This year we had to create 2 pieces, one focused on Business and one for Families. So instead of 1 infographic and article- you get 2 infographics and 2 articles- Yay! Bonus!
So here’s the summary:(don’t worry the articles sounds a lot more professional)
For Business Owners:
The good news: the small business tax rate was reduced.
The “so-so” news: The tax proposals for small business owners, Morneau put forth in July 2017 have been reduced. In the previous proposal, it included the elimination of refundable dividend tax on hand (RDTOH) and holding passive investments inside a corporation. So now there’s a $50,000 limit on passive investments and a new RDTOH account instead.
The “other” news: The budget plans to end health and welfare trusts by 2021- essentially these are to be converted to employee life and health trusts or windup by the end of 2020.
So what does this actually mean for advisors?
- It’s time to review with business owner clients to check on investments held inside the corp- and look at the type of returns being generated such as capital gains (to be paid out as a capital dividend)
- Speak with business owner clients about paying out eligible dividends to recover RDTOH before year-end, look at current RDTOH balances and review dividend policies.
- Take a look at insurance concepts that could potentially be affected by the RDTOH changes. (ex. Corporate Retirement Strategy or Corporate Estate Bond)
- If you have health and welfare trusts in your practice- you should ensure that your trusts are compliant.
This budget was known as the “”Equality + Growth” budget focused on helping it make it easier for women to get jobs and a focus on family responsibilities.
For new families- the government will be extending parental leave.
Gender equality- there’s an aim within the government to reduce the wage gap. They have also announced increased funding for female entrepreneurs.
Trusts- more reporting will be required.
Registered Disability Savings Plan- there is an extension where a family member such as spouse/parent can hold an RDSP plan
So what can advisors talk to their clients about?
- It’s time for a financial review for any clients or prospects thinking of having children and discuss the new options available.
- For clients with trusts- ensure all information is up to date to avoid unnecessary fees.
- For clients with the disability tax credit- it’s a great time to talk about setting up an RDSP.
This was a long budget (like 369 pages) so we’ve only included the highlights, to learn more, please check it out at: https://www.budget.gc.ca/2018/docs/plan/toc-tdm-en.html
Federal Budget Infographic- Business Owners
Federal Budget Article: Business Owners
The government’s 2018 federal budget focuses on a number of tax tightening measures for business owners. It introduces a new regime for holding passive investments inside a Canadian Controlled Private Corporation (CCPC). (Previously proposed in July 2017.)
Here are the highlights:
Small Business Tax Rate Reduction Confirmed
Lower small business tax rate from 10% (from 10.5%), effective January 1, 2018 and to 9% effective January 1, 2019.
Limiting Access to the Small Business Tax Rate
A key objective of the budget is to decrease the small business limit for CCPCs with a set threshold of income generated from passive investments. This will apply to CCPCs with between $50,000 and $150,000 of investment income. It reduces the small business deduction by $5 for each $1 of investment income which falls over the threshold of $50,000. This new regulation will go hand in hand with the current business limit reduction for taxable capital.
Limiting access to refundable taxes
Another important feature of the budget is to reduce the tax advantages that CCPCs can gain to access refundable taxes on the distribution of dividends. Currently, a corporation can receive a refundable dividend tax on hand (known as a RDTOH) when they pay a particular dividend, whereas the new proposals aim to permit such a refund only where a private corporation pays non-eligible dividends, though exceptions apply regarding RDTOH deriving from eligible portfolio dividends.
The new RDTOH account referred to “eligible RDTOH” will be tracked under Part IV of the Income Tax Act while the current RDTOH account will be redefined as “non-eligible RDTOH” and will be tracked under Part I of the Income Tax Act. This means when a corporation pays non-eligible dividends, it’s required to obtain a refund from its non-eligible RDTOH account before it obtains a refund from its eligible RDTOH account.
Health and welfare trusts
The budget states that it will end the Health and Welfare Trust tax regime and transition it to Employee Life and Health Trusts. The current tax position of Health and Welfare Trusts are linked to the administrative rules as stated by the CRA, but the income Tax Act includes specific rules relating to the Employee Life and Heath Trusts which are similar. The budget will simplify this arrangement to have one set of rules across both arrangements.
Federal Budget Infographic- Families
Federal Budget Article: Families
Several key changes relating to personal financial arrangements are covered in the Canadian government’s 2018 federal budget, which could affect the finances of you and your family. Below are some of the most significant changes to be aware of:
The government is creating a new five-week “use-it-or-lose-it” incentive for new fathers to take parental leave. This would increase the EI parental leave to 40 weeks (maximum) when the second parent agrees to take at least 5 weeks off. Effective June 2019, couples who opt for extended parental leave of 18 months, the second parent can take up to 8 additional weeks, at 33% of their income.
The government aims to reduce the gender wage gap by 2.7% for public servants and 2.6% in the federal private sector. The aim is to ensure that men and women receive the same pay for equal work. They have also announced increased funding for female entrepreneurs.
Effective for 2021 tax filings, the government will require reporting for certain trusts to provide information to provide information on identities of all trustees, beneficiaries, settlors of the trust and each person that has the ability to exert control over the trust.
Registered Disability Savings Plan holders
The budget proposes to extend to 2023 the current temporary measure whereby a family member such as a spouse or parent can hold an RDSP plan on behalf of an adult with reduced capacity.
If you would like more information, please don’t hesitate to contact us.