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Nine things you may have missed in the federal budget

There are nine things that you might have missed in the federal budget. With the focus of the budget on tax changes, you may have missed the Liberal’s plans for more summer jobs, cyber security spending, sensitivity to rising rates, recession-free forecast for Canada, infrastructure spending timeline increase, cash for educating Canadians on cannabis, $6 million for the Federal leaders’ debate, increasing the excise tax on cigarettes and support for local journalism.

Canada Budget Has Changes To Small-Business Tax Rules, More Money To Crack Down On Tax Cheats

The Liberal government chose to fine-tune their original tax changes for small businesses as a result of the uproar and corporate tax cuts in the U.S. The 2018 Federal Budget continues to keep Canadian corporate taxes the same, but to help businesses in other ways, such as spending to help women-led businesses grow, innovation and diversification of trade. The budget focuses on changes to prevent wealthy Canadians from gaining an unfair advantage, and changes to the small business deduction limit. In addition, the government will spend $90.6 million to deal with tax cheats both domestically and internationally. When the new rules take effect, it is expected to bring in an additional $925 million a year by the fiscal year 2022-23.

What Corporate Structure is Best for Canadian Businesses with Commission Income?

Consider the successful real estate or insurance agent, the financial product vendor, the area sales representative, or any other person earning commission income. One day they are asked, if they ever considered running their activities through a corporation as opposed to providing the services personally. There are definitely some valuable possibilities, but there are dangers too.

In a July 11, 2017 Technical Interpretation, CRA opined that whether a corporation is actually carrying on a business and earning commission income is a question of fact and requires more than a mere assignment of income.

CRA noted that “if insurance agents, realtors, mutual fund salespersons, or other professionals are legally… precluded from assigning their commissions to a corporation, then the commission income must be reported by the individuals, and cannot be reported through a corporation, regardless of the documentation provided”. Care must be taken to document that it is truly the corporation providing the services and not just an individual. Commission contracts identifying the corporation as the service provider rather than simply the individual would be valuable.

While some professionals earning commission income are legally prohibited from incorporating (due to the provincial/ territorial laws), others may be practically precluded from doing so due to, for example, a refusal by customers or key suppliers to contract with a corporation.

If a corporation does earn commission income, one must ensure that the corporation would not be considered a personal services business (PSB). A PSB is essentially an individual acting as an employee for a third party, but for the presence of their own personal corporation as an intermediary. For example, consider John, an employee of a car manufacturer (CarCo). If John set up a new corporation, had CarCo pay his corporation, but kept on doing the same things under the same terms and conditions as his previous employment contract, he would likely be conducting a PSB. If classified as a PSB, the worker and their corporation could be subject to substantially higher taxes, plus the denial of several types of deductions.

Federal budget’s simpler plan to tax passive income likely to calm small business outcry

For most of the last year, there has been an outcry from small businesses regarding the proposed tax changes. As a result, Budget 2018 has taken a scaled-back approach for taxing passive investment income. The new approach is meant to relive complex accounting for small businesses, but also result in reduced money for the federal government. Starting in the tax year after 2018, the new rules will mean that multi-million dollar private corporations will no longer qualify for the federal small business tax rate of 9 percent and instead be taxed at 15 percent.

U.S. tax reform to bring double taxation to some Canadians

New tax law changes in the United States will impact some Canadians who hold dual citizenship, a green card, or who own American property. Of primary concern is how some of the tax changes will affect how foreign income is calculated for American citizens. It affects the “participation exemption system” that allows income earned abroad to not be taxed again when it comes into the U.S. The issue is how tax-free repatriation provisions, known as “transition tax” is being applied and while U.S. corporations are offered relief in the Tax Cuts and Jobs Act, individuals may be subject to double taxation. The problem is further compounded by a statement by the IRS saying it will disregard any foreign tax credits, which reduce the transition tax.

Albertans who own vacation properties in B.C. face new tax

Albertans with a vacation property in some parts of B.C. will face a new tax. The tax hike will impact people that own secondary properties in some parts of British Columbia. It isn’t confirmed, but it will likely be 2 percent of the assessed value in areas like the Lower Mainland, Victoria, Nanaimo and Kelowna. The new levy that is aimed at non-residents in order to improve affordability of homes for British Colombians.

Take back control of your RRSP with these three easy steps

For any Canadian, who hopes to retire with a secure financial future, it pays to track your saving vehicles to maximize them. For instance, if you have an RRSP, then take the time needed to understand it, and specifically to pay attention to what your money is being invested in. You should understand how much of what your investing is in bonds, stocks, or other forms of securities. You should know what you are putting into your fund and how the fees are structured. Finally, you should expect and receive clear statements, showing the return of your investment in a regular and transparent way.

Key Takeaways:

Many investors are unclear on exactly what they own in their accounts, so it’s critical to know what type of financial products you own and what is their overall asset allocation between bonds and stocks, and ensure it’s within your risk tolerance.
Know what you’re paying for fees, and monitor what your returns are like by comparing them to benchmarks.
From a tax perspective, it’s also wise to look at where you earn those returns. For instance, it’s best to grow your TFSA, because your eventual withdrawals are tax-free. With a RRSP, your withdrawals will be taxed.

“Knowing what you own, knowing what you are paying in fees and knowing what you are earning in returns should be goals for anyone looking to take control of their RRSP.”

Can I put my mortgage in my RRSP and other burning questions as the deadline looms

With the deadline looming, here are some ways (including a lessor known one) how RRSPs can benefit you and help you decide to contribute. First, the well-known benefit of an RRSP is to provide a completely tax-free rate of return on your net contribution. And unless you’re in the lowest tax bracket, it also means you’ll be taxed at a later date when you withdraw money from your RRSP.

Second, spousal RRSPs provide a way to split more than 50 percent of your pension income with a lower-income spouse. And, if you need to withdraw funds prior to age 65, then that money will be taxed at the lower-income spouse’s rate.

Third, while your RRSP can’t hold real estate, there are two ways it can help with home ownership. If you’re considering this, then it is wise to seek financial advice from your accountant or financial advisor.

Is it better to hold U.S. stocks in a TFSA or RRSP?

Withholding taxes can come into play when you’re considering whether to hold U.S. stocks in a TFSA or RRSP. Knowing where your U.S. stock should be held will help you get the maximum benefit from your investment. For instance, if you have a blue-chip U.S. stock, then you need to consider if your return, even after the 15% IRS withholding tax, will leave you with a better return than Canadian investments. The timing of your retirement can also help determine where you should hold your investments. An RRSP is a better account to keep U.S. stocks, unless you plan on retiring soon in which a TFSA makes more sense.

Key Takeaways:

If you own U.S. stocks, the IRS requires that taxes are withheld regardless of the fact that the stocks are held in a tax-free TFSA account.
The IRS does not levy withholding taxes on U.S. investments held in an RRSP.
If you are unsure about the tax implications, including how provincial taxes will affect your investments, always seek professional advice.

“If you are intending to hold for a long time, then moving your stocks to your RRSP account and holding Canadian investments in your TFSA may be a good strategy.”

Here’s How To Get The Most Out Of Your RRSP

Tax season is kicking into high gear, so now’s the time to consider how you’ll be filing for the year that just ended, but also to make changes to reduce your 2017 taxes. According to a recent study, only 33 percent of Canadians will contribute to an RRSP this year, so now is the perfect time to review the tax advantages of an RRSP.

A Registered Retirement Savings Plan, or RRSP, is an investment strategy that allows savings to be placed into an account without being subject to taxation. Not only does it reduce your income now to potentially put you into a lower tax bracket, but it also allows those contributions to grow tax-free for many years. And usually, when you withdraw the money at retirement, you’ll be taxed in a lower tax bracket since your income is generally lower. If you need to make withdraws earlier, then two programs to consider are the RRSP Homebuyers’ Plan to help you buy a home and the Lifelong Learning Plan to help you pay for school.