November 14, 2022,

Dear Valued Clients & Friends,

It’s hard to believe that with ‘falling back’ our clocks already one week completed, we are gearing up for the winter season.   This year is a little different as we are in an inflationary environment with rising rates. As we approach the holidays, it an excellent opportunity to take stock of your savings, watch your spending due to the economic downturn and start preparing for end of year planning season.   To allow improved document sharing, our team at AR Jaffer Professional Corporation have been working very hard developing a client portal that we will be launching in the new year!

In this edition of the newsletter, I will provide an economic update, some tips to help prepare for the the end of 2022 as an individual and business owner, some real estate tips, and a financial health check.  Here are some topics that I will be discussing:

1. Economic Update
2. Real Estate Tips for Individuals
3. 2022 Year End Personal & Business Planning
4. Minute Books 101, Corporation Renewals and Annual Return Filings
5. Financial Health Check
6. Business Owner tax tips – What is ‘Capital Gains Stripping’
7. Advisory, Tax Planning and Cash Flow Planning

If you have missed any editions of the newsletter, please click on the following link:  AR Jaffer PC Newsletter Archives

We have been working very hard in providing personal tips & accounting, tax, and business content on social media.    Please connect and follow the links to my social media at your convenience (Facebook, Twitter, LinkedIn, Instagram) to stay fully updated on CRA Updates and tax planning tips for individuals & businesses.

If you have an opportunity, please also provide a google review available at the following link:

AR Jaffer Professional Corporation Chartered Professional Account Google Review

 

1. Economic Update

With the economic outlook darkening rapidly in the second half of the year, we must continue staying on track for our plans while balancing rising costs, increased interest rates and the softening job market. In Canada, some of the major financial institutions have already alerted taxpayers about a looming recession, while others suggest we are already deep in a recession.

Regardless of how you describe what’s coming, one thing is certain—the Canadian economy is set to slow down as we head toward 2023.  Here are some tips to stay ahead of the curve:

1. Try and minimize credit card debt.  With credit cards being the highest of the interest rate products, if debt becomes a necessity, dip into the cash portion of your mortgage or your secured lines of credit.  Try consolidating loans to minimize monthly payments
2. Look out for possible flattening of interest rates and try fixing your rates (if you are on a variable rate plan).  However, keep in mind that some experts also suggest that in the long run, variable rates tend to save on cash flows in the long term.
3. For business owners, seek some short-term working capital financing.  We can assist with bank loan proposals to help secure that you are protected for economic headwinds.
4. Try to avoid food wastage.   With grocery costs on the rise, only buy what you need.  In some cases, we have seen doubling of prices.   Try to use some apps available (eg. Flipp) that provide competitive pricing of local grocery stores
5. Try to avoid too much driving.   Traffic is back to pre-2020 levels and with rising gas prices and upcoming cold weather, if you can work from home, it can provide additional discretionary spending in the event of further rising prices
6. GICs and Bonds are back!    As interest rates rise, there are some great bond yields and GIC rates available in the market.  It is a great savings strategy and a safer investment strategy since the equity markets have also decreased significantly in 2022.

2. Real Estate Tips for Individuals

I was fortunate to have been invited recently by a valued Real Estate Agent, Ahsan Raza in discussing real estate tax planning tips for individuals and investors.  Here is a list of key topics discussed in the interview:

1. 1. What is an HST Rebate?
   2. Rental properties – Expenses that can be claimed.
   3. Owning multiple properties – Should they be owned in a corporation or personal name?
   4. Tax Implications on ‘buying to flip’ properties or ‘assignment’ sale.
   5. Capital gains taxes on investment properties.

Click below to view the interview.

Real Estate Tax Strategies

A special thank you to Ahsan Raza for coordinating the interview and asking valuable questions that are always cross our minds.

3. 2022 Year End Personal & Business Planning

 

November is great timing to start preparing for some income tax decisions you may have to make as you gather your tax documents for filing your 2022 tax returns.

Here are some tax tips as we get closer to the end of 2022.

1. Installments:  If your tax payable in 2021 was greater than $3,000, you are required to make tax installments in 2022.  CRA has sent you letters for installment payments.  These are available on your CRA My Account with details.
2. RRSPs:  Please continue making 2022 RRSP contributions.  It is suggested to make monthly RRSP contributions rather than a lump sum on the Mar 1, 2023, deadline for optimal cash flow planning.
3. Prepare a folder for 2022 tax slips (common items include medical receipts, donation receipts, RRSP contributions and all your T3, T4 and T5 slips).
4. For business, review the tax strategies available to optimize your tax situation at year end.  These include:
   1. Optimal bonus and dividend strategies
   2. Income opportunities to family members that are working for your business
   3. Expense deductions available
   4. Financing options with the rising interest rate environment
   5. 2023 personal budget preparation
5. Look out for our year end tax preparation checklist in our Holiday edition of our newsletter next month!

 

4. Minute Books 101, Corporation Renewals and Annual Return Filings

For entrepreneurs who have incorporated businesses, once the fiscal year end is completed, business owners must update their corporate minute books.  This can be completed by a business or corporate lawyer.   It is important to update the minute books on an annual basis with resolutions, changes that have occurred during the year, and the reporting of bonuses and dividends at the end of the fiscal year.  If you require a corporate lawyer referral to update your minute books, please contact me and I will provide you with a list of lawyers we work with.

While the minute books are updated, it is also important to renew your federal or provincial corporations.  As mentioned in previous communications and newsletters, On October 18, 2021, the Ontario Ministry changed the process of Annual Return Filing.  Previously, the filing was included as part of the corporate tax returns under Schedule 546 (MGS) of the Corporate Tax Return. Effective for Corporate Tax Returns filed after October 18, 2021, the government has changed the process for annual returns and now requires corporations to file the annual return separately through the Ontario Business Registry website.

In order to web file the annual return, the corporation must request a Company Key, a One-Key ID, and a Service Ontario account.  The instructions are available at https://www.ontario.ca/page/ontario-business-registry. Please ensure that you have your Business Registration Name and Corporation Number available when requesting for a Company Key.

Once you receive your company key (generally received within 3 business days), you can log in to your One-key account, follow the prompts to setup your Service Ontario Account and then follow the steps below:

1. Click on Service Ontario Account
2. Click on your business name
3. Click the “Make Changes” drop down button
4. Click on “File Annual Return”
5. Follow the steps to complete your filing.

Alternatively, your corporate/business lawyer can file the Annual Return on your behalf when they update your corporate minute books.  If you do not have a corporate/business lawyer, we can help you connect with a lawyer.

Please feel free to reach out to us for any assistance required in this process.

5. Financial Health Check

Year End is an excellent opportunity to review your personal and business Financial Health.  We continue to emphasize the importance of preparing a cash flow plan, budget, or tax plan, allowing you manage your personal and business expenses more effectively.  This is extremely critical as you navigate through the uncertainties in the economy this past year, and likely continuing into 2023.  In order to stay aligned with your financial objectives, , we recommend at a minimum, that you prepare a Financial Health Checkonce every 5 yearsand then update it annually as your personal and financial situation changes.  This will allow you to adjust your cash flow spending as your employment and family situation changes, enabling you to plan your net worth and prepare for your long-term goals.

Please contact us if you require further details on how we can assist you with a Financial Health Check for your personal or business planning.

Is a financial Health check right for your personal and business needs?   We can assist – Contact us to book a consultation!

Here are some areas we can assist with:

Personal

1. Net worth projections
2. Retirement planning
3. Cash flow planning and budgeting
4. Optimal tax credits and deductions
5. Investment and real estate analysis

Business & Corporation

1. Review your business beyond the numbers
2. Optimize your strengths & minimize your weaknesses
3. Strategic Planning
4. Cash flow planning
5. Tax planning & restructuring
6. Profit optimization
7. KPI analysis

I am listing my top 5 recommendations as you explore opportunities for a Financial Health Check as I have mentioned in previous newsletters.

1. Pay down your highest interest rate loans first.
2. Consider refinancing to potentially lock in your rates.  An early renewal may be the key to secure a lower rate before the next interest rate increase.
3. Prepare an annual budget and cut down unnecessary costs.
4. Evaluate larger purchases and defer them into the future (eg. Car purchases, large renovation projects, high budget vacations).
5. Consider looking at new investments:
   1. Stock markets are down so there may be some good bargains to be sought out
   2. Crypto markets are down (please tread carefully here as crypto is still considered a new type of investment strategy)
   3. Real estate markets are also down, but may still be expensive given the rising interest rates

We have some excellent planning tools on our website to help get you started with a Financial Health Check.  Click ARJCPA Financial Tools for more information.

6. Business Owner tax tips – What is ‘Capital Gains Stripping’

Capital gains stripping is a fairly complex strategy that allows individuals to extract earnings that they have built into their business over the years (retained earnings) at capital gains rates. The process and strategy involve multiple transactions including share exchanges, transfers, and specialized restructuring to allow an individual to convert higher taxed dividends into lower taxed capital gains.

Pros:

Significant tax savings (non eligible dividend tax rate is approximately $48% vs. approximately 26.7% for capital gains).

A very attractive option for withdrawing large amounts of money.

Converts fully taxable income (i.e., dividends) into lower-taxed capital gains (50% of capital gains are taxable).

Can be a cost-effective way to pay back a large shareholder loan balance owed to the company.

Cons:

The eligibility to convert dividends to capital gains can be very complicated.

This strategy may be eliminated in 2023 as previously mentioned by the Federal Government in the 2022 budget.

Accounting/Legal Fees for the safe income calculation & tax planning.

Ideal Candidates:

High-income shareholders of corporations seeking to reduce their tax bill from withdrawals of corporate earnings.

Shareholders with a high shareholder loan balances owed to the company.

 

Let us know if you would like to explore the eligibility of your business for this strategy.

Advisory, Tax Planning and Cash Flow Planning

Whether you are an individual taxpayer, sole proprietor, or corporate business owner, many of us have experienced a challenging past couple of years.  As part of our commitment and service delivery, we have been working with our clients on the following:

• Business Financing which includes
• $100k BDC working capital loan application. This is the most popular and easiest application process.
• Bank loan proposals & applications
• Lines of credit applications
• Applications to various government loan programs in response to the COVID-19 pandemic
• Preparation of business plans and cash flow projections
• Life Insurance Planning Strategies
• Cash Flow Planning & Budgeting
• Tax Planning and Corporate Restructuring (Holding companies, Estate Freezes, Trusts)
• Net Worth Analysis and Planning
• Strategies to achieve your short term and long-term goals

Let me know if you have any questions on these strategies and we can set up a call or meeting.

Please see our website for further details at https://www.arjcpa.ca/business-advisory-services/

Sincerely,