Posts

A Summary of Proposed Tax Changes in 2017

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

  1. Changes to Income Sprinkling

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

 2.  Minimizing the incentives of keeping passive investments in CCPCs

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

 3.  Reducing the transfer of corporate surpluses to capital gains

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

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

Paying for Medical Expenses

Although we enjoy health care benefits in Canada, there are still some benefits that are not covered by the government. There are a number of ways to pay for these benefits such as directly paying out of pocket, using a health insurance plan or private health services plan or a combination of these structures.

As always, please consult us prior to implementing any of these strategies.

Easy Exit: Business Succession in a Nutshell

Getting into the world of business is a meticulous task, but so is getting out of it Whether you’ve just hit the ground running on your business or if you’ve been at it for a long time, there is no better time to plan your exit strategy than now.  Although the process may seem taxing, we’ve answered a few questions you may have about planning your business succession strategy. 

1. Who do I talk to about this?  

Deciding on how to go about the transition requires careful planning, and you need to consult no less than people who are well equipped to help you out. First, talk to your key advisors such as bankers and financial partners. You could also use some advice from your accountant and lawyers. If your company has an advisory board, better consult them as well. You may also hire a specialist or a consultant, depending on how you choose to go about your business succession plan. 

2. Who should I choose as a successor? 

There are several ways to go about this, and your decision will ultimately be your personal choice. You may pass on your business to a family member or to your top executives or managers. You may also choose to sell it to an outsider. Whichever path you choose, you can also decide on how much you want to be involved in the business after you pass it on. That is, if you want to be involved at all. 

3. When should I inform my successor about my plans? 

While a surprise inheritance may be heartwarming, it’s not the same with inheriting a business. Getting a successor ready—whether it’s a family member or someone from your company—requires careful planning and training. As soon as you’ve chosen a successor, better get started on getting them ready for the big shoes they’re about to fill. This includes helping them equip themselves with the necessary skills, knowledge and qualifications necessary to run your business. 

4. How do I plan the transition itself? 

The transition will be twofold—transferring ownership and handing over the business itself. As far as transferring ownership is concerned, you need to consider legal and financial details. These include valuation, financing and taxation. You also need to consider if you wish to keep your current legal structure (corporation, sole prop, partnership, etc.) or if you (or your successor) would like to change it.  You also need to plan how to prepare various stakeholders in the business for the transition. How will you prepare your customers, clients, and employees? What would be their level of involvement? Make sure that you put different strategies in place in order to ensure transparency and consistency in communicating changes in your business, especially something as drastic as succession. 

5. Now that I have a business succession plan ready, can I go back to business as usual? 

Not really. Your business and your customers’ needs may change over time. This means that you need to keep reviewing and adjusting your plan as your business also evolves. 

Ontario 2017 Budget

Ontario Finance Minister Charles Sousa delivered the province’s 2017 budget on April 27, 2017. The province’s 2017 budget is balanced, with projected balanced budgets for 2018 and 2019.

Corporate Income Tax Measures

No changes to corporate taxes were announced.

Corporate Income Tax Rates- As of January 1, 2017
Ontario Combined Federal & Ont
General 11.5% 26.5%
M&P 10.0% 25.0%
Small Business* 4.5% 15.0%
*on first $500,000 of active business income
  • Review of tax planning strategies involving private corporations: Ontario intends to review tax planning strategies involving private corporations
    • Income splitting with family members
    • Passive investment portfolio inside a corporation
    • Converting regular business income to capital gains
  • Employer Health Tax Exemption: Changes to prevent the multiplication of Employer Health Tax exemption for CCPCs.
  • Small Business Deduction limit: Parallel changes made to the federal small business deduction by the same amount the federal business limit is reduced

Personal Income Tax Measures

No changes to personal taxes were announced.

Personal Combined Federal/Provincial Top Marginal Rates
2017
Interest and regular income 53.53%
Capital gains 26.76%
Eligible dividends 39.34%
Non-eligible dividends 45.30%
  • Caregiver Tax Credit: This new non-refundable 5.05% credit is available in respect of relatives who are infirm dependents, including adult children of the claimant or of the claimant’s spouse or common‐law partner
  • Ontario Seniors’ Public Transit Credit: Ontario Seniors’ Public Transit Tax Credit for all Ontarians aged 65 or older.
  • Property and land tax measures: Adjust the rules on land transfer tax including preventing qualifying purchasers from claiming their spouse’s interest for the first‐time homebuyers refund if the spouse is not a Canadian citizen or permanent resident of Canada.

Please don’t hesitate to contact us if you have any questions.

The Importance of a Buy Sell Agreement

Having a buy sell agreement is important business partners. A buy-sell agreement should outline the contingencies for different outcomes, trigger events and  be put in place to protect you. Often Buy-sell arrangements are also insured.

What are the trigger events for a buy-sell agreement?

  • Disability
  • Conflict
  • Debt
  • Retirement
  • Death

Contact us for a complimentary review.

Paying for Medical Expenses

Although we enjoy health care benefits in Canada, there are still some benefits that are not covered by the government.

Accessing Corporate Earnings

Accessing retained earnings in a tax efficient manner can be challenging, we identify several methods to gain access to your earnings.

Vitality

In the 1940’s, insurance companies realized women live longer than men, hence the introduction of gender specific rates. In the 1980’s, the same industry found that non-smokers lived longer than smokers, therefore the introduction of smoker rates. Now for the first time in Canada a policyholder holds the power in their hands (and on their wrist) to control their insurance premiums. Sabre Strategic Partners is proud to partner with Manulife in their very exciting launch of Manulife Vitality. See the video or connect with our team for more.

Life Insurance Opportunities

Major changes are coming to life insurance, if you’re looking to apply for life insurance or review your insurance needs, this is the best time to do it. The last significant changes made to life insurance were in 1982.

Sit down with us to do a review prior to the changes coming into affect.

Exempt Test Legislation

Major changes are coming to life insurance, if you’re looking to apply for life insurance or review your insurance needs, this is the best time to do it. The last significant changes made to life insurance were in 1982.

Sit down with us to do a review prior to the changes coming into affect.