Proposed Changes to the Taxation of Private Corporations

On July 18, 2017, the federal Minister of Finance, Bill Morneau, announced extensive proposed changes to the taxation of private corporations in Canada.  These changes likely will impact you, and will likely result in you having to pay significantly more in taxes starting in 2018.  For more information, please visit the following links:

  1. www.cpacanada.ca/en/connecting-and-news/news/professional-news/2017/july/finance-canada-consultation
  2. www.taxpayer.com/commentaries/bill-morneau-s-attack-on-the-middle-class
  3.  www.fin.gc.ca/activty/consult/tppc-pfsp-eng.asp

These changes were proposed to ensure the wealthiest of Canadians pay their fair share of taxes.  Unfortunately, the proposed changes impact ALL private corporations, not just those that are owned by the wealthiest of Canadians.  In fact, the majority of private corporations in Canada are owned by “middle-class” Canadians, the very group of Canadians that the Government promised to protect. 

We do not believe that these proposals are fair, and are counter-productive to the Canadian economy as a whole for the following reasons:

  1. The proposals are based on the unsupportable argument that an employee and a private corporation owner should be taxed the same.  We believe that a private corporation owner carries significant additional risks and responsibilities that an employee does not, hence warrants the current tax regime;
  2. The proposals argue that spouses who are not directly involved in the business do not share in the risks and rewards of the corporation;
  3. The proposed changes casts a tax net at the wealthiest of Canadians that is so wide that it is going to catch hundreds of thousands of Canadians in the middle-class, resulting in the largest tax increase in decades to the middle-class;
  4. The proposed changes take away an important incentive for people to take risk and to innovate in Canada;
  5. The “trickle-down” effect on the economy will be far in excess of the tax revenues generated;
  6. A 75-day consultation window, in the middle of summer, is not properly consulting with the Canadians affected, especially given the changes proposed are changing tax law that has been in place for over 40 years;
  7. The proposed changes are overly complex, thus resulting in significant tax uncertainty for all impacted.

We think that you, as a private corporation owner, should be aware of these proposals and how they may affect your business, your family, and your future.  It is a very good time to contact your Member of Parliament (Pamela Goldsmith - Jones - [email protected] or 604.913.2660) to express your concerns before the consultation period ends on October 2, 2017.

Some of these proposals are scheduled to come into law on January 1, 2018, which will likely impact your 2017 tax planning decisions.  As there may be significant amendments to the proposed legislation (or hopefully abandoned altogether depending on the response from Canadians during the consultation period), we do not recommend any action with regard to your business structure at this time.  However, we will be in touch with you after the consultation period closes and once it becomes clear as to the extent of the final proposed changes.

Tax Free Savings Accounts (“TFSA”) – Beneficiary Designations

TFSA’s have now been around since 2009.  If you have not made any contributions before, as of 2016 you can contribute a maximum of $46,500, and each year after 2016 you will be able to contribute an additional $5,500 (the annual contribution amount being subject to indexation).

Any income and capital gains in your TFSA are tax-free to you, so a TFSA should certainly be part of your overall savings portfolio.

Like registered retirement savings plans (“RRSP”), you have the ability to designate a beneficiary on your TFSA.  Unlike RRSP’s, a TFSA has a third possible designation, the “successor holder”, which is still not well understood by many, and the differences in the designations can have a significant impact to your Estate.  The only person that can be a “successor holder” is one’s spouse.

It should be mentioned that you may not have ANY TFSA beneficiary designation.  In the case of a self-administered TFSA account (i.e. one you opened through an online brokerage), the default may be no designation until you to file a “beneficiary designation form” to have one added to the account.  Your beneficiary designation is typically shown on your investment statements, if not contact your financial institution to confirm your designation.  In the case of no designation made, the default on your death is your TFSA gets paid to your Estate.

Here are the income tax and probate fee differences between the designations:

  1. No designation (default Estate) / Estate designated as beneficiary:
  • Tax on any increase in value up to date of death - none
  • Tax on any increase in value after date of death – fully taxable to Estate as income
  • Subject to BC probate fees – yes

 

  1. Specific individual and/or spouse designated as beneficiary:
  • Tax on any increase in value up to date of death - none
  • Tax on any increase in value after date of death – fully taxable to individuals and/or spouse as income
  • Subject to BC probate fees – no

 

  1. Spouse designated as Successor Holder:
  • Tax on any increase in value up to date of death - none
  • Tax on any increase in value after date of death – none
  • Subject to BC probate fees – no

So if you have a spouse, you should ensure that they are designated as the successor holder of your TFSA.  This ensures, on your death, they step into your shoes as owner of your TFSA, effectively doubling the amount of TFSA that continues to grow tax-free.  If you only designate your spouse as beneficiary, this is not the same as designating them as successor holder, because your TFSA will not continue to grow tax-free in their hands upon your death.

For more information, contact your Chartered Professional Accountant or financial institution. You can get more information at: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/dth/menu-eng.html

Eligible Educator School Supply Tax Credit

school-supplies

New for 2016 – teachers and early childhood educators may be eligible for the Eligible Educator School Supply Tax Credit which will allow you to claim a refundable tax credit of 15% on up to $1,000 of school supplies purchased.  Click the following link for more information including which educators are eligible to claim the tax credit.

http://www.cra-arc.gc.ca/nwsrm/txtps/2016/tt160906-eng.html

Did you know you can now get a proof of income statement online?

cra-online-services-imageDid you know you can now get a proof of income statement online?

Financial institutions or government departments may ask to provide a proof of income statement when applying for student loans, grants, subsidies or mortgages. Having online access to your CRA account will speed up this process as you would be able to login and print your proof of income statements instead of calling and waiting for one in the mail.

Online access also allows you the option to check on your income tax return, view personalized benefit and credit information and check RRSP & TFSA contributions limits.

See the link below for steps to registering for your CRA account online.

 http://www.cra-arc.gc.ca/nwsrm/txtps/2016/tt160823-eng.html

Disposing of or acquiring Canadian property

Ready-to-buy-a-homeAre you a non-resident home owner?  Purchasing a home from a non-resident?

We are all well aware of how hot the real estate market is on the Sunshine Coast and Vancouver at the moment.  There are many people taking advantage of this fact and selling their homes.  However, if you are a non-resident who owns a home in Canada, or you are purchasing a home from a non-resident, there are important things you need to know! See the link below for more information:
Disposing of or acquiring certain Canadian property

If either of these scenarios apply to you, it is always best to contact a tax advisor to aid you in your transaction to ensure the necessary steps are taken to avoid any unpleasant surprises in the future.

Thinking about incorporation?

seedsIf you own a small business, or if you are self-employed, it is likely that the topic of whether or not to incorporate has come to your attention.

Incorporation can be completed at either the provincial level or at the federal level. By deciding to incorporate, your business will become a separate legal entity and the liabilities of the company will become limited. Seeking legal advice before deciding to incorporate is also advisable, as each individual’s situation is unique. There are both advantages and disadvantages that should be considered in the decision of whether or not to incorporate.

Want to keep reading? Click the link below for more information on whether the decision to incorporate is right for you!

http://www.theglobeandmail.com/report-on-business/small-business/sb-money/when-its-time-to-incorporate-your-business/article4242051/

Disability Tax Credit

dtcDo you or a family member have a disability?  Are you markedly restricted in performing day to day activities?

If you answered yes to these questions, you may be entitled to receive a tax credit.  The following guide has a wealth of information to help you determine whether or not you or a family member would qualify to claim the Disability Tax Credit.

http://www.cra-arc.gc.ca/E/pub/tg/rc4064/rc4064-15e.pdf

Have you been approached by a company that says they can get you thousands of dollars in tax refunds and grants if you qualify for the Disability Tax Credit?

There are a number of these companies popping up nationwide that offer to help you fill out the appropriate forms to apply for the Disability Tax Credit, setup a Registered Disability Savings Plan (RDSP) and help you apply for the Canada Disability Savings Grant for a fee of about 20 – 30% of the proceeds that you are entitled to receive.

For example, if you qualify for the tax credit for a 10 year period you could receive up to $1,800 per year for a total of $18,000.  Based on the 20 - 30% fee schedule you would lose between $3,600 to $5,400 of your tax credit.  The Federal government has taken steps to help disabled taxpayers apply for the DTC without paying huge fees. Form T2201 has been revised and asks you if you want the CRA to automatically adjust all years, whereas in the past your accountant had to file T1 adjustment requests.  So the process of applying for the DTC is now greatly simplified and you shouldn’t need to incur significant accounting fees to apply and claim the DTC.

To apply for the Disability Tax Credit and save thousands of dollars in fees just follow these simple steps:

  1. If you feel that either you or your family member should qualify for the Disability Tax Credit, take the first step and download the attached T2201 form.http://www.cra-arc.gc.ca/E/pbg/tf/t2201/t2201-15e.pdf
  2. Complete the sections of Part A that apply to you.
  3. Make sure you check the box in Section 3 – “Yes, I want the CRA to adjust my returns if possible.”
  4. Sign Section 4
  5. Make an appointment to see your doctor.  This should be a medical professional who has detailed knowledge of your medical history.  Be sure to bring the T2201 form with you to your doctor’s appointment but BEFORE you give it to your doctor or mention that you have the form, ask for your doctor’s verbal opinion about whether he feels you would qualify for the Disability Tax Credit. If the doctor believes you should qualify for the tax credit then ask your doctor to fill out the T2201 form. No sense in paying to have the form completed if you aren’t going to qualify. The doctors charge a nominal fee of $50 - $150 to fill out the form. 
  6. Before you leave the doctor’s office double check the section that the doctor has completed to see that he has indicated that you are markedly restricted in any of the areas and has indicated the year that you became disabled. To qualify for the DTC this information must be provided by the doctor and sometimes the information regarding the year of the onset of the disability is overlooked.
  7. When the completed the form is ready to be sent to CRA for processing, take a photocopy of the form for your file and mail the original to CRA at one of the addresses on page 6 of the form. 

Please note that to receive the DTC you or a supporting family member must have paid income tax during the period of disability.  For example if you are collecting Social Assistance, WCB, or have had annual income less than $10,000 chances are you would not have paid any tax and would not receive a refund.  However, if you have a supporting person, ie spouse, parent, or a child (in the case of an elderly parent) and that person has paid tax during your period of disability then your DTC can transfer to that person.

If you paid minimal or no tax during the period of disability Section 2 of the T2201 can be filled out by your supporting person to enable your DTC to transfer to him/her.  By checking the box in Section 3 CRA can adjust all of the applicable years for your supporting person.

When you receive your refund cheque you may want to consider investing into a Registered Disability Savings Plan.  Details regarding this plan are available at

http://www.cra-arc.gc.ca/rdsp/

 If you have questions or encounter issues with your DTC application you can ask your accountant to assist you.  If you have followed all of the steps listed above and gotten to the point of mailing in your application, you have already saved on your accounting fees.