Small Business Owners – Proposed Federal Tax Changes

A lot of people have been asking me -  “What can you tell me about the proposed federal tax changes announced on July 19, 2017 and their effect on small business”.

The federal government says that the Finance’s proposals in general, “improve the fairness of Canada’s tax system.”

While people such as Jesse Brodlieb, partner in Dentons’ taxation group in Toronto, disagree. “The average wage earner doesn’t have the same risk profile as the average small business owner, and the tax rates ought to reflect that,” he says.

One of the best letters I have seen on this subject, was written by Dr. Deepa Soni.  You can check it out here

Here is what you need to know:

First, these are only proposals.  You can check out the full document by clicking here.  

 

Second, they potentially affect anyone who owns a Canadian-controlled private corporation, including those who have a Professional Corporation (i.e. doctors, lawyers, dentists, financial planners, etc.).  FYI – this proposal also affects independent farmers.

Third, the proposal focuses on three main areas identified in Budget 2017:

·       Sprinkling income using private corporations (i.e. paying family members, when no work is performed)

·       Holding a passive investment portfolio inside a private corporation (i.e. neutralize the tax-assisted financial advantages of investing passively through a private corporation

·       Converting a private corporation’s regular income into capital gains (i.e. to prevent the surplus income of a private corporation from being converted to a lower-taxed capital gain, and stripped from the corporation

Fourth, several of the proposed measures are slated to be implemented as of January 1, 2018, a mere 91 days after October 2, 2017.

What you should do:

·       Write a letter to your Member of Parliament outlining your concerns. Click here to find their contact details.

·       The Government is accepting submissions on these proposals until October 2, 2017. Send your comments to -  fin.consultation.fin@canada.ca

·       Talk to you tax advisor to determine what necessary planning should be considered and what changes should be implemented should the proposed measures be finalized and passed into law

April 21, 2015 Federal Budget Highlights

As you know, Finance Minister Joe Oliver delivered his Federal budget on April 21 in Ottawa.

 

While you've probably seen plenty of media coverage, I thought you would appreciate an overview of how some of the budget items that relate to investments and taxes.

 

This year, the government reported balanced books and wants that to continue. So it's introduced balanced budget legislation requiring Ottawa to stay in the black unless there's a recession, war, or natural disaster. One way the government will do that is by closing certain tax loopholes.

 

Still, this year's budget contains some generous changes

.

Foremost is an increase in the TFSA contribution limit from the current $5,500 to $10,000. The proposed change is retroactive to January 1, 2015, and clients over age 18 who have not contributed since the TFSA's creation in 2009 now have $41,000 in contribution room.

 

For some clients, especially those in lower tax brackets, this change means TFSAs can become more advantageous than RRSPs. Many clients nearing retirement also will benefit from the limit increase, because they can take advantage of early RRIF withdrawal benefits and then move the money into a TFSA and keep it sheltered.
 

Or, if you've already contributed the old $36,500 maximum, you could now move some non-registered investments into TFSAs. In cases where large capital gains might apply, this might not be a strategy worth pursuing. But we can talk about whether this strategy is a good idea when next we meet.

 

TFSA limit increases also have been decoupled from the inflation rate, meaning future increases aren't automatic and instead will have to be legislated by the government.

 

Meanwhile, proposed changes to RRIF rules will mean seniors won't have to withdraw as much money from their retirement savings. The budget cuts the required withdrawal amount at age 71 to 5.28% from the current 7.38%. Required withdrawal rates still increase every year, but instead of topping out at 20% at age 94, the cap isn't reached until age 95.

 

Another budget item aimed at seniors and others who qualify for the Disability Tax Credit is a new Home Accessibility Tax Credit. This 15% non-refundable tax credit applies to up to $10,000 of renovations, such as wheelchair ramps, walk-in bathtubs and wheel-in showers.

 

And, small businesses will get to keep more of their earnings. This year's budget proposes to reduce the small business tax rate to 9% by 2019 - or 2% over the next four years. The reduction generally applies to the first $500,000 of business income.
 

Small business owners also will get a tax break if they sell their companies and donate the private company shares to charity. To be eligible, a sale must take place in 2017 or later.

 

Lastly, rules for reporting specified foreign income will be changing, again. Ottawa's announced a revamp of Form T1135 to streamline the process for people with assets between $100,000 and $250,000 in time for the 2015 tax year. But those reporting $250,000 or more will need to follow the existing requirements.

 

I hope you find these highlights useful. If you'd like to discuss these and other Federal budget initiatives and how they affect your financial plan, please don't hesitate to contact me.  

More about Heather Freed

The following article appeared in the "Off Bay Street News" in the January 2014 issue of The Insurance and Investment Journal.