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F: 905.629.1947
 
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Proposed Tax Changes

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Proposed Tax Changes

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Category : blog

As you may have heard in the news, the government is proposing tax changes that affect private corporations.  I have attended a number of town hall sessions and seminars on the proposed changes and have summarized the impacted tax planning areas:

Income Splitting:

Business owners currently can split income to family members to reduce the overall family tax burden.  The government wants to restrict this by expanding the ‘kiddie tax’ rules and preventing dividends paid to children at a lower tax rate. More specifically, the government wants to restrict the ability to pay salary or dividends to adult children between the age of 18 and 24 by extending the Kiddie Tax rules ( “Tax on Split Income” (TOSI) ). Furthermore, a reasonableness test will be introduced to determine if the amount received by the family member is commensurate with the labour and capital contributions by the family member.

Holding Passive Investments Inside a Private Corporation:

The government is planning to change the rules to prevent the use of corporate tax deferrals to hold passive investments inside a corporation. The existing rules allow shareholders to decide when they receive dividends allowing them to control when the personal taxes are paid. This tax deferral was intended by the government as an incentive for Canadian controlled private corporations to invest within their business. The government opines that the current system allows corporations (paying tax at a lower rate) to retain cash within the corporation and invest the excess funds at an unfair tax advantage.  They have not determined what the specific rate will be, but are looking at a specific tax rate for passive investments.

Converting Income into Capital Gains:

The Government has proposed new measures which seek to eliminate tax plans that convert dividend income into low taxed capital gains. Within the tax rules is the theory of integration in which income earned in a corporation is taxed at the corporate level and once again when the individual shareholder receives a dividend.   The after-tax amount in the individual’s hand after removing the funds from the corporation should be the same as if the individual earned the funds directly as a salary. The government is concerned with the ineffectiveness of integration in situations where corporate surpluses are paid out in the form of tax-exempt or lower taxed income. The legislation has been amended to eliminate this conversion and a new anti-avoidance rule will be added.

Multiplication of the Lifetime Capital Gains Exemption (LCGE):

Currently, corporations can use family trusts to have multiple LCGE limits for multiple family members.  There are 3 proposed measures in this category:

  1. The LCGE is no longer available for taxpayers in the year before they attain the age of 18
  2. Gains accrued when the property was held by a trust would no longer be eligible for the LCGE
  3. If the gain from the property is included in an individual’s split income, then the LCGE would not be eligible

As the legislation is finalized, I will provide a further update.  In the meantime, if you have any questions, please contact myself or the staff.

Best regards,

Ali Raza Jaffer, CPA, CGA, MBA, BComm
President, AR Jaffer Professional Corporation
Chartered Professional Accountant
(T) 905-629-7720 (F) 905-629-1947
(W) www.arjcpa.ca (E) ajaffer@arjcpa.ca


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Managing the final tax returns for someone who has died

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Category : blog

Coping with the death of a loved one is difficult. There is a lot to keep in mind when managing the final tax affairs of a deceased person. The final tax return is generally filed in the same manner as when they were alive. All income up until the death of the individual must be reported and all credits are deductions that the person was entitled to may be claimed.

A final tax return must be filed after a death. All of the deceased’s income from January 1 of the year of death up to the date of death must be reported by the legal representation of the deceased. They must also report any income earned after the date of death.

Information for legal representatives

You are a legal representative of a deceased person if you are named executor in the will or you are appointed as the administrator of the estate by a court.

As a legal representative, it is highly recommended to get a clearance certificate from the CRA which certifies that all the amounts the deceased owed to the CRA have been paid.

 


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Senior’s Home Renovations Tax Credit

Category : blog

This credit allows a senior qualifying taxpayer to claim for expenses that have incurred during the year to improve their dwelling to a more senior friendly and approachable set up. Based on CRA’s requirements, expenses incurred must meet the eligibility criteria and only up to $10,000 can be claimed in the year. The maximum refundable tax credit that can be claimed by each is $1,500 (15% of $10,000). With this credit, seniors will be encouraged to live a more healthy and supportive lifestyle.

Call us at at 905-629-7720 if you have any questions.


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Child Care Expenses Limit Increase

Category : blog

Child Care Expenses Limit Increase: As Canada Revenue Agency’s (CRA) enhancements are coming into effect, starting 2015 the limit for child care deductions has been increased by an additional $1,000 per child which totals to $8,000 claimable child care expenses. The requirements for claiming this deduction have not changed and all criteria must be met as per CRA. The benefit of this increase will allow a reduction in taxpayers’ net income.

Call us at at 905-629-7720 if you have any questions.


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Personal Service Business (PSB)

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Category : blog

Many consultants have the option of forming a corporation and take advantage of lower corporate tax rates compared to the highest individual tax rates. Effective year ends beginning after October 31, 2011, CRA has been reviewing as to whether an individual who is deemed to be an employee has formed a corporation for the purpose of simply taking advantage of the lower tax rate. The implications can be quite harsh as the small business deduction (for small businesses earning up to $500K of income) will be denied, no deductions other than salary expenses will be allowed, and CRA may also assess the individual’s income resulting in a higher tax rate. The business will no longer be able to deduct office expenses, auto expenses and meals and entertainment expenses. Considerations of determining whether a business is a PSB:

  1. Without the ownership of a corporation, would the individual be regarded as an employee of the business to which he/she is performing the duties?
  2. The individual owns more than 10% of the share of the business?
  3. The number of clients the business has?
  4. Where the work is performed (at the client’s premises or at home)?
  5. Does the client supply you with a business card?
  6. Does the individual’s name and contact information appear in the client’s phone directory?
  7. Does the client provide the tools for the individual to complete his/her job?
  8. Can the individual complete the work according to his/her timelines or are they governed by the hours of work of the client?
  9. Who takes on the risk of the work being performed?

If you are an ‘incorporated employee’ or a personal service business corporation, speak to a professional who can assist you with planning.

Let me know if you have any questions on Personal Service Businesses or any other accounting, tax or Canada Revenue Agency related questions. I can be reached at ajaffer@arjcpa.ca or 905-629-7720

Ali Raza Jaffer, CPA, CGA, MBA, BComm
President, AR Jaffer Professional Corporation
Chartered Professional Accountant
(T) 905-629-7720 (F) 905-629-1947

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