tax rate.
Budget 2022 proposes gradually phasing out the small business tax rate so that businesses are not discouraged from expanding. The new cut-off for the lower tax rate will be $50 million.
Budget 2022 also includes a proposal to create an Employee Ownership Trust. This would be a new, dedicated trust under the Income Tax Act to support employee ownership.
Tradespeople
Budget 2022 introduces the Labour Mobility Deduction. This would allow eligible tradespersons and apprentices to deduct up to $4,000 a year in eligible travel and temporary relocation expenses.
Budget 2022 also commits to providing $84.2 million over four years to double funding for the Union Training and Innovation Program, which would help 3,500 apprentices from underrepresented groups each year.
Canada Growth Fund
Budget 2022 introduces a new Canada Growth Fund, with the goals of both diversifying our economy and helping achieve our climate goals.
The Canada Growth Fund aims to attract considerable private sector investment, support the restructuring of vital supply chains, and bolster our exports. The Canada Growth Fund will also provide backing to reduce our emissions and invest in the growth of low-carbon industries.
Climate
Budget 2022 continues to confirm the government’s commitment to fighting climate change. It commits $1.7 billion over five years to extend the Incentives for Zero-Emission Vehicles Program until March 2025 and also provides funding to create a national network of electric vehicle charging stations.
Budget 2022 also commits $250 million over four years to support the development of clean electricity, including inter-provincial electricity transmission projects and Small Modular Reactors.
Bank And Insurer Taxes
Budget 2022 introduced a new financial measure called the Canada Recovery Dividend. Banks and insurers will have to pay a one-time, 15% tax on 2021 taxable income above $1 billion. This tax will be payable over five years.
Budget 2022 also proposes increasing the tax rate on income above $100 million for banks and insurers to 16.5% (currently 15% for other corporations).
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
2021 Income Tax Year Tips
/in Blog, taxTax Tips You Need To Know Before Filing Your 2021 Taxes
This year’s tax deadline is April 30, 2022. We’ve got a list of tips to help you save on your taxes!
Claiming home office expenses
You can claim up to $500 under the “flat rate” method if you worked at home due to COVID-19. To claim more, you must use the detailed method to claim home office expenses.
Employer-provided benefits
If your employer reimburses you for certain costs (such as commuting costs, parking, and home office equipment) due to COVID-19, the CRA will generally not consider this a taxable benefit.
Repaying Covid-19 support payments
If you repaid COVID-19 benefits, you can deduct the amount on your tax return either for the year you received the benefit or the year you repaid it, or you can split the deduction between both years.
Climate Action incentive can no longer be claimed
As of 2021, this amount can’t be claimed as a refundable credit; instead, you’ll receive quarterly payments via the benefits system.
Disability tax credit (DTC)
If you or a family member are DTC claimants, then you should review the updated criteria for the tax credit in regards to mental functions, life-sustaining therapy and calculating therapy time.
Eligible educator school supply tax credit
This tax credit has been increased to 25 percent for eligible supplies (such as books and games) to a maximum of $1,000.
Tax deduction on interest payments
You can claim a tax deduction for the interest you’ve paid on any money you’ve borrowed to invest. However, you can only do this if you use the money to earn investment income (for example, a rental property).
The digital subscriptions tax credit
You can claim up to $500 as a tax credit if you have a digital subscription to a qualifying Canadian news outlet.
Self-employed? Be sure to set aside enough for personal income tax!
If you’re self-employed, be sure you put aside enough money (we recommend 25% of your income) to pay your tax bill when the time comes. You’re taxed only on your net income (total income minus expenses).
You need to plan ahead for tax changes if you want to retire abroad
Planning to retire abroad? If so, you need to be aware of the tax implications and plan accordingly. If you sell your house and move, you may be considered a “non-resident” and be subject to capital gains taxes on non-registered investments (even if you have not sold them) or have your pension subjected to a withholding tax.
You can stop making CPP contributions if you’re over 65 but plan to keep working
If you’re 65 and already collecting Canada Pension Plan (CPP) benefits but also still working, you may be able to stop making CPP contributions. To do so, you need to fill in the form CPT30.
Need help?
Not sure if you qualify for a credit or deduction? Give us a call – we’re here to save you money on your taxes!
2022 British Columbia Budget Highlights
/in 2022 Only, BlogBritish Columbia 2022 Budget Highlights
On February 22, 2022, the B.C. Minister of Finance announced the 2022 budget. We have highlighted the most important things you need to know about this budget.
Image by https://www.bcbudget.gov.bc.ca/2022/
Supporting Sustainable Economic Development
Budget 2022 contains several measures to help build a more robust economy, including $50 million to support growing sectors such as life sciences, manufacturing, and agriculture. In addition, the budget allocates funding to help industries impacted by COVID-19, including the tourism industry, the arts, and non-profit organizations. Budget 2022 supports workers looking to upgrade their skills or train for new jobs, with an emphasis on providing training for early childhood educators and health care assistants.
Offering Stronger Health Care
Budget 2022 includes funding to support the opening of new Urgent and Primary care centres and continuing Pathway to Hope from Budget 2021, which dedicated $500 million over two years to support mental health and addiction care. As well, Budget 2022 includes funding for B.C. Centre for Disease Control.
Expanding Child Care Options and Lowering Fees
Working with the federal government, the B.C. government will create 40,000 new licensed child care spaces for children under six over the next seven years. The budget also includes an investment in increasing before and after school spaces and expanding the Seamless Day program to include 44 school districts.
Fees for full-day infant and toddler care will be reduced by 50% by the end of 2022 (to an average of $20/day). Average preschool and before and after school care fees will be cut to less than $20/day for the 2023/2024 school year.
Supporting Capital Infrastructure
Budget 2022 commits to spending over $27 billion to support critical infrastructure, including schools, hospitals, affordable housing, and highways and bridges. This amount of capital spending will support the creation of over 100,000 jobs.
Providing Funding For Affordable Homes
Budget 2022 allocates 2 billion dollars to HousingHub. HousingHub is a program that provides low-interest loans to private developers and other community groups and is designed to give middle-income British Columbians more opportunities to rent or own homes.
Promoting Clean Transportation
Budget 2022 continues to build on the B.C. government’s plan to fight climate change. PST will no longer be charged on used Zero-Emission Vehicles (ZEVs). The luxury tax threshold on ZEVs has been increased, and rebates will be available for both ZEVs and ZEV charging infrastructure.
No Changes To Corporate or Personal Tax Rates
Budget 2022 does not include any changes to the province’s corporate tax rates or personal tax rates.
We can help!
We can help you assess the impact of this year’s budget changes on your finances or business. Give us a call today!
TFSA versus RRSP – What you need to know to make the most of them in 2022
/in 2022, Blog, rrsp, Tax Free Savings AccountTFSA versus RRSP – What you need to know to make the most of them in 2022
TFSAs and RRSPs can be significant savings vehicles. To help you understand their differences, we have put together this article to compare:
TFSA versus RRSP – Differences in deposits
TFSA versus RRSP – Differences in withdrawals
TFSA versus RRSP – Difference in deposits
There are four main areas to focus on when comparing differences in deposits for 2022:
Contribution Room
Carry Forward
Contributions and Tax Deductibility
Tax Treatment of Growth
How much contribution room do I have?
If you have never opened a TFSA before, you can contribute up to $81,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
For RRSPs, the contribution limit is always 18% of your previous year’s pre-tax earnings to a maximum of $29,210. For example, if you earned $60,000 in 2021 then your contribution limit for 2022 would be $10,800 (18% x $60,000). If you earned $200,000, your contribution limit would be capped at the maximum of $29,210.
How much contribution room can I carry forward?
If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. In addition, if you make a withdrawal, the amount you withdrew is added to your annual contribution room for the following calendar year.
For an RRSP, you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
Contributions and Tax Deductibility
Your TFSA contributions are not tax-deductible and are made with after-tax dollars. Your RRSP contributions are tax-deductible and are made with pre-tax dollars.
Tax Treatment of Growth
One of the reasons it is essential to make both RRSP and TFSA contributions is that investment value growth is treated differently.
A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation because the investment value growth is tax-free. In addition, when you make a withdrawal from your TFSA, you will not have to pay income tax on the amount withdrawn.
The growth in an RRSP is tax-deferred, meaning you will not pay any taxes on your RRSP gains until you withdraw money from your future RRIF account; the account you convert your RRSP into at age 71. As a result, RRSPs are better suited for long-term objectives, like retirement. In addition, since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and not pay much tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are four main areas to focus on when comparing differences in withdrawal for 2022:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA. However, if you have an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2022.
Tax Treatment Of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This ability to withdraw funds tax-free is why TFSAs are advantageous for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal before converting it to a RRIF, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it is essential to know how your withdrawals can impact any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the following calendar year. However, if you withdraw money from your RRSP, you do not open up additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. With this in mind, understanding the differences between these two types of tax-advantaged accounts can help you better plan for future purchases and your eventual retirement.
2022 Financial Calendar
/in 2022, Blog, Financial Planning2022 Financial Calendar
Welcome to our 2022 financial calendar! This “at a glance” document lists important dates, including when government benefits are distributed and tax filing deadlines.
Be sure to bookmark this or add the dates listed to your personal calendar so you’re always in the loop!
Use our calendar to make sure you keep on track with your financial goals and avoid missing any critical tax or investment deadlines.
If you’re looking for help with your taxes, tax packages will be available in February 2022, so reach out to your accountant or us to book an appointment and get started on your taxes!
Important Dates
Dates to know:
January 1 is when the contribution room for your TFSA opens again. The maximum contribution for 2022 is $6,000.
The government will issue GST/HST credit payments on January 5, April 5, July 5, and October 5.
Canada Child Benefit payments (CCB) will be issued on the following dates: January 20, February 18, March 18, April 20, May 20, June 20, July 20, August 19, September 20, October 20, November 18, and December 13.
The government will issue CPP and OAS payments on the following dates: January 27, February 24, March 29, April 27, May 27, June 28, July 27, August 29, September 27, October 27, November 28, and December 21.
The final date for your RRSP contributions to be eligible for the 2021 tax year is March 1, 2022.
Bank of Canada’s interest rate announcements will be on January 26, March 2, April 13, June 1, July 13, September 7, October 26, and December 7.
May 2, 2022, is the last day to file personal income taxes, and tax payments are also due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2021.
May 3 to June 30 – The filing deadline for final tax returns if death occurred between November 1 and December 31. The due date for the final return is six months after the date of death.
The tax deadline for all self-employment returns is June 15, 2022. Any balance owing, however, is due May 2, 2022.
The deadline for final RESP, RDSP, and TFSA contributions is December 31.
December 31 is also the deadline for 2022 charitable contributions.
December 31 is also the deadline for individuals who turned 71 in 2022 to finish contributing to their RRSPs and convert them into RRIFs.
2021 Personal Year-End Tax Tips
/in Blog, individualsThe end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
Investment Considerations
Families
Retirees
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
If you have moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
If you are between the ages of 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021.
You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting.
Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.).
If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if:
a) at least $2,000 has already been contributed to the RESP and
b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Retirees
Are you turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a Registered Retirement Income Fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices.
65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits.
Do you not currently have any pension income? Then, you may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.
2021 Year-End Tax Tips for Business Owners
/in 2021, Blog, Business Owners, corporate2021 Year-End Tax Tips for Business Owners
Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary and Dividend Mix
As a business owner, one essential part of tax planning is determining the right mix of salary and dividends for both yourself and your family members.
The following are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket – This enables them to declare an income so that they can contribute to the Canada Pension Plan (CPP) and a Registered Retirement Savings Plan (RRSP). You must be able to prove the family members have provided services in line with the amount of compensation provided.
Pay dividends to family members who are shareholders in your company – The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling – This is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to Tax On Split Income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash – Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your personal tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes.
How much RRSP contribution room do you have.
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
An important part of year-end tax planning is determining appropriate ways to handle compensation. The following are the main things to consider:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose. The interest from the loan may be deductible if the proceeds of the shareholder loan were used to produce income from business or property.
Do you need to repay a shareholder loan to avoid paying personal income tax on the amount you borrowed?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying out a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Think about setting up a Retirement Compensation Arrangement (RCA) to help fund you or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-Controlled Private Corporations (CCPC) is the Small Business Deduction (SBD).
For qualifying businesses, the SBD reduces your corporate tax rate. Keep in mind that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any of the SBD is to make sure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could choose to hold more equity investments than fixed-income investments. Only 50% of the gains realized on shares sold is taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Another tactic you should consider for year-end tax planning is to hasten your purchase of any depreciable assets. A depreciable asset is a type of capital property that you can claim the Capital Cost Allowance (CCA) on.
These are two of the best ways to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. With this incentive, some depreciable assets are eligible for an enhanced first-year allowance.
Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.
Donations
Another essential part of tax planning is to make all of your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate securities.
Give a direct cash gift to a registered charity.
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of each of these types of charitable donations.
Make the Most of Covid-19 Relief Programs
While some COVID-19 relief programs, such as the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) have ended, others are still available. See if your business can benefit from any of the following relief programs:
Canada Recovery Hiring Program (CRHP). This program will continue to run until May 2022. If your business is eligible and continues to experience a decline in revenues as compared to pre-pandemic levels. In that case, the CRHP will provide support to assist in hiring new staff or increasing the wages of your existing staff.
Tourism and Hospitality Recovery Program. This new program provides wage and rent support to eligible businesses such as hotels and restaurants with an average monthly revenue reduction of at least 40% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 40%.
Hardest Hit Business Recovery Program. This provides rent and wage support of up to 50% for eligible entities. Eligible entities must meet two conditions – an average monthly revenue reduction of at least 50% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 50%.
General support in the event of a public health lockdown. If there is a public health lockdown and your business loses sufficient revenue, your business would be eligible for support at the same subsidy rates as the Tourism and Hospitality Recovery Program.
Know what’s included as taxable income. If you received assistance from the government assistance programs, including the CEWS, CERS, and CRHP, this assistance is taxable as income.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. Book some time with us today to learn how you can benefit from these tax tips and strategies.
When should I buy life insurance?
/in Blog, life insuranceWhen should I buy life insurance?
Life insurance can benefit you no matter what stage of life you’re at. It’s never too soon or too late to buy life insurance. Not only will it give you peace of mind, but it will also provide your loved ones with financial support after you die.
Types of life insurance
There are two main types of life insurance:
Term life provides temporary coverage for a set amount of time (for example, 10, 15, or 20 years).
Permanent coverage is life insurance that never expires.
Term life is generally cheaper as it is only good for a set amount of time. Permanent insurance will cost you more in the short run but may work out less expensive in the long run as your premiums do not tend to increase as you age.
Life insurance in your 20s
In your 20s, you may feel like you’re immortal and have lots of other things you want to spend your money on. But you also likely have responsibilities – such as student loans your parents may have co-signed for or a mortgage with your partner. If something happened to you, your loved ones would be left alone to pay for that debt. Life insurance could help fill this financial gap.
Also, another great reason to get life insurance in your 20s is that it’s very affordable! You will have a low insurance premium because you are considered low risk.
Life insurance in your 30s
By the time you’re in your 30s, you may have several financial responsibilities – including a mortgage and children. If you’ve only had term insurance up to this point, you may want to consider converting it to permanent to help give yourself lifelong protection.
Even if you have life insurance through your workplace, you may want to buy additional life insurance. Separate life insurance can help cover you if you lose your job or lock-in rates while you are relatively young and healthy.
Life insurance in your 40s, 50s, 60s and beyond
At this stage in your life, you may still have a mortgage or dependent children. You may have even bought a cottage or a vacation property. No matter your financial responsibilities, if your estate doesn’t have enough cash to cover them, it’s essential to have life insurance still.
Now is an excellent time to lock in permanent insurance. However, if you find the premiums too high or know you only need life insurance for a set amount of time, term life may still work for you.
Your next steps
Now you know about the two main types of life insurance and why it’s crucial to have it, no matter what age you are. If you’re not sure where to go from here, contact your insurance advisor or us – we can help you figure out your next steps!
“Final Pivot” – COVID-19 Emergency Benefits expire October 23rd, replaced by targeted supports
/in Blog, CoronavirusOn Thursday, October 22nd, 2021 Deputy Prime Minister and Finance Minister Chrystia Freeland announced the “final pivot in delivering the support needed to deliver a robust recovery.” This “Final Pivot” means several existing pandemic support programs for individuals and businesses will expire on October 23rd, 2021:
Canada Recovery Benefit (CRB)
Canada Emergency Rent Subsidy (CERS)
Canada Emergency Wage Subsidy (CEWS)
In their place, the Federal Government announced:
The Tourism and Hospitality Recovery Program – provides support through the wage and rent subsidy programs, to hotels, tour operators, travel agencies, and restaurants, with a subsidy rate of up to 75%.
The Hardest-Hit Recovery Program – provides support through the wage and rent subsidy programs, would support other businesses that have faced deep losses, with a subsidy rate of up to 50%.
Canada Worker Lockdown Benefit – provides $300 a week to workers facing local lockdowns, including those not eligible for Employment Insurance. Anyone whose loss of income is due to their refusal to follow vaccination mandates will be excluded from accessing the aid.
Full details are in the links below:
Why Should I Review My Life Insurance?
/in Blog, life insuranceWhy Should I Review My Life Insurance?
It’s great that you’ve taken the critical step of buying life insurance. But have you reviewed it recently to make sure that your policy is still suitable for you? It’s important to review your life insurance policy annually to check that your policy is up-to-date and see if you require any additional coverage.
There are several reasons you may need to change your life insurance policy. We’ve listed them below.
You’ve gone through a significant life event
You may have gone through a significant life event – such as getting married or divorced or having a child – in the past year. In this case, it’s important to consider changing your beneficiaries to make sure that your life insurance proceeds are distributed appropriately.
If you don’t update your beneficiaries, a previously named beneficiary could still be legally entitled to the money you want other people to receive.
You’ve changed jobs
Congratulations – you’ve got a new job or even started your own business! If you’ve started a new job, you may need more life insurance to account for extra income your family will be accustomed to or to account for a change in your employer-based life insurance policy.
If you’ve started a new business, you’ll likely need additional life insurance to help cover debts you may have taken on to start your new business. Plus, since you’re self-employed, you won’t have any employer-based life insurance anymore.
You’ve taken on some debt
If you’ve recently taken on some debt – such as a credit consolidation loan or a home equity loan – more life insurance may be a good idea. Additional life insurance can provide your loved ones with some much-needed extra income to help pay off debt or even pay for basic living expenses if you die.
You’re supporting family members
If your parents have moved in with you or have moved into assisted living, they may require financial support. Additional life insurance can help pay for this increased financial load.
If you have children ready for college or university, they’ll still need financial support from you. You can help secure their financial future with a life insurance policy that will help cover tuition costs.
You’ve bought a new home
You don’t want to leave your spouse or partner the burden of paying off a mortgage alone. Additional life insurance coverage can ensure they’ll have the funds they need after you pass and won’t be forced to sell at a stressful time.
A loved one has a change in health
If a loved one has recently had a change in their health or a significant medical diagnosis, then it’s essential to review your life insurance coverage. Your loved one may need expensive medical treatment or in-home support – which life insurance can help cover if you die.
If you have any questions about your life insurance coverage or want to make any changes, give us a call!
Paying for Education
/in Blog, Debt, Family, life insurancePost-secondary education can be expensive, however having the opportunity to plan for it helps with making sure that you’re capable to meet the costs of education. In addition, when you have a plan, it’s easier to make financial decisions that align with your goals and provide peace of mind. In the infographic, we outline 7 sources of funds for paying for post-secondary education:
Registered Education Savings Plan
Tax Free Savings Account
Life Insurance
Scholarships, grants, bursaries
Personal Loans, Lines of Credit
Government Student Loan
Personal Savings
If you need help planning to save for your child’s post-secondary education, contact us!
Importance of a Buy-Sell Agreement
/in Blog, Business Owners, buy sellStarting a new business venture can be both exciting and nerve-racking at the same time. The hopes and dreams of success, financial freedom, and being your own boss are accompanied by many uncertainties and risks. To add to some of the anxiety comes the facts: about half of all new businesses will not be around within the next 5, and only about one-third will survive 10+ years. The situation often becomes more complex when there are multiple owners and the future success of a business is at risk if proper planning is not done. The unexpected ‘exit’ of a partner due to death, disability, illness, retirement, or just simply that ‘it’s not working out’ can create a very difficult situation for the remaining business owner(s) and the business itself. Many businesses operate under a ‘handshake’ sort of agreement, but those rarely are upheld when the situation starts to get challenging. In order to protect against all of these pitfalls, it is always advised to have the right structure in place to address any potential challenges that may arise. This is done by incorporating a Buy-Sell Agreement between the owners.
What is a Buy‐Sell Agreement?
A buy-sell agreement is a legally binding contract designed to establish a set of rules or actions for the remaining business owner(s) to carry on the business, in the event one of them is no longer involved in the business – this can be due to death, illness, injury, retirement or a simple desire to ‘get out’. In other words, this document dictates how the remaining owner(s) will interact with each other and how the business will operate when certain situations occur. This agreement creates certainty and a ‘game plan’ in case one or more of the partners are no longer able or willing to commit to the business.
Types of Buy‐Sell Agreements
Buy-sell agreements are generally structured as a cross purchase agreement, promissory note agreement, or share redemption agreement. With a cross-purchase agreement, each shareholder within the agreement agrees to purchase a specified percentage of the shares owned by the departing shareholder, and if it’s due to death, the deceased shareholder’s estate is obligated to sell the shares to the remaining shareholder(s). A shareholder will generally purchase insurance on the life of the other shareholder(s) and on death, will use the proceeds from the insurance to buy out the remaining shares from the deceased shareholder’s estate. With a promissory note agreement, corporate owned life insurance is placed on the life of each shareholder, with the corporation named as the payor and beneficiary. In the event that a shareholder dies, the surviving shareholder(s) purchases the deceased’s shares from their estate using a promissory note. Once the remaining shareholder(s) owns the deceased shareholder’s shares, the company collects the death benefit on the insurance policy with the excess amount above the adjusted cost basis of the policy in the capital dividend account. The company then provides the surviving shareholder(s) a capital dividend which provides the remaining shareholder(s) the necessary funds to pay off the promissory note. Under the share redemption arrangement corporate owned life insurance is placed on the life of each shareholder with the corporation named as the payor and beneficiary. In the event that a shareholder dies, the company collects the insurance proceeds and places the excess amount above the adjusted cost basis of the policy in the capital dividend account. The company uses the proceeds in the capital dividend account to redeem the shares held by the deceased shareholder’s estate. Once that is done, the remaining shareholder(s) takes over the ownership of those purchased shares. Each structure has their advantages and disadvantages and should be reviewed with a legal professional, tax professional as well as a knowledgeable Financial Advisor.
Why the business needs a buy‐sell agreement
A buy-sell agreement is a crucial component of a business that should be incorporated to protect the shareholders as well as the business itself. It is designed to ensure important things are taken care of if someone leaves the business for whatever reason, so that the business can continue to grow and run successfully. A buy-sell agreement offers several key benefits to your business:
It maintains the continuity of your business by ensuring members get to decide what happens to the business before any problems arise.
It protects company ownership by laying out a succession plan for departing members. This keeps remaining shareholders from being burdened by untested and unproven successors (like the widow or children of the departing co-owner).
It minimizes disputes between remaining co-owners and the family of the departing owner by having a strategy in place ahead of time to govern business operations.
It alleviates co-owner stress and uncertainty by specifically identifying which events would trigger a buyout.
It protects business assets and liquidity by providing a financial (and tax) plan for each of the different triggers addressed in the agreement.
It protects the interest of, not just the business entity itself, but also that of the business owners to ensure members (and their families, in the event of death or disability) are handled with respect, courtesy and the utmost fairness.
What to include in the buy‐sell agreement
Since a buy-sell agreement is a legally binding document, it generally should be drafted with a knowledgeable and experienced Legal Professional. Most agreements are started through a generic template, but then are customized for the needs of each business/partner and can be a fairly thorough and comprehensive document. There are several different components of a buy-sell agreement and several different aspects need to be addressed, such as the valuation of the company, ownership interests, buy-out clauses, and terms of payment. The agreement should generally be drafted at the very start of the business, so as to avoid any issues or misunderstandings later on. The agreement will also address certain ‘triggering events’, which are listed below.
Disagreement
The conflict between owners of a business in regards to the direction or management of the business can sometimes occur, and can even push the most successful business off-course. In a situation where no agreement or mediation can be reached, it may make sense to allow for one or more of the partners to be bought out. This would allow the business to continue moving forward and is often referred to as a ‘shot-gun clause’. Sometimes a situation where one owner offers to buy out the other would also offer to be bought out for the same value, thus ensuring fair treatment and value of the shares.
Divorce
An owner who is in the midst of a divorce may be bought out by other partners, to protect the company ownership. A divorce settlement will generally depend on the partner’s share of the business. It’s not uncommon for a family law judge to order a business owner to split his or her interest in a company with the former spouse. To protect the business from this event, a clause should require the shares held by the former spouse of a partner to be acquired by the company or one of the other owners.
Retirement
The value of the business comprises a significant component for the retirement of many business owners. Allowing the remaining partners to reclaim the interest in the business keeps the business intact and provides the retiring partner with a market to liquidate their ownership, thus providing the retiring partner with a cash infusion to enjoy their retirement. There may also be some distinction in the agreement between early retirement and regular retirement and how the shares of the departing owner are to be valued.
Bankruptcy
Borrowing money to expand or grow the company, or to purchase equipment or goods, is common for many companies. However, lending institutions often require personal guarantees from the owners/shareholders of the business. Having one or more owners that are not able to provide this guarantee can lead to higher fees and impact the overall financial well-being and growth of the business. Therefore, a provision should be considered to allow the other shareholders the opportunity to acquire shares of the defaulting shareholder(s).
Disability
An owner who has become disabled and unable to perform their duties can impact the overall well-being of the business. The agreement should address several situations and questions, such as whether the partner will continue to receive a salary, and for how long, or whether they will continue in the day-to-day management of the company.The buy-sell agreement also needs to clearly define what is considered a disability and should include a timeline for which the disabled partner would be given the opportunity to return. Often the business will purchase disability buy-sell insurance and link the definitions to the plan. This has the added benefit of providing an independent third party to determine when the criteria for the buy-out are satisfied.
Death
The death of a partner is an unfortunate and difficult situation for both the family and business partners alike. To deal with the stress of continuing the business, establishing the rules of business continuity upon death provides peace of mind to both the surviving partners and the family of the deceased. The surviving partners benefit from the assurance of not having to deal with an unwanted partner and the family is assured that they will be treated fairly. Generally, all partners/co-owners will be covered by a ‘key person’ life insurance policy, which can be paid by either the company or the other partners, where the death benefit would be used to buy out the deceased owner’s shares (as mentioned above).
Funding the buy‐sell agreement
Without sufficient resources to fund a potential buy-out, the agreement itself can fall apart. The partners need to decide where the money will come from to complete the buy-out – whether it will be the responsibility of individual owners or from the company itself. While not all events can be protected, two can: the death and disability of a shareholder. By using an insurance policy, funds can be made available at the time they are needed, thus minimizing potential liquidity issues, protecting the business and the impacted shareholders, as well as the family of the deceased shareholder. Using insurance provides the protection needed at a fraction of the cost to the alternatives and can provide immediate capital and significant tax benefits.
Working as a partnership between 2 or more individuals is never an easy task, and the situation only gets more complicated when one or more of them exits the business. Protecting not only the business, but your personal interests, as well as your family’s future are very important objectives for any business owner, and should not be overlooked. Although no business can be certain of success, there are strategies and structures that can help protect the business from failure in the future. Working with a knowledgeable and experienced Financial Advisor, Legal Professional and Tax Professional, you can be assured that you can have the proper Buy-Sell Agreement in place so that all parties involved benefit.
Life Insurance after 60- is it necessary?
/in Blog, Insurance, life insuranceYou may have had life insurance for as long as you can remember. You wanted to make sure that your family would be taken care of and be able to pay their bills if anything happened to you.
But now that you’re older and your children are grown – and hopefully your mortgage is paid off – you may not feel you still need life insurance. This could be a valid assumption; however, there are some circumstances under which it may still make sense for you to have life insurance. They are:
You still have substantial debt.
You have dependent children or grandchildren.
You want to leave a financial legacy.
You still have substantial debt
No one likes the thought of leaving their loved ones to pay their debts if they die. If, however, someone has co-signed a loan with you – for example, for a mortgage or a car – and you die, then they will be on the hook for the entire amount.
If you have life insurance and name your co-signer as the beneficiary, this will help relieve any financial burden your death could cause them.
You have dependent children or grandchildren
If you have children who are still dependent on you because they have a mental or physical disability, life insurance can be an excellent way to ensure they will still have access to funds after you die. Lifelong care can be expensive, and a life insurance benefit will go a long way to helping fund it.
You may have grandchildren you are caring for or that you are not responsible for but want to leave money they can use towards higher
education. A life insurance payout can be a great way to help a grandchild get a good start in life without having to go into debt.
You want to leave a financial legacy
You may not have dependent children or grandchildren but still want to leave them something when you die. Life insurance can be a great way to do this without cutting back on your spending during your lifetime.
Life insurance can also help make sure that you have something to leave everyone in your will. If you have a family cottage, it can
be complicated to leave it to more than one person or family. Life insurance gives you the option to leave one person or family the cottage and another person or family the cash equivalent.
We can help you!
If you’re unsure whether or not it still makes sense to have life insurance after the age of 60, we’d be happy to sit down with you and talk through your options. Give us a call or email us today!
Estate Freeze
/in Blog, Estate Planning, taxIn 2015, CIBC conducted a poll to see how many Canadian business owners had a business transition plan. Almost half of them didn’t have one.
No one likes to think about having to hand over the business they’ve built from the ground up. But the fact of the matter is, you’ll have to do it eventually. And the last thing you want to do is decide in a hurry if you become ill or otherwise incapacitated.
Your two main choices for passing on your business are:
Selling it
Transferring ownership to a successor of your choice (this can either be a family member or a non-family member such as a key employee)
When you die, all your capital property is deemed to have been sold immediately before your death. This includes your business. This means that capital gains taxes will be charged on whatever the fair market value (FMV) of your business is considered to be at the time of your death.
The higher the FMV of your business, the higher the capital gains taxes that will be charged on it. Your successors may not be able to afford these taxes – causing them not to reap the benefits of all your hard work properly.
The good news is that there’s a way to protect your business by doing an estate freeze.
What is an estate freeze?
An estate freeze can be an integral part of your estate planning strategy. The purpose of an estate freeze is to transfer any future increase in your business’s value (generally shares) that you own to someone else.
This is how an estate freeze works:
As a business owner, you can lock in or “freeze” the value of an asset as it stands today. Your successors will still have to pay taxes on your business when they inherit it – but not as much as if you hadn’t “frozen” your business and your company had increased in FMV.
You continue to maintain control of your business. As well, you can receive income from your business while it is frozen.
Your successor now benefits from the business’ future growth, but they won’t have to pay for any tax increases that occur before they inherit the business.
Freezing the value of your business can help you plan your tax spending properly. Selecting to “freeze” your business can help give you peace of mind that your successors won’t have to spend a considerable part of their inheritance on excessive taxes.
What happens when you freeze your estate?
When you execute an estate freeze, the first thing you need to do is exchange your common shares for preferred shares. Your new preferred shares will have a fixed (a.k.a. “frozen”) value equal to the company’s present fair market value. Make sure you have everything in place to properly determine the fair market value before you start changing your shares.
Your company will then issue common shares, which your successors subscribe to for a nominal price (for example, 1 dollar). Note that your successors don’t own the stock yet – subscribing to the stocks means they will take ownership of the stocks at a future date.
You must have a shareholders’ agreement ready to bring in new shareholders as part of your estate freeze. This agreement should list any terms and conditions related to the purchase, redemption, or transfer of your company’s common shares.
You can choose to receive some retirement income from your preferred shares by cashing in a fixed amount gradually. This action will reduce your preferred shares’ total value, reducing income tax liability upon death. For example:
Your shares are worth $10,000,000, and you need $100,000 annually. You can then redeem $100,000 worth of shares.
If you live for 30 more after you freeze your estate, you will have withdrawn $3,000,000 of your shares. This reduces the value of your shares to $7,000,000.
At your death, your tax liability is lower than it would have been had your shares remained at the original value of $10,000,000.
You can opt to maintain voting control in your company. This can be complicated (so you should consult a licensed professional), but you can set up your estate freeze so that you still have voting control in your business with your preferred stock.
How you can benefit from an estate freeze
You get peace of mind. The most important benefit to a tax freeze is that you know that whoever your successors are will receive what they are entitled to and no have to deal with any unpredictable tax burdens. Since an estate freeze fixes the maximum amount of taxes to be paid, you can properly plan how much money to set aside for this. One option to have a life insurance policy in the amount of the taxes, with your successor as the beneficiary, so you know they will have enough money to pay for these taxes.
You encourage participation in growing your business. Your chosen successors will be motivated to help the company grow, as they know they will benefit in the future.
Further tax reductions. If your shares qualify for lifetime capital gains exemption, then an estate freeze also helps further reduce your successor’s tax liability.
Is an estate freeze the right strategy for you?
There are a few things you need to consider when deciding if an estate freeze is right for you or not.
Retirement funding. What kind of retirement savings, if any, do you have? If you have money put aside in RRSPs, TFSAs, or even have a pension from a previous job, then an estate freeze may be the right choice for you. If you were planning to sell your company and live off the proceeds in retirement, then it likely is not the right choice for you.
Succession plans. Do you have someone in mind who would be a suitable successor? Just because you think your child, spouse, or best employee may want to take over your business doesn’t mean they do. Talk to anyone you are considering making a successor and see if they are both interested in and able to keep your business going.
Family relationships. Trying to figure out how to select a successor if you have several children may be challenging. It can cause a lot of strain amongst your children if they are all named successors if only some of them are actively interested in running the business. You may want to consider only making one child a successor and providing for your other children in different ways, such as making them a life insurance beneficiary.
If you select to pursue an estate freeze for your business, you are helping plan for your heirs’ future and cutting down on the amount of taxes that will eventually have to be paid. That being said – an estate freeze can be complicated, and all the steps must be performed correctly. Be sure to consult an experienced professional be taking any steps to freeze your estate.
Succession Planning for Business Owners
/in Blog, Business Owners, Estate Planning, Family, life insuranceSuccession Planning for Business Owners
Business owners deal with a unique set of challenges. One of these challenges includes succession planning. A succession plan is the process of the transfer of ownership, management and interest of a business. When should a business owner have a succession plan? A succession plan is required through the survival, growth and maturity stage of a business. All business owners, partners and shareholders should have a plan in place during these business stages.
We created this infographic checklist to be used as a guideline highlighting main points to be addressed when starting to succession plan.
Needs:
Determine your objectives- what do you want? For you, your family and your business. (Business’ financial needs)
What are your shares of the business worth? (Business value)
What are your personal financial needs- ongoing income needs, need for capital (ex. pay off debts, capital gains, equitable estate etc.)
There are 2 sets of events that can trigger a succession plan: controllable and uncontrollable.
Controllable events
Sale: Who do you sell the business to?
Family member
Manager/Employees
Outside Party
There are advantages and disadvantages for each- it’s important to examine all channels.
Retirement: When do you want to retire?
What are the financial and psychological needs of the business owner?
Is there enough? Is there a need for capital to provide for retirement income, redeem or freeze shares?
Does this fit into personal/retirement plan? Check tax, timing, corporate structures, finances and family dynamics. (if applicable)
Uncontrollable Events
Divorce: A disgruntled spouse can obtain a significant interest in the business.
What portion of business shares are held by the spouse?
Will the divorced spouse consider selling their shares?
What if the divorced spouse continues to hold interest in the business without understanding or contributing to the business?
If you have other partners/shareholders- would they consider working with your divorced spouse?
Illness/Disability: If you were disabled or critically ill, would your business survive?
Determine your ongoing income needs for you, your spouse and family. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
Will the ownership interest be retained, liquidated or sold?
How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? Does the business have a savings or insurance program in place to address this?
Death: In the case of your premature death, what would happen to your business?
Determine your ongoing income needs for your dependents. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
Will the ownership interest be retained, liquidated or sold by your estate? Does your will address this? Is your will consistent with your wishes? What about taxes?
How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? How will this affect your employees? Does the business have a savings or insurance program in place to address this?
Execution: It’s good to go through this with but you need to get a succession plan done. Besides having a succession plan, make sure you have an estate plan and buy-sell/shareholders’ agreement.
Because a succession plan is complex, we suggest that a business owner has a professional team to help. The team should include:
Financial Planner/Advisor (CFP)
Succession Planning Specialist
Insurance Specialist
Lawyer
Accountant/Tax Specialist
Chartered Life Underwriter (CLU)
Next steps…
Contact us about helping you get your succession planning in order so you can gain peace of mind that your business is taken care of.
British Columbia 2021 Budget Highlights
/in 2021, Blog, taxOn April 20, 2021, the B.C. Minister of Finance announced the 2021 budget. We have highlighted the most important things you need to know.
Requirement to repay B.C Emergency Benefit for Workers has been waived
If you are self-employed and received the B.C. Emergency Benefit for Workers, you will no longer be required to repay this benefit if you would have qualified for it based on your gross income (instead of your net income). This mirrors a federal change to the Canada Emergency Response Benefit.
Home Owner Grant threshold change
The budget confirmed a previously announced increase to the Home Owner Grant to $1.625 million (from $1.525 million) for the 2021 tax year. This grant helps reduce the amount of property taxes you pay.
PST exemption for electric bicycles
As of April 21, 2021, electric bicycles and tricycles will be exempt from provincial sales tax (PST). Also, electrical conversion kits and parts and services for bicycles and tricycles will be exempt from PST.
Elimination of provincial sales tax refunds on specific vehicle transactions
The provincial sales tax refund for motor vehicles purchased and resold within seven days has been eliminated. This elimination will apply on a date still to be set by regulation.
Carbon tax increase
The budget confirms a previously delayed increase to the carbon tax rate. As of April 1, 2021, carbon tax rates were set at $45 per tonne. They will increase to $50 per tonne on April 1, 2022.
Tobacco tax increase
The budget increases the tax rate on tobacco products as of July 1, 2021:
On cigarettes and heated tobacco products (vaping), taxes will increase from 29.5 cents to 32.5 cents per cigarette or heated tobacco product.
On loose tobacco, taxes increase from 39.5 cents per gram to 65 cents per gram.
Changes to the speculation and vacancy tax
Corporations owned by government agents are now exempt from the speculation and vacancy tax.
Also, the following changes have been made and are retroactive to November 27, 2018:
Properties owned by a trustee for a trust that benefits a registered charity can claim an exemption from the speculation and vacancy tax.
If someone has a beneficial interest in a property contingent on the death of another individual, they will no longer be included in the definition of “beneficial owners” for this tax.
We can help you assess the impact of tax changes in this year’s budget on your finances or business. Give us a call today!
Federal Budget 2021 Highlights
/in 2021, Blog, Coronavirus, Coronavirus - Associates, Coronavirus - Practice Owners, Coronavirus - Students, corporate, Debt, Family, financial advice, Financial Planning, incorporated professionals, individuals, personal finances, Professional Corporations, taxOn April 19, 2021, the Federal Government released their 2021 budget. We have broken down the highlights of the financial measures in this budget into three different sections:
Business Owners
Personal Tax Changes
Supplementary Highlights
Business Owners
Extending Covid -19 Emergency Business Supports
All of the following COVID-19 Emergency Business Supports will be extended from June 5, 2021, to September 25, 2021, with the subsidy rates gradually decreasing:
Canada Emergency Wage Subsidy (CEWS) – The maximum wage subsidy is currently 75%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Canada Emergency Rent Subsidy (CERS) – The maximum rent subsidy is currently 65%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Lockdown Support Program – The Lockdown Support Program rate of 25% will be extended from June 4, 2021, to September 25, 2021.
Only organizations with a decline in revenues of more than 10% will be eligible for these programs as of July 4, 2021. The budget also includes legislation to give the federal government authority to extend these programs to November 20, 2021, should either the economy or the public health situation make it necessary.
Canada Recovery Hiring Program
The federal budget introduced a new program called the Canada Recovery Hiring Program. The goal of this program is to help qualifying employers offset costs taken on as they reopen. An eligible employer can claim either the CEWS or the new subsidy, but not both.
The proposed subsidy will be available from June 6, 2021, to November 20, 2021, with a subsidy of 50% available from June to August. The Canada Recovery Hiring Program subsidy will decrease down to 40% for September, 30% for October, and 20% for November.
Interest Deductibility Limits
The federal budget for 2021 introduces new interest deductibility limits. This rule limits the amount of net interest expense that a corporation can deduct when determining its taxable income. The amount will be limited to a fixed ratio of its earnings before interest, taxes, depreciation, and amortization (sometimes referred to as EBITDA).
The fixed ratio will apply to both existing and new borrowings and will be phased in at 40% as of January 1, 2023, and 30% for January 1, 2024.
Support for small and medium-size business innovation
The federal budget also includes 4 billion dollars to help small and medium-sized businesses innovate by digitizing and taking advantage of e-commerce opportunities. Also, the budget provides additional funding for venture capital start-ups via the Venture Capital Catalyst Program and research that will support up to 2,500 innovative small and medium-sized firms.
Personal Tax Changes
Tax treatment and Repayment of Covid-19 Benefit Amounts
The federal budget includes information on both the tax treatment and repayment of the following COVID-19 benefits:
Canada Emergency Response Benefits or Employment Insurance Emergency Response Benefits
Canada Emergency Student Benefits
Canada Recovery Benefits, Canada Recovery Sickness Benefits, and Canada Recovery Caregiving Benefits
Individuals who must repay a COVID-19 benefit amount can claim a deduction for that repayment in the year they received the benefit (by requesting an adjustment to their tax return), not the year they repaid it. Anyone considered a non-resident for income tax purposes will have their COVID-19 benefits included in their taxable income.
Disability Tax Credit
Eligibility changes have been made to the Disability Tax Credit. The criteria have been modified to increase the list of mental functions considered necessary for everyday life, expand the list of what can be considered when calculating time spent on therapy, and reduce the requirement that therapy is administered at least three times each week to two times a week (with the 14 hours per week requirement remaining the same).
Old Age Security
The budget enhances Old Age Security (OAS) benefits for recipients who will be 75 or older as of June 2022. A one-time, lump-sum payment of $500 will be sent out to qualifying pensioners in August 2021, with a 10% increase to ongoing OAS payments starting on July 1, 2022.
Waiving Canada Student Loan Interest
The budget also notes that the government plans to introduce legislation that will extend waiving of any interest accrued on either Canada Student Loans or Canada Apprentice Loans until March 31, 2023.
Support for Workforce Transition
Support to help Canadians transition to growing industries was also included in the budget. The support is as follows:
$250 million over three years to Innovation, Science and Economic Development Canada to help workers upskill and redeploy to growing industries.
$298 million over three years for the Skills for Success Program to provide training in skills for the knowledge economy.
$960 million over three years for the Sectoral Workforce Solutions Program to help design and deliver training relevant to the needs of small and medium businesses.
Supplementary Highlights
Federal Minimum Wage
The federal budget also introduces a proposed federal minimum wage of $15 per hour that would rise with inflation.
New Housing Rebate
The GST New Housing Rebate conditions will be changed. Previously, if two or more individuals were buying a house together, all of them must be acquiring the home as their primary residence (or that of a relation) to qualify for the GST New Housing Rebate. Now, the GST New Housing Rebate will be available as long as one of the purchasers (or a relation of theirs) acquires the home as their primary place of residence. This will apply to all agreements of purchase and sale entered into after April 19, 2021.
Unproductive use of Canadian Housing by Foreign Non-Resident Owners
A new tax was introduced in the budget on unproductive use of Canadian housing by non-resident foreign owners. This tax will be a 1% tax on the value of non-resident, non-Canadian owned residential real estate considered vacant or underused. This tax will be levied annually starting in 2022.
All residential property owners in Canada (other than Canadian citizens or permanent residents of Canada) must also file an annual declaration for the prior calendar year with the CRA for each Canadian residential property they own, starting in 2023. Filing the annual declaration may qualify owners to claim an exemption from the tax on their property if they can prove the property is leased to qualified tenants for a minimum period in a calendar year.
Excise Duty on Vaping and Tobacco
The budget also includes a new proposal on excise duties on vaping products and tobacco. The proposed framework would consist of:
A single flat rate duty on every 10 millilitres of vaping liquid as of 2022
An increase in tobacco excise duties by $4 per carton of 200 cigarettes and increases to the excise duty rates for other tobacco products such as tobacco sticks and cigars as of April 20, 2021.
Luxury Goods Tax
Finally, the federal budget proposed introducing a tax on certain luxury goods for personal use as of January 1, 2022.
For luxury cars and personal aircraft, the new tax is equal to the lesser of 10% of the vehicle’s total value or the aircraft, or 20% of the value above $100,000.
For boats over $250,000, the new tax is equal to the lesser of 10% of the full value of the boat or 20% of the value above $250,000.
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
What’s new for the 2021 tax-filing season?
/in 2021, Blog, taxTax season is upon us once again. But since 2020 was a year like no other, the 2021 tax-filing season will also be different. Both how we worked and where we worked changed for a lot of us in 2020.
Some Canadians got to work from home for the first time but saw no other disruption to their jobs. There was a much bigger disruption for other Canadians – they faced temporary or permanent job losses and had to supplement their incomes wide side gigs and emergency government programs.
The Canadian government has introduced some new tax credits and deductions in response to these changes. We’ve covered some of the highlights below.
Claiming home office expenses
With a sudden shutdown happening across the country in March 2020, many Canadians stopped commuting to the office and started working from home. As a response to this, the Canada Revenue Agency (CRA) has offered a new way to claim home office expenses. If you:
Worked from home due to COVID-19 – for a minimum of 50 percent of the time for at least four consecutive weeks AND
Your employer did not reimburse you for your home office expenses.
You can claim $2 for each day – to a maximum of $400 for the year.
If you have more complicated or higher home office expenses, then your employer must provide you with a T2200 form, with a list of deductions included.
New Canada Training Credit
Suppose you are between the ages of 25 and 65 and taking courses to upgrade your skills from a college, university, or other qualifying institution. In that case, you can claim this new, refundable tax credit.
You can automatically accumulate $250 annually – and the new Canada Training Credit has a lifetime maximum of $5,000. You can claim this credit when you file your taxes.
Pandemic emergency funds
The emergency support programs helped a lot of Canadians avoid financial disaster. If you were one of the Canadians who received pandemic emergency funds, you must be aware of the tax implications.
If you received the Canada Emergency Response Benefit (CERB) or the Canada Emergency Student Benefit (CESB), no taxes were withheld at source, so you will be taxed on the full amount. If you received the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), or Canada Recovery Caregiver Benefit (CRCB), the CRA withheld a 10% tax at source, so you may not owe additional taxes on this income.
New digital news subscription tax credit
This is a new, non-refundable tax credit that is calculated at 15 percent – and is eligible for up to a maximum of $500 in qualifying subscription expenses. To qualify for this credit, you must subscribe to one or more qualified Canadian journalism organizations – and you could save up to $75 a year thanks to this credit.
I’m here to help you understand where you owe taxes and how you can lower your tax bill. Give me a call today!
Do you REALLY need life insurance?
/in Blog, Business Owners, Family, individuals, life insuranceYou most likely do, but the more important question is, What kind? Whether you’re a young professional starting out, a devoted parent or a successful CEO, securing a life insurance policy is probably one of the most important decisions you will have to make in your adult life. Most people would agree that having financial safety nets in place is a good way to make sure that your loved ones will be taken care of when you pass away. Insurance can also help support your financial obligations and even take care of your estate liabilities. The tricky part, however, is figuring out what kind of life insurance best suits your goals and needs. This quick guide will help you decide what life insurance policy is best for you, depending on who needs to benefit from it and how long you’ll need it.
Permanent or Term?
Life insurance can be classified into two principal types: permanent or term. Both have different strengths and weaknesses, depending on what you aim to achieve with your life insurance policy.
Term life insurance provides death benefits for a limited amount of time, usually for a fixed number of years. Let’s say you get a 30-year term. This means you’ll only pay for each year of those 30 years. If you die before the 30-year period, then your beneficiaries shall receive the death benefits they are entitled to. After the period, the insurance shall expire. You will no longer need to pay premiums, and your beneficiaries will no longer be entitled to any benefits.
Term life insurance is right for you if you are:
The family breadwinner. Death benefits will replace your income for the years that you will have been working, in order to support your family’s needs.
A stay-at-home parent. You can set your insurance policy term to cover the years that your child will need financial support, especially for things that you would normally provide as a stay-at-home parent, such as childcare services.
A divorced parent. Insurance can cover the cost of child support, and the term can be set depending on how long you need to make support payments.
A mortgagor. If you are a homeowner with a mortgage, you can set up your term insurance to cover the years that you have to make payments. This way, your family won’t have to worry about losing their home.
A debtor with a co-signed debt. If you have credit card debt or student loans, a term life insurance policy can cover your debt payments. The term can be set to run for the duration of the payments.
A business owner. If you’re a business owner, you may need either a term or permanent life insurance, depending on your needs. If you’re primarily concerned with paying off business debts, then a term life insurance may be your best option.
Unlike term life insurance, a permanent life insurance does not expire. This means that your beneficiaries can receive death benefits no matter when you die. Aside from death benefits, a permanent life insurance policy can also double as a savings plan. A certain portion of your premiums can build cash value, which you may “withdraw” or borrow for future needs. You can do well with a permanent life insurance policy if you:
…Have a special needs child. As a special needs child will most likely need support for health care and other expenses even as they enter adulthood. Your permanent life insurance can provide them with death benefits any time within their lifetime.
…Want to leave something for your loved ones. Regardless of your net worth, permanent life insurance will make sure that your beneficiaries receive what they are entitled to. If you have a high net worth, permanent life insurance can take care of estate taxes. Otherwise, they will still get even a small inheritance through death benefits.
…Want to make sure that your funeral expenses are covered. Final expense insurance can provide coverage for funeral expenses for smaller premiums.
…Have maximized your retirement plans. As permanent life insurance may also come with a savings component, this can also be used to help you out during retirement.
…Own a business. As mentioned earlier, business owners may need either permanent or term, depending on their needs.
A permanent insurance policy can help pay off estate taxes, so that the successors can inherit the business worry-free. Different people have different financial needs, so there is no one-sized-fits-all approach to choosing the right insurance policy for you. Talk to us now, and find out how a permanent or term life insurance can best give you security and peace of mind.
Extended COVID-19 Federal Emergency Benefits
/in Blog, Coronavirus, Coronavirus - Associates, Coronavirus - Practice Owners, Coronavirus - RetiringOn Friday, February 19, 2021, Prime Minister Justin Trudeau announced an extension to several of the COVD-19 federal emergency benefits. The goal of this extension is to support Canadians who are still being financially impacted by the COVID-19 pandemic.
The following benefits are impacted:
Canada Recovery Benefit
Canada Recovery Caregiving Benefit
Canada Recovery Sickness Benefit
Employment Insurance
Canada Recovery Benefit
The Canada Recovery Benefit (CRB) provides income support to anyone who is:
Employed or self-employed, but not entitled to Employment Insurance (EI) benefits.
Has had their income reduced by at least 50 percent due to COVID-19.
You can receive up to $1,000 ($900 after taxes withheld) a week every two weeks for the CRB. The recent changes now allow you to apply for this benefit for a total of 38 weeks – previously the maximum was 26 weeks.
Canada Recovery Caregiving Benefit
The Canada Recovery Caregiving Benefit (CRCB) helps support people who cannot work because they must supervise a child under 12 or other family members due to COVID-19. For example, a school is closed due to COVID-19 or your child must self-isolate because they have COVID-19.
You can receive $500 ($450 after taxes withheld) for each 1-week period you claim the CRCB. The recent extension made now allows you to apply for this benefit for a total of 38 weeks instead of the previous 26 weeks.
Canada Recovery Sickness Benefit
The $500 a week ($450 after taxes) Canada Recovery Sickness Benefit (CRSB) is also getting a boost. If you cannot work because you are sick or need to self-isolate due to COVID-19, you can now apply for this benefit for a total of four weeks. Previously, this benefit would only cover up to two missed weeks of work.
Employment Insurance
Finally, the government will also be increasing the amount of time you can claim Employment Insurance (EI) benefits. You will now be able to claim EI for a maximum of 50 weeks – this is an increase of 24 weeks from the previous eligibility maximum.
For full details, go to https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-benefits-credits-support-payments.html
Self-employed: Government of Canada addresses CERB repayments for some ineligible self-employed recipients
/in Blog, Coronavirus, Coronavirus - Associates, Coronavirus - Practice OwnersGreat news for some ineligible self-employed Canadians who received the Canada Emergency Response Benefit (CERB). As per canada.ca:
“Today, the Government of Canada announced that self-employed individuals who applied for the Canada Emergency Response Benefit (CERB) and would have qualified based on their gross income will not be required to repay the benefit, provided they also met all other eligibility requirements. The same approach will apply whether the individual applied through the Canada Revenue Agency or Service Canada.
This means that, self-employed individuals whose net self-employment income was less than $5,000 and who applied for the CERB will not be required to repay the CERB, as long as their gross self-employment income was at least $5,000 and they met all other eligibility criteria.
Some self-employed individuals whose net self-employment income was less than $5,000 may have already voluntarily repaid the CERB. The CRA and Service Canada will return any repaid amounts to these individuals. Additional details will be available in the coming weeks.”
For full details, see full news release at https://www.canada.ca/en/revenue-agency/news/2021/02/government-of-canada-announces-targeted-interest-relief-on-2020-income-tax-debt-for-low–and-middle-income-canadians.html
TFSA vs RRSP – What you need to know to make the most of them in 2021
/in 2021, Blog, rrsp, Tax Free Savings AccountIf you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can provide significant tax savings. To help you understand the differences, we compare:
TFSA versus RRSP – Differences in deposits
TFSA versus RRSP – Differences in withdrawals
1) TFSA versus RRSP – Difference in deposits
There are several areas to focus on when comparing differences in deposits for 2021:
● Contribution Room
● Carry Forward
● Contribution and Tax Deductibility
● Tax Treatment of Growth
How much contribution room do I have?
If you have never contributed to a TFSA before, you can contribute up to $75,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
For RRSPs, the deduction limit is always 18% of your previous year’s pre-tax earnings to a maximum of $27,830. For example, if you earned $60,000 in 2020 then your deduction limit for 2021 would be $10,800 (18% x $60,000). If you earned $200,000, your deduction limit would be capped at the maximum of $27,830.
How much contribution room can I carry forward?
If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. If you make a withdrawal, then the amount you withdrew is added on top of your annual contribution room for the next calendar year.
For an RRSP, you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
Contributions and Tax Deductibility
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
One of the reasons it’s essential to make both RRSP and TFSA contributions is that any growth in them is treated differently.
A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation – because all of the growth in it is tax-free. When you make a withdrawal from your TFSA, you won’t have to pay income tax on the amount withdrawn.
The growth in an RRSP is tax-deferred. This means you won’t pay any taxes on your RRSP gains until age 71, at which time, you convert RRSP into a RRIF and begin withdrawing money. RRSPs are better suited for long-term objectives, like retirement. Since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and, thus, not pay as much tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal for 2021:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2021.
Tax Treatment of withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This is why they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are making a withdrawal from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the next calendar year. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
2021 Financial Calendar
/in 2021, Blog, personal finances, rdsp, Registered Education Savings Plan, retirement, rrsp, tax, Tax Free Savings AccountWe’ve put together a financial calendar for 2021. It contains all the dates you need to know to make the most of your government benefits and investment options. Whether you want to bookmark this or print it out and post it somewhere prominent, you’ll have everything you need to know in one place!
We’ve provided information on:
The dates when the government distributes payments for the Canada Child Benefit, the Canada Pension Plan (CPP) and Old Age Security (OAS).
When GST/HST credit payments are issued – usually on the fifth day of January, April, July and October.
All the dates the Bank of Canada makes an interest rate announcement. A change in this interest rate (up or down) can impact a bank’s prime interest rates. This can then affect anything from the interest rate charged on your mortgage and line of credit to how much the Canadian dollar is worth against other currencies.
When you can start contributing to your Tax Free Savings Account (TFSA) for 2021, the contribution limit for 2021 is $6,000.
March 1st is the last day for your 2020 Registered Retirement Savings Plan (RRSP).
December 31st , 2021 is the last day for 2021 charitable contributions.
December 31st is the deadlines for various investment savings vehicle contributions, including your Registered Disability Savings Plan (RDSP) and Registered Education Savings Plan (RESP), as well as your RRSP if you turned 71 in 2021.
Tax filing deadlines for personal income tax, terminal tax returns for someone who died in 2020, self-employed individuals
Knowing all of this information here can help you keep on top of your finances if you’re expecting any government benefits. It can also make sure you don’t miss any critical tax or investment deadlines!
Tax packages will be available starting February 2021 – reach out to your accountant to get started on your taxes!
If you have any questions on how we can help with your 2021 finances, please contact us.
Government of Canada to allow up to $400 for home office expenses
/in 2020, Accountants, Blog, Business Owners, taxFor the 2020 tax year, the Government of Canada introduced a temporary flat rate method to allow Canadians working from home this year due to Covid-19 to claim expenses of up to $400. Taxpayers will still be able to claim under the existing rules if they choose using the detailed method.
Eligibility
From the canada.ca website:
Each employee working from home who meets the eligibility criteria can use the temporary flat rate method to calculate their deduction for home office expenses.
To use this method to claim the home office expenses you paid, you must meet all of the following conditions:
You worked from home in 2020 due to the COVID-19 pandemic
You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020
You are only claiming home office expenses and are not claiming any other employment expenses
Your employer did not reimburse you for all of your home office expensesWhat if your employer has reimbursed you for some of your home office expenses
You need to meet all of the above conditions to be eligible to use the Temporary flat rate method.
New eligible expenses
For the detailed method, the CRA has expanded the list of eligible expenses that can be claimed as work-space-in-the-home expenses to include reasonable home internet access fees. A comprehensive list of eligible home office expenses has also been created.
Business Owners: 2020 Tax Planning Tips for the End of the Year
/in 2020 Only, Blog, Business Owners, Coronavirus, Coronavirus - Practice Owners, corporate, Estate Planning, financial advice, Financial Planning, incorporated professionals, Investment, Professional CorporationsIt’s a great time to review your business finances now that we are nearing year-end. Your business may be affected by recent tax changes or new measures to help with financial losses due to COVID-19. Figuring out the tax ramifications of these new measures can be complicated, so please don’t hesitate to consult your accountant and us to determine how this may affect your business finances.
We’re assuming that your corporate year-end is December 31. If it’s not, then this information will be useful when your business year-end comes up.
Below, we have listed some of the critical areas to consider and provide you with some helpful guidelines to make sure that you cover all the essentials. We have divided our tax planning tips into four sections:
Year-end tax checklist
Remuneration
Business tax
Estate
Business Year-End Tax Checklist
Remuneration
Salary/dividend mix
Accruing your salary/bonus
Stock option plan
Tax-free amounts
Paying family members
COVID-19 wage subsidy measures for employers
Business Tax
Claiming the small business deduction
Shareholder loans
Passive investment income including eligible and ineligible dividends
Corporate reorganization
Estate
Will review
Succession plan
Lifetime capital gains exemption
Remuneration
What is your salary and dividend mix?
Individuals who own incorporated businesses can elect to receive their income as either salary or as dividends. Your choice will depend on your situation. Consider the following factors:
Your current and future cash flow needs
Your personal income level
The corporation’s income level
Tax on income splitting (TOSI) rules. When TOSI rules apply, be aware that dividends are taxed at the highest marginal tax rate.
Passive investment income rules
Also consider the difference between salary and dividends:
Salary
Can be used for RRSP contribution
Reduces corporate tax bill
Subject to payroll tax
Subject to CPP contribution
Subject to EI contribution
Dividend
Does not provide RRSP contribution
Does not reduce a corporate tax bill
No tax withholdings
No CPP contribution
No EI Insurance contribution
Depending on the province¹, receive up to $50,000 of eligible dividends at a low tax rate provided you have no other sources of income
¹The amount and tax rate will vary based on province/territory you live in.
It’s worth considering ensuring that you receive a salary high enough to take full advantage of the maximum RRSP annual contribution that you can make. For 2020, salaries of $154,611 will provide the maximum RRSP room of $27,830 for 2021.
Is it worth accruing your salary or bonus this year?
You could consider accruing your salary or bonus in the current year but delaying payment of it until the following year. If your company’s year-end is December 31, your corporation will benefit from a deduction for the year 2020. The source deductions are not required to be remitted until actual salary or bonus payment in 2021.
Stock Option Plan
If your compensation includes stock options, check if you will be affected by the stock option rules that went into effect on January 1, 2020. These new rules cap the amount of specific employee stock options eligible for the stock option deduction at $200,000 as of January 1, 2020. These rules will not affect you if a Canadian controlled private corporation grants your stock options.
Tax-Free Amounts
If you own your corporation, pay yourself tax-free amounts if you can. Here are some ways to do so:
Pay yourself rent if the company occupies space in your home.
Pay yourself capital dividends if your company has a balance in its capital dividend account.
Return “paid-up capital” that you have invested in your company
Do you employ members of your family?
Employing and paying a salary to family members who work for your incorporated business is worth considering. You could receive a tax deduction against the salary you pay them, providing that the salary is “reasonable” with the work done. In 2020, the individual can earn up to $13,229 (increased for 2020 from $12,298) and pay no federal tax. This also provides the individual with RRSP contribution room, CPP and allows for child-care deductions. Bear in mind there are additional costs incurred when employing someone, such as payroll taxes and contributions to CPP.
COVID-19 wage subsidy measures for employers
To deal with the financial hardships introduced by COVID-19, the federal government introduced two wage subsidy measures:
The Canada Emergency Wage Subsidy (CEWS) program. With this, you can receive a subsidy of up to 85% of eligible remuneration that you paid between March 15 and December 19, 2020, if you had a decrease in revenue over this period. You must submit your application for the CEWS no later than January 31, 2021.
The Temporary Wage Subsidy (TWS) program. With this program, which reduces the amount of payroll deductions you needed to remit to the CRA, you can qualify for a subsidy equal to 10% of any remuneration that you paid between March 18, 2020, and June 19, 2020. You can claim up to a maximum of $1,375 per employee and $25,000 in total.
You can apply for both programs if you are eligible. If you qualify for the TWS but did not reduce your payroll remittances, you can still apply. The CRA will then either pay the subsidy amount to you or transfer it over to your next year’s remittance.
Business Tax
Claiming the Small Business Deduction
Are you able to claim a small business deduction? The federal small business tax rate decreased to 9% in 2019. It did not increase in 2020, nor is it expected to increase in 2021. From a provincial level, there will be changes in the following provinces:
Therefore, a small business deduction in 2020 is worth more than in 2021 for these provinces.
Should you repay any shareholder loans?
Borrowing funds from your corporation at a low or zero interest rate means that you are considered to have received a taxable benefit at the CRA’s 1% prescribed interest rate, less actual interest that you pay during the year or thirty days after the end of the year. You need to include the loan in your income tax return unless it is repaid within one year after the end of your corporation’s taxation year.
For example, if your company has a December 31 year-end and loaned you funds on November 1, 2020, you must repay the loan by December 31, 2021; otherwise, you will need to include the loan as taxable income on your 2020 personal tax return.
Passive investment income
If your corporation has a December year-end, then 2020 will be the second taxation year that the current passive investment income rules may apply to your company.
New measures were introduced in the 2018 federal budget relating to private businesses, which earn passive investment income in a corporation that also operates an active business.
There are two key parts to this:
Limiting access to dividend refunds. Essentially, a private company will be required to pay ineligible dividends to receive dividend refunds on some taxes. In the past, these could have been refunded when an eligible dividend was paid.
Limiting the small business deduction. This means that, for impacted companies, the small business deduction will be reduced at a rate of $5 for every $1 of investment income over $50,000. It is eliminated if investment income exceeds $150,000. Ontario and New Brunswick are not following these federal rules. Therefore, the provincial small business deduction is still available for income up to $500,000 annually.
Suppose your corporation earns both active business and passive investment income. In that case, you should contact your accountant and us directly to determine if there are any planning opportunities to minimize the new passive investment income rules’ impact. For example, you can consider a “buy and hold” strategy to help defer capital gains.
Think about when to pay dividends and dividend type
When choosing to pay dividends in 2020 or 2021, you should consider the following:
Difference between the yearly tax rate
Impact of tax on split income
Impact of passive investment income rules
Except for two provinces, Quebec and Alberta, the combined top marginal tax rates will not change from 2020 to 2021 at a provincial level. Therefore, it will not make a difference for most locations if you choose to pay in 2020 or 2021.
In Quebec and Alberta, as there will be increases in the combined marginal tax rate, you will have potential tax savings available if you choose to pay dividends in 2020 rather than 2021.
When deciding to pay a dividend, you will need to decide whether to pay out eligible or ineligible dividends. Consider the following:
Dividend refund claim limits: Eligible refundable dividend tax on hand (ERDTOH) vs Ineligible Refundable dividend tax on hand (NRDTOH)
Personal marginal tax rate of eligible vs. ineligible dividends (see chart below)
Given the passive investment income rules, typically, it makes sense to pay eligible dividends to deplete the ERDTOH balance before paying ineligible dividends. (Please note that ineligible dividends can also trigger a refund from the ERDTOH account.)
Eligible dividends are taxed at a lower personal tax rate than ineligible dividends (based on top combined marginal tax rate). However, keep in mind that when ineligible dividends are paid out, they are subject to the small business deduction; therefore, the dividend gross-up is 15% while eligible dividends are subject to the general corporate tax rate, a dividend gross-up is 38%. It’s important to talk to a professional to determine what makes the most sense when selecting the type of dividend to pay out of your corporation.
Corporate Reorganization
It might be time to revisit your corporate structure, given recent changes to private corporation rules on income splitting and passive investment income to provide more control on dividend income distribution.
Before you issue dividends to other shareholders in your private company (this includes your spouse, children, or other relatives), review the TOSI rules’ impact with us or your tax and legal advisors.
Another reason to reassess your structure is to segregate investment assets from your operating company for asset protection. You don’t want to trigger TOSI, so make sure you structure this properly. If you are considering succession planning, this is the time to evaluate your corporate structure as well.
Another aspect of corporate reorganization can be loss consolidation – where you consolidate losses from within related corporate groups.
Estate
Ensure your will is up to date
If your estate plan includes an intention for your family members to inherit your business using a trust, ensure that this plan is still tax-effective; income tax changes from January 1, 2016 eliminated the taxation at graduated rates in testamentary trusts and now taxes these trusts at the top marginal personal income tax rate. Review your will to ensure that any private company shares that you intend to leave won’t be affected by the most recent TOSI rules.
Succession plan
Consider a succession plan to ensure your business is transferred to your children, key employees or outside party in a tax-efficient manner.
Lifetime Capital Gains Exemption
If you sell your qualified small business corporation shares, you can qualify for the lifetime capital gains exemption (In 2020, the exemption is $883,384), where the gain is entirely exempt from tax. The exemption is a cumulative lifetime exemption; therefore, you don’t have to claim the entire amount at once.
The issues we discussed above can be complicated. Contact your accountant and us if you have any questions. We can help.