Tax Managed Strategy - Fight the Clawbacks

Tax Managed Strategy - Fight the Clawbacks -- Reduce Line 234

Using life insurance under new passive income rules - by Advisor.ca

Is Your Private Company in Shape for New Tax Rules?

Owners of private companies in Canada may now face more restrictive tax rules. Canada recently enacted changes affecting private corporations, their owners and family members, including a new tax on split income (TOSI) where adult family members are part of income splitting arrangements, and restrictions on the small business deduction (SBD) where a private corporation in a corporate group earns passive investment income. These new tax measures, which were first proposed in July 2017, are now enacted and may present significant challenges for private corporations and their owners. As a result, we recommend that you revisit your tax affairs to ensure they are still effective in light of these changes, if you haven’t already done so.

To read this edition of TaxNewsFlash-Canada, go to: TaxNewsFlash-Canada.

 

 

HR Services by Continuum II

Did you know that Continuum II now offers HR services

Savings Advice

​Nearly one-quarter of retirement income for current retirees comes from, or will come from, company pensions. This is not the case for gen-Xers and subsequent generations. If we can learn anything from current retirees, it is that times have changed.

With reduced employee pension coverage, or none at all, it has put more personal responsibility onto today’s workers to save proactively for their own retirement.

This reinforces the importance of working with a financial planner. A skilled advisor will work with you to build a retirement plan that is unique to you — with whatever you can afford, when you can afford it — to help ensure you are better prepared for the future.

Don't put your retirement on the back burner, talk to us today, and together we can help you build your happy retirement.

Maximize your TFSA

Maximize your TFSA

Studies show that only one in five Canadians have maximized their TFSA contributions.

Do you know how much contribution room you have in your TFSA?

• To see a detailed breakdown of your specific contributions and withdrawals, go to www.canada.ca and log into your registered MyCRA account, or you can call them at 1-800-959-1956
• You are eligible to open a TFSA the year you turn 18

A TFSA allows you to grow your savings tax-free throughout your lifetime.  A TFSA is also an excellent choice if you have contribution room available and you have any non-registered savings where you currently receive a T5 tax slip.  In this case, we suggest you consider moving any non-registered funds into a TFSA each year, up to your contribution limit (if possible), to avoid paying tax on the money in your open account(s).

We are ready to help guide you towards making the best possible financial choices for your lifestyle. Book an appointment today, and together we can plan how to use your TFSA to your benefit.

Don't have a TFSA account? We can open one for you. Contact us at 905.332.6633 or  info@c2inc.com

Tax Time

It is officially tax time, and with the April 30th deadline looming, here are a few tax tips to help you file pain free.

Avoid getting too creative with your 'other deductions'
-  Line 232 otherwise labeled as 'other deductions' is not an invitation from the CRA to list whatever big expenses you've had over the year
- There is a specific list of claims that qualify. Read that list here
- You need receipts for all of the expenses you claim (i.e: medical expenses or donations)
- While you no longer need to mail in your receipts, you do need to hold onto them should the CRA question any of your expense claims

Don't play hide and seek with the CRA
- Make sure the CRA knows where to find you
- If the CRA asks you for more information after you’ve submitted and are unable to reach you, it will deny or modify claims based on the information it has (which could result in a bigger tax bill)

Know what's new for 2017
- Under new legislation, there are old tax breaks that you can no longer claim, as well as, new tax breaks that you may quality to claim

      New tax breaks:

• Canada caregiver credit – If you care for an infirm family member, things just got a little easier. The Liberals streamlined three previously existing tax breaks into the Canada caregiver credit.
• Disability tax credit – The government has added nurse practitioners to the list of health professionals who can certify Canadians living with a disability for this tax break.
• Medical expense tax credit – Fertility treatments can cost thousands of dollars and aren’t often covered under provincial health plans. You may be able to claim some of those costs in your tax return this year. Also, the Liberals have made the change retroactive, so if you’ve paid for things like in vitro fertilization during any of the past 10 years, you can refile your taxes and add that in.

Make sure you have all of your tax slips
-Depending on your employment status there are specific slips that you will need to file your taxes.

• If you’re an employee, a T4, Statement of Remuneration Paid form, which shows how much your employer paid you. 
• If you’re retired, a T4A, Statement of Pension, Retirement, Annuity and Other Income, which shows you much you earned in retirement payments. 
• If you made money from investing or earned interest in a savings account, you’ll need a T5, Statement of Investment Income, which shows items such as dividends, interest from bonds or money you loaned, and much more. 
• If you received Employment Insurance (EI), a T4E, Statement of Employment Insurance and Other Benefits. 
• If you received worker’s compensation or social assistance, a T5007, Statement of Benefits.

Know your limit
- The CRA will penalize you for over contributing to your RRSP and TFSA
- Be sure to review your notice of assessment, or check your MyCRA account, for your contribution limits

Be sure to claim any foreign income

- If you have any type of foreign income-even though you're a Canadian tax payer you will need to claim it
- You will get a credit from the government, and you will not be taxed twice, but none-the-less it needs to be claimed, or they will come after you

FEA (Family Enterprise Advisor) Program + Designation

FEA (Family Enterprise Advisor) Program + Designation 

Always focused on providing more to our clients, now and in the future, Peter Andreana is working towards adding to his list of designations by completing the FEA program. 

Achieving this designation represents the pinnacle of professional expertise in the field of family enterprise advising. With Peter’s new technical skills, he will be able to provide a more sophisticated level of understanding to business families and their unique challenges, while taking into consideration a broader spectrum of family enterprise-specific issues.

How will it further benefit you and your business? Peter has the ability to help you with… 

• Business Family Dynamics and leadership transitions (How to help ensure the “kids” are ready to take over and the family still gets along) 
•  Family Enterprise Strategy including transgenerational wealth (Do the “kids” know how to manage the wealth they will inherit) 
• Business Boards and Family Councils (facilitating successful decision making and educate the next generation on wise decision making) 
• Multi-disciplinary Advising (Bridging the gap between the lawyers, accountants and tax advisors) 
• Continuity Planning (Exploring both the technical and human side of the succession process) 

Skills needed to achieve the FEA designation: 

• In-depth experience across multiple disciplines 
• High emotional intelligence – able to handle the complexity of inter-family relationships 
• Offer resourceful insights that can significantly improve the growth of your business while bringing harmony to your family 

An advisor with the FEA designation exemplifies the trust, understanding and skills required by business families. Once attained, you can be sure that Peter has grown his skill set in family business advising to deliver better solutions to you and your business.

Grow your knowledge and grow your business. Contact Peter Andreana today for more on how he can help advise you.

Peter Andreana CFP, EPC, FMA, CSWP ™, B.A., Econ
Business Owner Specialist
905-332-6633

“Families are complicated. Successful businesses have complex technical requirements. Multi-jurisdictional, multi-generational, enterprising families need help structuring their unique process for continuity. The FEA Program focus helps inter-disciplinary professionals to combine their expertise and deliver successful integrated decision making within the family, the business, and the ownership circles. The FEA Program is an excellent educational segment to round out technical expertise and provide a diverse lens that is necessary in solving our clients’ complex continuity plans.”
Susan St. Amand, CFP, CLU, CH.F.C., TEP, FEA, ICD.D

15 Ways The 2018 Budget Will Affect Your Wallet

by Julie Cazzin for Money Sense

Here are 15 ways the budget will affect your wallet.

1. The government is turning the Working Income Tax Benefit into a new Canada Workers Benefit (CWB). The changes mean that if you are single and earn $15,000 or less in 2019 you may earn an extra $500 per year. In the past you had to check a box on your return to apply, but this is no longer the case. You will now be automatically enrolled.

Individuals who are eligible for the Disability Tax Credit may also receive Canada Workers Benefit Disability Supplement. The budget also proposes that the maximum amount of this supplement will be increased to $700 in 2019. It will be phased in at $24,111 for singles without dependents and will disappear at $36,483 for families.

2. The Canadian Child Benefit will be indexed to inflation starting July 2018.

3. In the previous budget you were able to take additional time off for parental and caregiver care and get the EI Caregivers Benefit. This has now been extended to include maternity and sickness benefits.

4. You will be able to open an RESP and claim the $500 Canada Learning Bond grant at the same time that you apply for a birth certificate for your child. This will automatically enroll children born into low-income families for the grant.

5. As of June of 2019, the government will offer five additional weeks of “use-it-or-lose-it” EI Parental Sharing Benefits when both parents commit to sharing parental leave. It’s available to all two-parent families, including adoptive and same-sex couples. If you’re going for the standard parental leave option of 55% of EI benefits over 12 months, you’ll have a total of 40 weeks of leave instead of just 35. As well, where families have opted for extended parental leave at 33% of earnings for 18 months, the second parent would be able to take up to 8 weeks of additional parental leave.

6. Canada Student Grants and Loans has expanded eligibility for part time students, as well as full and part time students with children, and introduced a three-year pilot project that will provide adults returning to school on a full-time basis after several years in the workforce with an additional $1,600 in grant money starting Aug 1, 2018.

7. A new Apprenticeship Incentive Grant for Women would give women in male-dominated trades fields $3,000 per year of training (or up to $6,000 over two years). Almost all Red Seal trades are eligible.

8. The government will invest $90.6 million over the next five years to combat tax avoidance.

9. The government is going to lower taxes on small businesses from 10.5% to 9% in 2019, while making sure the small business tax rate is not being used for personal advantage. Going forward, there is a $50,000 threshold on passive income held in corporations. When passive income reaches $150,000, a business owner will lose the Small Business Tax Rate. They’ll be taxed as a large corporation at that time. The government numbers show that it’s only the top one per cent of income tax filers whose corporations will be affected by the changes but this change will still reap a windfall for federal coffers. With recently announced changes to income sprinkling, the government expects to raise $925 million per year by 2022.

Who should worry about the passive income thresh holds? Anyone who has over $1 million in passive investments in their corporation because they will no longer receive the full benefit of the small business tax rate. (Note, this $1 million in passive investments is the accumulated value in your corporation.)

10. The CPP death benefit is now $2,500 for all eligible contributors (whereas before it was pro-rated.)

11. The Medical Expense Tax Credit is extended to psychiatric service dogs in order to help Canadians cope with conditions like post-traumatic stress disorder (PTSD). This is directly aimed at benefitting veterans and others in the disability community who rely on psychiatric service dogs.

12. The government will introduce legislation for the Pension for Life plan, which will include benefits to support Canada’s veterans. The benefit would recognize pain and suffering caused by a service-related disability up to a maximum amount of $2,650. Another option is income replacement for veterans who are facing barriers returning to work after military service at 90% of their pre-release salary. Pension For Life means that a 25-year-old retired Corporal who is 100% disabled would receive more than $5,800 in monthly support, a 50-year-old retired major who is 100% disabled, monthly support would be almost $9,000.

13. Cigarette taxes are going up again—from 54 cents to 60 cents per five cigarettes

14. As expected, there will be a tax on cannabis as well, which depends on whether the plant product is a seed, flower, trim or seedbag. In the meantime cannabis growers and manufacturers will be required to obtain a cannabis license from the CRA and remit the excise duty where applicable. Details to come at the time when non-medical marijuana becomes available for legal retail sale.

15. If you have a Health and Welfare Trust you need to convert it to an Employee Life and Health Trust by the end of 2020.

For more information on the 2018 budget, visit mcleans.ca

Golombek's thoughts on new passive income rules

The Liberal government’s third federal budget promises more help for the middle class, workplace equality, a boost for tomorrow’s economy and a fair tax system.

But, for all those promises, “there’s not a lot there for the average individual, and not a lot of changes from a personal tax perspective,” says Jamie Golombek, managing director for tax and estate planning at CIBC Financial Planning and Advice. He notes there are also “very few changes in credits.” (There’s the Canada Workers Benefit for low-income workers, previously the Working Income Tax Benefit, and the expansion of the tax credit for those who rely on psychiatric service dogs.)

As a result, the big ticket item of Budget 2018 is “how the government will deal with passive investment income inside a private corporation,” says Golombek. The news on this front “will be welcomed by private business owners in terms of the proposed change.”

In short, “the government has decided to approach the entire issue of private corporation taxation of investment income in a new light,” he explains. “Instead of taxing the investment income above the $50,000 threshold at a highly punitive effective rate of as high as 73%—as previously announced back in October 2017—the government has taken a different approach.”

Instead, “once you have passive income [of more than] $50,000 annually in your corporation, then [the government is] going to restrict access to the small business deduction in the current year. This starts in 2019.”

Under current rules, says Golombek, “we have a small business rate on the first $500,000 of active business income; that’s a very low tax rate. So, what the government is saying is once you’ve accumulated [more than] $50,000 of passive income, [they’re] going to reduce the small business deduction by 5% for every dollar over that threshold, until you get to $150,000 of passive income.”

The new math is very simple: “you take that $150,000, less the $50,000 of passive income. You then get $100,000 of extra passive at 5%; there’s your full $500,000 of small business deduction eliminated,” he adds.

WHAT THAT MEANS FOR CLIENTS

The effect of this change is “business owners will no longer be able to retain income inside the corporation taxed at low rates, once they’ve got a certain amount of retained earnings that [are] earning an annual passive investment income,” says Golombek.

On the upside, “you do have full grandfathering of all retained earnings that are already in there; you could [have been] saving that for investing, retirement or other purposes,” he adds.

Business owners won’t love this development, says Golombek, but it will be welcomed nonetheless, given it’s “much simpler” than what was previously proposed.

Going forward, as of 2019, Golombek predicts the number of businesses that claim the small business deduction will drop—but not significantly. “The government estimates that less than 3% of business owners would have [the] type of retained earnings that are subject to potential clawback,” he says.

TAX STRATEGIES TO EXPLORE

There may be viable strategies that you can use to get around the $50,000 annual limit, suggests Golombek.

1.       This could include “investing in buy-and-hold strategies that report no income. [In that scenario], you’d only face a clawback in the year that you sold a particular investment and realized a capital gain; of course, capital gains are only 50% taxable, and that’s also beneficial toward the $50,000 limit,” he notes.

2.      Also, business owners of private corporations could consider the use of permanent corporate-owned life insurance. “For example, exempt policies that effectively accumulate inside the policy and [do not] generate any annual investment income.”

3.      Peter's Thoughts: left out of this article for a 3rd tax strategy to explore is the Individual Pension Plan (IPP).  An IPP can allow a business owner take significant wealth out of a company today and defer all the tax until it is time to withdraw the funds. (When withdrawals occur, they are taxable at your income and tax rate at that time, and under current rules income splitting is allowed) 

RRSP Tips

An RRSP should be individualized and must fit well within your own personal financial goals. With the upcoming March 1st contribution deadline, here are 10 RRSP tips to remember.

1. Contribute early: Make your contribution as early in the year as possible. Tax-deferred compounding make those early dollars grow dramatically. Contributing early in life and early in the calendar year, both make a positive difference.

2. Contribute the maximum: Take advantage of compounding and get the maximum tax break by contributing your limit. (In respect of 2018, you can contribute 18% of your 2017 earned income, to a maximum of $26,230-less your pension adjustment or past service pension adjustment for 2017). While you can "carry forward" any unused contribution room to subsequent years (until your 71), you can never replace the lost growth opportunity. 

3. Invest Monthly: You might find it easier  to reach your annual RRSP limit by making monthly contributions. Consider having your RRSP contributions automatically deducted from your bank account each month, or consider a Group RRSP and make your RRSP contribution by payroll deduction through your employer. It's also a good idea to increase your monthly contribution if your income rises, and be sure to keep up with inflation. 

4. Contribute to a spousal RRSP: A spousal RRSP allows the spouse with the higher income to contribute to an RRSP owned by the lower-income spouse. (This is an excellent way to income split in retirement and reduce your combined tax rate). The spouse with the higher income takes the immediate tax deduction, but the money in the RRSP should be taxed in the other spouse's hands, usually at a lower rate when it is withdrawn later into retirement.

5. Diversify: By diversifying your portfolio and holding various types of investments, you protect yourself against the day-to-day fluctuations in any one category. To achieve long-term growth you should diversify. Some investors limit themselves to fixed-income investments. The biggest danger with conservative type investments is inflation which can erode your purchasing power. If this sounds like you , consider a small amount of diversifying into growth oriented securities-such as equities and equity mutual funds-to earn returns that can protect you against inflation and provide long-term growth potential. 

6. Resist the dip: There is nothing to stop you from accessing the money in your RRSP, however, you should consider the consequences before dipping into your RRSPs.  First, withdrawals attract tax at your marginal tax rate. Tax withholding at the time off the RRSP withdrawal may be as low as 10%, or as high as 30%-be sure to determine how much more tax you'll have to pay when your file your return. 

Secondly, you cannot restore lost contribution room. The amount you can contribute to an RRSP in your life is limited and a withdrawal erodes some of this potential. 

There are a few circumstances that allow you to access the money in your RRSP without consequence. The Home Guyers Pan and Life Long Learning Plan allow tax-free withdrawals with the ability to re-contribute. However, even in these [lans there is no ability to replace the tax-deferred growth that was lost when you make the withdrawl.

7.  Consolidate your investments: If you don't want to spend a great deal of time managing several plans, you may want to consider consolidating your investments into one portfolio. Yes, you should have a diversified portfolio of investments working for you, but you can usually combine them under one RRSP umbrella. This strategy also means you will get one consolidated statement, which may make it easier to track your plan.

8. Designate a beneficiary: Consider who will be the designated beneficiary for your investments.  Without a designated beneficiary, the account will go through your estate and be subject to probate and other fees. You should talk to us about the tax and other consequences of designating a beneficiary to your RRSP. Who you appoint as beneficiary is also very important, as there are different rues depending on if it is a spouse or other party. ** This strategy does not  apply in Quebec**

9. Get help from an expert: Our advisors at Continuum II inc. are here to help you make the right investment decisions. Together, we should review your plan at least once a year to make sure that your plan is on track with your long-term goals.

10. Have a plan: Investing of any kind, whether in an RRSP or non-registered, is part of a financial plan-but it is important to note that investing itself is not a plan. Contact your Continuum II Inc. advisor today to work your investment strategy into part of a larger financial plan.

6 Easy Ways To Save Money

6 Easy Ways To Save Money

Who wouldn't like to have more money?

Start the new year out right, and learn how to save more and stress less. Here are 6 easy ways to start saving money today.




1. Beware of the "sale" Sign - 90% off something you'll never use isn't saving money.

• When an item is “on sale,” we act more quickly and with even less thought than if the product costs the same but is marked at a regular price 
• Focus on what things cost, not how big of a discount you're getting

2. Money is money - People are more likely to spend their salary on “responsible” things like paying bills, because it feels like “serious money". Whereas "bonus money" is often spent on frivolous things-but money is money.

• Every dollar is the same. It doesn’t matter where money comes from
• Saving so-called "bonus money" can positively affect your savings

3. Try and use cash - Using cash has a bigger impact on your brain than swiping a card.

• Using credit cards blurs the process of handing over money and makes you more likely to spend
• You're more likely to overspend or loose track of your spending when using credit cards

4. "Fair" is a four letter word - The concept of "fair" messes with our heads and causes us to reject deals that still offer plenty of value.

• It doesn't pay to get hung up on the concept of "fair
• Think about whether you're getting reasonable value for the money you're paying. Otherwise the person who gets punished will probably be you

5. Try A "Ulysses Contract" - A Ulysses contract is any arrangement by which we create barriers against future temptation.

• You probably already use a financial Ulysses Contract and don't even realize it. Ex: RRSP's-You've made the decision in advance to save for retirement

6. Drop Anchor - "Anchoring" is a potentially devastating cognitive bias where the first number mentioned in a given scenario unconsciously influences your future choices.

• Example: You have consistently overpaid for lattes and oil changes in the past so you mindlessly keep doing it
• Look at your regular purchases and ask if they really make sense and whether there are cheaper alternatives

 For more on each of these 6 tips, check out Eric Barker's blog, Barking Up The Wrong Tree.

Group Benefits: HR and Administration Issues

Please join Peter Andreana and Andy Balaura on January 30th at 7:30am in a discussion focused on the issues they have both seen around Employee Benefits, many of which most people are unaware of. You will walk away with important information and tips you can start to implement in your HR immediately. See below for more details, along with registration info.

Changes to Ontario's Employment and Labour Laws

                                                     
Despite a strong and growing economy the nature of work in Ontario has changed. Many workers are struggling to support their families on part-time, contract or minimum-wage work.

In order to create more opportunities and security for workers within Ontario's changing economy, the Ontario government announced the Fair Workplaces, Better Jobs Act, 2017.

The act was officially passed on November 22nd 2017.

This legislation makes a number of changes to both the Employment Standards Act, 2000, the Labour Relations Act, 1995, and the Occupational Health and Safety Act, including major areas such as;

• Minimum wage increase
• Equal pay for equal work (casual, part-time, temporary and seasonal workers)
• One week's notice or pay in lieu of notice for employees of temporary help agencies if longer-term assignments end early
• Fairer scheduling rules
• Vacation time
• Expanded personal emergency leave in all workplaces
• Unpaid leave to take care of critically ill family member

Minimum Wage Increase

Ontario is increasing its minimum wage rates [the lowest rate that can be paid by employers to employees].

As of January 1st 2018 the general minimum wage has been increased to $14.00/hr which will increase to $15.00/hr by January 1st 2019. Additional changes have been made to different employment categories.

Scheduling

Changes will allow employees to:

• Request a schedule or location change once they’ve been employed for three months, without fear of being penalized
• Refuse shifts if their employer asks them to work with less than 96 hours’ notice, without fear of retaliation, with certain exceptions

Employers will also be required to pay wages to the employees for three hours of work if the employee:

• Regularly works more than three hours a day, shows up for work and works less than three hours or not at all (for example, the shift is cut short)
• The shift is cancelled within 48 hours of their scheduled start time, with certain exceptions
• Is scheduled to be on-call but, despite being available to work, is either not called in to work or works less than three hours. This will be required for each 24-hour period the employee is on call

Vacation Time

• Under the new legislation, employees will be entitled to three weeks of paid vacation after five years with the same employer

Personal Emergency Leave

• The legislation will require all employers to give all employees 10 personal emergency leave days per year, including two paid days if the employee has been employed for one week or longer (7 days)
• An employee who has been employed for at least 13 consecutive weeks will be entitled to up to 10 individual days of leave and up to 15 weeks of leave if the employee or their child experiences domestic or sexual violence or the threat of domestic or sexual violence. The first five days of leave, each calendar year, will be paid, the rest will be unpaid.

For more on the changes to Ontario's Employment and Labour Laws, visit www.ontario.ca