On March 18, 2020, the Government of Canada announced a variety of tax measures to help Canadians facing hardship as a result of the COVID-19 virus. The major tax changes affecting individuals and small businesses will include:
It appears the Federal Budget was designed to appeal to struggling homebuyers, seniors, those needing job retraining and other targeted groups.
An Investor’s Perspective
From an investor’s perspective, the prospects of slower economic growth points to a focus on fiscal management and Debt to GDP ratios is a common benchmark. The current government use this “debt service ratio” as its fiscal anchor not a budget target. This can be interpreted to mean, similar to governments before, it does not aim to reduce debt but instead to maintain a stable rate of just over 30% of debt to GDP. It was not a budget to reduce debt.
Canadians can earn $12,069 under the basic personal exemption amount. High school students can earn this and don’t necessarily need to file a tax return. If you are a post-secondary student with an RESP, withdrawals called EAPs are taxable in the students’ hands. EAPs can be included within this exemption which shelters these EAPs and you can also claim a credit for the cost of tuition.
Tax Free Savings Accounts (TFSA) limits are increasing to $6,000 for 2019. As Canada’s most popular savings plan it works for all age groups and tax brackets.
RETIREES DEFER CPP AND ADD EARN 142%
The standard figure cited for delaying CPP to the age of 70 is that it increases benefits to 142 per cent of what they would be at 65. This is equivalent to a 9% per year return or better. Debt reduction is a higher priority than retirement this year for Canadians. A recent retirement survey indicated that paying down debt was the top financial priority for survey respondents, followed by keeping up with bills and getting by (14 per cent), growing wealth (12 per cent) and saving for a vacation (7 per cent). Almost a third (29 per cent) said they’ve taken on more debt in the past 12 months. Retirement came in only at 5%.
CPP is ENCHANCED
Another Financial Post article provides the good news that CPP will replace 33.33 per cent of the average worker’s lifetime earnings to a higher pensionable earnings limit of $65,400 over the next 50 years. Learn more read the article here.
GET MORE ACTIVE IN 2019
“There’s rarely enough money to do everything, so it’s critical to make the most of the money you earn by prioritizing both sides of your balance sheet – not debt or savings, but both,” said Golombek. “It boils down to trade-offs, and balancing your priorities both now and down the road. Regardless of your goals, being active with your financial plan and investment portfolios ensures you reach your goals. Our Hampton Securities Advisors can help you build a plan, manage a financial plan and more- reach out to us here.
As we enter the last quarter of 2018, more than a year after the proposed federal tax changes that impact entrepreneurs and business owners, a reminder of the changes is helpful especially for those that have an investment implication. These impacts include:
After the 2018 tax year, the small-business deduction limit will be reduced by $5 for every $1 of investment income above the $50,000 threshold, which is equivalent to $1 million in passive investment assets at a 5% return.
As late as December 15th, private business owners (referred to as Canadian-controlled Private Corporations or CPCC) will have major Canadian personal tax changes effective January 2018.
This process began in July 2017 and engaged over 20,000 responses primarily from small business owners. The push back included the Canadian Chamber of Commerce President, Perrin Beatty who thundered that small businesses “will need to prepare to be challenged by the government’s auditors for how they invest their profits, employ members of their family and more.”
WHAT’S NEW FOR BUSINESS OWNERS?
Further concessions were made to modify the definitions of family members who work and run businesses in order to draw income. This was due in part to the continuing ‘negotiations’ of the 2017 impacts of the new tax structure for entrepreneurs. If you have not talked to a tax advisor, we suggest you ‘make haste’ to manage the impact of the changes.
Clients who are incorporated small business owners and hold significant retained earnings in their private corporations should consider whether it makes sense to pay out additional dividends before the end of 2017 rather than wait until the new year to do so, several tax experts suggest.
Are you in need of a few last minute tax tips for 2017? The deadline is May 1st – one week from today! A recent survey indicates that more than a quarter of Canadians — 28 per cent — find the tax-filing process stressful, confusing and even intimidating. Hampton Securities Private Client is here to help! We have compiled convenient links and resources to reduce your tax stress:
Entrepreneurs and those business owners who operate through a private corporation, known in tax lingo formally as a “Canadian-controlled private corporation” (CCPC), often do so for a variety of tax reasons. While the recent Federal Budget in March 2017 did not change the corporate tax rates or the tax treatment of CCPCs, the various tax strategies these structures rely upon may need to be re-examined proactively.
Tax Planning for Business Owners
Recent federal budgets introduced new legislation aimed at preventing the inappropriate multiplication of the small business deduction among multiple corporations. To date, no changes were made to the ability for a CCPC, including a professional corporation, to continue to be able to claim the deduction on active business income.
Often the decision for business owners is to determine how much income is left within the private corporation when compared to other tax strategies as income splitting. Make sure to refresh your approach with the new focus in recent budgets. The EY budget summary may also assist: EY Tax Alert 2017
For those that need a reminder of what the use of a Private Corporation can provide please consult a tax professional. Often CCPCs over a significant tax deferral advantage by leaving the after-tax corporate income inside the corporation as opposed to paying it out immediately. This deferral advantage ranges from a low of 35 per cent in Alberta, B.C. and Quebec to a high of just over 40 per cent in Nova Scotia.
It is tax time to organize for 2016. In a case you are waiting at your ‘virtual’ mailbox for your tax slips to arrive, Managing Director, Jamie Golombek at CIBC Wealth Strategies Group, Tax and Estate Planning has assembled a guide to assist. Your investment portfolio may have a number of reporting requirements you need to have. -Click here- for the Tax and Investment reporting guide.
Tax “Top-Ups’ for 2016
Some of you may be considering the RRSP contribution which is tax deductible or the Tax Free Savings account (TFSA) is reduced back to a $5,500 contribution limit for 2016. Learn more about strategies for your tax contributions for the first 60 days of 2017. –Click here-. Need to refresh your tax rates? We love the annual favorite of theKPMG Tax Facts tables to help keep the rates straight.
What’s New for 2016?
Canada Revenue Agency has a robust set of links -Click here- to assist you in understanding the new changes implemented in the Federal Budget presented March 2016. One notable change is how you must record information for your Principal Residence Exemption (PRE) sale along with any principal residence designation.
Time to start organizing!
A professional advisor should be consulted before implementing any of the options presented. No content should not be construed as legal or tax advice. Always consult a legal or tax professional regarding your specific legal or tax situation.