Corporate Tax Changes: at Issue for Business Owners
Greetings Folks,
I hope you are all well, and that you have enjoyed a lovely summer. Been out on the water, or into the hills at all? It has been a great one for me and my family. We have traveled quite a bit (including one fabulous overseas trip to Bali, Indonesia; a couple trips to Portland for sailing and socializing; and a number of weekends on boats in our beautiful Gulf Islands). As we wind down summer, me and my biz partners are re-focusing on business and I look forward to speaking with many of you in person.
This afternoon, I wanted to touch base with many of my friends and clients who are small business owners. Over the years, I have focused my specialization in the area Risk Management and Tax & Estate Planning for small businesses. Currently there is an issue that you likely have been hearing much about in the media: the honeymoon may be over with the Trudeau Gov’t.
At Issue:
In July 2017, the federal Finance Minister (Bill Morneau) proposed a set of corporate tax changes that, if implemented, could:
Eliminate or restrict income sharing with family members (‘income sprinkling’);
Increase taxation of passive investments (like you may have sitting in your Hold Co.); and
Eliminate the opportunity to convert your corporation’s income into capital gains.
If you are a successful business owner (and many of you are), you are likely doing all three of these at the moment, or certainly hope to when the time is right. Here is a great petition from the Canadian Federation of Independent Businesses, if you are keen to voice your opinion to the Feds.
Curious about Alternative Solutions?
You know your business better than anyone. What you may not know, is there is a tax saving strategy specifically for business owners that, when used correctly, can save you money and help your business get ahead. Indeed the potential solution is the fourth (of four) potential solutions mentioned in this Financial Post article (August 17th, 2017). It summarizes the three proposed tax-law changes, and suggests four potential solutions.
The tax strategy is called a Corporate Asset Transfer. Rather than holding a taxable investment in your Holding Company, where it attracts the highest taxes, you can transfer a portion of this money into a pool of assets that is tax sheltered. This pool of funds can be growing in value, reducing your taxes and protecting the future of your company at the same time. Here is how the strategy works:
This strategy accumulates and uses your wealth tax efficiently to:
Reduce T5 tax during your lifetime,
Provide access to cash for retirement or investments,
Significantly increase your estate for your family,
Increase rate of return on fixed income investments,
Eliminate estate tax,
Promote family harmony through estate equalization, and
If interesting to you, it can increase community and charity gifting.
The above benefits are accomplished by re-positioning a portion of your existing Corporate assets by transferring funds from your current investments to an insured deposit fund (thus, the Corporate Asset Transfer). Who is this strategy meant for, and when to use it?
When you have a regular high income stream and are saving money,
When you have a higher net worth with a secure financial future,
When you hold taxable investments, and
When you are looking for ways to minimize tax on annual income.
You know how to run your business. Let us focus on tax saving strategies, so you can do what you love and help your business thrive. If you would like to learn more about this strategy I would enjoy a chance to describe the concept in person. Perhaps your business can benefit from an opportunity and a possible alternative to the proposed tax changes coming down the pipe from our Federal Finance Minister!
Have a fabulous Labour Day weekend, and I hope to speak to you soon.