2024 Year-End Tax Tips and Strategies for Business Owners

/in , , , , /by

brandableContent
brandableContent

As a business owner, managing your finances well can make a big difference for your business’s future. Whether it’s choosing how to compensate yourself or making the most of opportunities like the small business deduction and lifetime capital gains exemption, thoughtful planning can help you save on taxes. This guide offers practical tips to help you make informed decisions.

Salary and RRSP Contributions

Taking a salary from your corporation can help reduce the company’s taxable income while creating RRSP contribution room for you. In 2024, a salary of up to $180,500 allows you to maximize your RRSP contribution room for 2025, which is $32,490.

Dividends

Dividends offer another way to take income from your business. They’re paid from the corporation’s after-tax income, but thanks to the dividend tax credit, they’re often taxed at a lower rate than salary.

Compensating Family Members

If family members are involved in your business, paying them can be a practical and tax-efficient option:

  • Salaries to Family Members: Paying a fair salary to family members who work for your business not only compensates them but also gives them access to RRSP contributions and CPP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.

  • Dividends to Family Members: If family members are shareholders, dividends can provide them with tax-efficient income. The tax-free amount varies by province or territory, so it’s worth checking the rules where you live.

  • Income Splitting: Distributing income among family members can help reduce overall taxes. However, be mindful of the Tax on Split Income (TOSI) rules to avoid penalties. A tax professional can guide you through this process.

Deferring Income

If you don’t need the full amount for personal use, leaving surplus funds in the corporation could be a smart move. This keeps the money invested within the business, benefiting from lower corporate tax rates. Over time, this approach may allow the funds to generate more income compared to personal investing, depending on your goals and investment strategy. However, be mindful of passive investment income limits, as exceeding $50,000 in passive income could reduce or eliminate your corporation’s access to the small business deduction. Monitoring this threshold is essential to maintaining the tax advantages available to your business.

Compensation

It’s always a good idea to review how you handle compensation beyond base salary.

Consider these options:

  • Shareholder Loans: Borrow funds from your corporation with deductible interest but ensure repayment to avoid personal tax.

  • Profit-Sharing Plans: These can be a tax-efficient alternative to bonuses for distributing profits.

  • Stock Options: Only the employee or employer—not both—can claim a deduction when options are cashed out.

  • Retirement Plans: Explore setting up a Retirement Compensation Arrangement (RCA) to save for retirement tax-efficiently.

Passive Investments

Canadian-controlled private corporations (CCPCs) benefit from a reduced corporate tax rate on the first $500,000 of active business income, thanks to the small business deduction (SBD). The SBD can lower the tax rate by 12% to 21%, depending on your province or territory.

However, passive investment income over $50,000 in the previous year reduces the SBD by $5 for every additional dollar, potentially eliminating it altogether. To maintain access to the SBD, it’s important to keep passive investment income below this threshold.

Here are some strategies to help preserve your SBD:

  • Defer Portfolio Sales: Delay selling investments that generate capital gains if possible.

  • Optimize Your Investment Mix: Focus on tax-efficient investments like equities over fixed income.

  • Exempt Life Insurance Policies: Income earned within these policies isn’t included in your passive investment total.

  • Individual Pension Plan (IPP): This defined benefit plan is exempt from passive income rules and offers tax-advantaged retirement savings.

  • Consider Corporate Class Mutual Funds: These funds offer tax-efficient growth by deferring taxable distributions. While recent tax changes have limited their benefits, they remain a viable option for minimizing taxable passive income.

Carefully managing passive investments can help your business maintain access to the SBD and maximize its tax advantages for continued growth.

Capital Gains Inclusion Rate Increase

With recent changes to the capital gains inclusion rate, business owners personally holding investments with unrealized gains may want to consider realizing up to $250,000 in capital gains in 2024. This approach allows you to benefit from the lower tax rate on gains within this threshold, provided it aligns with your overall financial strategy.

Tax-Free Dividends

If your corporation has investments with losses that haven’t been sold yet, it’s a good idea to check the balance of its Capital Dividend Account (CDA) before selling. The CDA keeps track of the non-taxable portion of capital gains and some other amounts. You can pay tax-free dividends to shareholders using this account if you don’t go over the balance. However, if you sell investments at a loss, the CDA balance will go down, which might reduce or even remove your ability to pay these tax-free dividends. To avoid this, think about paying out any available tax-free dividends before selling investments at a loss.

Business Transition

If you’re planning to transition your business and believe its value has decreased, now might be a good time to explore options like an estate freeze or refreeze as part of your strategy.

Lifetime Capital Gains Exemption (LCGE)

The 2024 Federal Budget increased the LCGE from $1,016,836 to $1.25 million as of June 25, 2024. This allows you to benefit from tax savings on up to $1.25 million in capital gains over your lifetime when selling qualifying small business shares, farm properties, or fishing properties. Ensuring your corporate shares qualify for this exemption can help reduce the tax burden when selling or transferring your business.

Canadian Entrepreneurs’ Incentive (CEI)

The 2024 Federal Budget also introduced the Canadian Entrepreneurs’ Incentive (CEI) to lower taxes on selling qualifying shares. Starting June 25, 2024, the CEI reduces the taxable portion of capital gains to one-third for gains over $250,000 on qualifying sales.

In 2025, the CEI will go even further, lowering the taxable portion of capital gains to half the usual amount for up to $2 million in lifetime gains. This $2 million limit will start at $400,000 in 2025 and increase by $400,000 each year until it reaches $2 million in 2029.

To use the CEI, the shares must meet certain rules. However, it does not apply to shares of professional corporations or businesses focused on financial services, insurance, real estate, food and accommodation, arts, recreation, entertainment, consulting, or personal care services.

Together, the LCGE and CEI offer tax savings for business owners when selling or passing on their businesses.

Employee Ownership Trusts (EOT)

An EOT is a way for employees to own a business. A trust holds shares of the business on behalf of the employees, so they don’t have to pay directly to buy shares themselves.

Starting in 2024, EOTs are allowed in Canada. If a business is sold to an EOT in 2024, 2025, or 2026, the first $10 million in capital gains from the sale is tax-free, if certain conditions are met. This $10 million limit applies to the entire business, not to each individual shareholder. If multiple people sell shares to an EOT as part of the sale, they can each claim part of the exemption, but the total claimed by everyone combined can’t be more than $10 million. All sellers must agree on how to split the exemption.

Depreciable Assets

Purchasing depreciable assets can be a smart tax planning move, as they allow you to claim Capital Cost Allowance (CCA) to reduce taxable income.

To maximize the benefits:

  • Take advantage of the Accelerated Investment Incentive, which offers an enhanced first-year CCA for eligible assets.

  • Postpone selling depreciable assets if it could trigger recaptured depreciation in your 2024 tax year.

Timing your asset purchases and sales can help optimize your tax savings.

Donations

Making donations, whether charitable or political, can provide valuable tax benefits. To maximize these advantages, consider options like:

  • Donating securities

  • Giving a direct cash gift to a registered charity

  • Using a donor-advised fund for ongoing charitable contributions

  • Setting up a private foundation

  • Donating a life insurance policy by naming a charity as the beneficiary or transferring ownership.

Each option offers unique tax advantages depending on your situation.

Final Corporate Tax Balances

Pay your corporate taxes within two months of year-end (or three months for some CCPCs) to avoid interest charges that can’t be deducted.

Contact Us

For guidance on implementing these strategies, connect with your trusted tax professional. If you’d like to discuss how these tips align with your overall plan, let’s schedule a meeting.

Sources:

CPA Canada, “2024 Federal Budget Highlights,” https://www.cpacanada.ca/-/media/site/operational/sc-strategic-communications/docs/02085-sc_2024-federal-budget-highlights_en_final.pdf?rev=6d565a6a66ef4e20b1e01dc784464c93, 2024.


Government of Canada, “Capital Gains Inclusion Rate,” https://www.canada.ca/en/department-finance/news/2024/06/capital-gains-inclusion-rate.html, 2024.


Advisor.ca, “Lifetime Capital Gains Exemption to Top $1M in 2024,” https://www.advisor.ca/tax/tax-news/lifetime-capital-gains-exemption-to-top-1m-in-2024/, 2024.


PwC Canada, “Year-End Tax Planner,” https://www.pwc.com/ca/en/services/tax/publications/guides-and-books/year-end-tax-planner.html, 2024.


CIBC, “2024 Year-End Tax Tips,” https://www.cibc.com/content/dam/personal_banking/advice_centre/tax-savings/year-end-tax-tips-en.pdf, 2024.


Government of Canada, “Federal Budget 2024,” https://budget.canada.ca/2024/report-rapport/tm-mf-en.html, 2024.

2024 Personal Year End Tax Tips

/in , , , , /by

brandableContent

The end of 2024 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!

In this article, we’ve covered five different major types of 2024 personal tax tips:

  • Investment Considerations

  • Individuals

  • Families

  • Retirees

  • Students

Investment Considerations

Investment Portfolio Mix

Different investments are taxed differently, so reviewing your portfolio ensures optimal after-tax returns. With the recent increase to the capital gains tax rate on gains realized after June 24, 2024, it might make sense to focus on investments that yield eligible dividends instead of capital gains. Whether this works for you depends on your marginal tax rate and where you live, so take some time to evaluate your options.

Capital Gains Inclusion Rate

The 2024 federal budget introduced changes to the capital gains inclusion rate that could affect your tax planning. For individuals, the first $250,000 of annual capital gains remain taxed at the 50% inclusion rate. However, any gains exceeding this threshold are now taxed at 2/3 of the total. If this applies to you, consider strategies like tax-loss selling to offset realized gains.

Tax-Loss Selling

Selling investments in non-registered accounts with losses can offset capital gains elsewhere in your portfolio. Unused net capital losses can be carried back up to three years or forward indefinitely to offset gains in other years. To ensure the loss applies for 2024 (or the prior three years), the transaction must settle within 2024.

Be aware of the “superficial loss” rule: if you or an affiliated person repurchases the same investment within 30 days before or after the sale, the loss cannot be used to reduce taxes immediately. Instead, it’s added to the cost of the repurchased investment, and you’ll benefit from the loss when you sell it later.

Tax-Free Savings Account (TFSA)

You can contribute up to a maximum of $7,000 for 2024. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $95,000 (including 2024) if you have been at least 18 years old and resident in Canada since 2009.

Registered Retirement Savings Plan (RRSP)

For the 2024 tax year, you have until March 3, 2025, to contribute to your Registered Retirement Savings Plan (RRSP) or a spousal RRSP. However, contributing earlier can benefit you more due to tax-deferred growth. Your deduction limit for 2024 is 18% of your 2023 income, up to $31,560, but this will reduce if you have pension adjustments. Don’t forget, any unused contribution room from previous years or pension adjustment reversals can increase your limit.

Also, you can deduct contributions on your 2024 income if they are made within the first 60 days of 2025. It’s possible to defer these deductions to a later year if that suits your financial strategy better. 

Interest Deductibility

If you can, focus on paying off debts with non-deductible interest first, like personal loans or those with non-refundable credits (e.g., student loans). Use borrowing for investment or business purposes and save your cash for personal expenses. 


For Individuals

Income Timing

If your marginal personal tax rate is lower in 2025 than in 2024, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2025 than in 2024, accelerate.

First Home Savings Account (FHSA) 

If you are a Canadian resident, age 18 or older and planning to become first-time homebuyers. Starting from April 1, 2023, this account serves as a valuable tool for saving towards the purchase of a qualifying first home. 

The FHSA program comes with an annual contribution limit of $8,000, and a cumulative lifetime cap of $40,000, with the flexibility to carry forward up to $8,000 in unused contributions. Importantly, contributions made to the FHSA are tax-deductible, offering potential tax benefits. Additionally, the returns earned on your savings within this account are not subject to taxation, which can enhance the overall growth of your savings. Most notably, when you make qualifying withdrawals to buy your first home, these withdrawals are non-taxable.

Medical expenses

If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.

Charitable Donations

Federal and provincial donation tax credits can significantly reduce your taxes, with the savings depending on your province. Larger donations receive higher federal credits, and you can pool receipts with your spouse or carry them forward for up to five years.

For 2024, changes to the Alternative Minimum Tax (AMT) limit the portion of the donation credit that can be applied for AMT purposes. Be sure to make your donations by December 31 to claim them for 2024.

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax (AMT) ensures a minimum level of tax is paid by limiting certain deductions, exemptions, and credits. If your AMT calculation exceeds your regular tax, you’ll pay the difference as AMT for the year.


Revised for 2024, AMT changes include a higher tax rate, a larger exemption, and stricter limits on tax-reducing measures like capital gains, stock options, Canadian dividends, and non-refundable tax credits. These changes may increase your AMT if your taxable income exceeds $173,205. 

For Families

Childcare Expenses

If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.

Caregiver

If you are a caregiver, claim the available federal and provincial/territorial tax credits.

Registered Education Savings Plan (RESP) 

RESP can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.

Registered Disability Savings Plan (RDSP)

If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.

For Retirees

Registered Retirement Income Fund (RRIF)

Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices. 

Pension Income

Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits. Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.

Canada Pension Plan (CPP) 

If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.

Old Age Security (OAS)

If you’re 65 or older, enrolling in OAS is essential. If your income exceeds OAS thresholds, strategies like income splitting can help reduce clawbacks.

You can defer OAS for up to 60 months, increasing your monthly payment by 0.6% for each month deferred. Planning ensures you maximize your benefits and optimize your retirement income.


Estate planning arrangements

Regularly reviewing your estate plan is essential to ensure it aligns with your objectives and complies with current tax laws. An annual review allows you to adjust for life changes and legal updates, keeping your plan effective. Additionally, exploring strategies to minimize probate fees can preserve more of your estate for your beneficiaries. Regularly examining your will ensures it remains valid and reflects your current wishes. 

For Students

Education, tuition, and textbook tax credits

If you’re attending post-secondary school, claim these credits where available.

Canada tuition credit 

If you’re between 25 and 65 and enrolled in an eligible educational institution, you may be eligible for the Canada Training Credit, a refundable tax credit designed to help cover tuition and other fees associated with training. Additionally, you can claim tuition paid on your taxes, carry forward unused amounts to future years, or transfer unused tuition amounts to a spouse, parent, or grandparent. 

Need some additional guidance? Reach out to us if you have any questions. We’re here to help.

Getting Ready for Money Emergencies

/in , , , , , , , , , /by

brandableContent

Life can throw unexpected events your way that can hit you in the wallet. Whether it’s falling ill, getting laid off, or facing hefty repair bills for your car or home, these situations can strain your finances. To stay ahead and avoid falling into debt, it’s a good idea to have an emergency fund. This is cash you set aside specifically to handle unforeseen expenses, so you’re not left scrambling for money when the unexpected happens.

Why Emergency Funds Matter

An emergency fund is like an insurance policy for unexpected expenses that everyone can benefit from. It’s a stash of money specifically saved to cover daily living costs during emergencies that catch you off guard, such as:

  • Sudden car repairs
  • Vet visits
  • Losing your job
  • Sudden home repairs
  • Medical emergencies

Creating an emergency fund helps you to:

  • Deal with surprise costs without going into debt
  • Stay away from expensive loans like payday loans or credit card cash advances
  • Keep control of your finances
  • Feel less worried about unexpected expenses.

An emergency fund offers peace of mind during life’s surprises, preventing debt by covering costs without needing to use up savings or retirement funds, which could result in extra fees.

How much do you need?

The amount you should save depends on your financial situation, like how much you earn, what you spend each month, and if you have any dependents. A good rule is to have enough money to cover three to six months of necessary expenses, like rent, groceries, bills, and childcare.

How to Build Your Emergency Fund

Building an emergency fund to cover three to six months of essential living expenses might feel overwhelming, but the key is to start saving gradually. Even putting away a small amount regularly can add up significantly over time.

Here are some ways to build up your emergency fund:

  1. Automate your savings: Pick how much money you want to save, when you want to save it, and how often. Then, arrange for the money to be automatically moved from your regular account to your savings account. You can set up this automatic transfer to happen on your payday. That means the money you’ve chosen to save will be moved as soon as your paycheque is put into your account.
  2. Take advantage of opportunities to boost your emergency fund whenever you can. This might happen when you get extra money, like a tax refund, a pay raise at work, or when you sell things such as a car. Even receiving money as a gift or getting a bonus from your job can help. Additionally, when you finish paying off a loan, consider putting the money you used for payments into your emergency fund instead. Since you’re already used to budgeting for those payments, it’s an easy way to increase your savings without much extra effort.
  3. Make it a habit: Make saving a regular part of your routine by incorporating it into your daily habits. Here are some simple tips to help you get started: drop any loose change into a container whenever you come home, set up a savings, mark your saving dates in advance on your calendar, and use sticky notes on your fridge to remind yourself to save regularly. These small actions can make a big difference in building your savings over time.

Where to keep your emergency fund?

Given that emergencies can occur unexpectedly, having quick access to your funds is important. Although a regular chequing account may offer immediate access to your money, it’s best to keep your emergency fund separate from your regular account. This prevents accidental spending on non-emergencies. Look for an account that:

  • Is distinct from your regular spending account
  • Has minimal or no transaction fees
  • Permits penalty-free withdrawals
  • Earns interest on your savings

Consider exploring “cash equivalents” as an option to invest your money. They’re a bit like cash but can also help your money grow with interest. They’re safe and easy to get your money from. But before you decide, make sure you understand how and when you can take your money out and if there are any extra fees or charges. Examples of cash equivalents include:

  • Savings accounts
  • Chequing accounts
  • High-interest rate savings accounts (HISA)
  • Guaranteed Investment Certificates (GIC)
  • Money market funds

Having an emergency fund can be a lifeline during tough financial times, preventing you from falling into debt. While there’s no fixed amount you should stash away, assessing your financial situation can guide you in determining your ideal emergency fund size. If you need assistance in planning your emergency fund, don’t hesitate to reach out to us for personalized guidance and support.

Contact Us

Renewing Your Group Benefits Plan

/in , , , , /by

When it’s time to renew your organization’s group benefits plan, it’s a chance to step back, take a close look, and ensure everything still makes sense for your team and budget. Each year, your provider will review past claims and usage to help adjust coverage and premiums, so the plan remains relevant. Here’s how to get the most out of this process.

Reviewing Your Benefits: Focus on What Matters

Take time to examine each part of your benefits package to see if it still meets the needs of your team:

  • Health Coverage: Look at what’s covered for prescription drugs, hospital care, and specialist visits. Are the current limits in line with what your team uses most?
  • Dental Coverage: From cleanings to crowns, check that the plan covers routine and advanced dental needs. If usage is low, maybe it’s time for an update.
  • Disability and Life Insurance: Disability insurance protects income during tough times, while life insurance gives peace of mind. Make sure coverage levels are right for your team.
  • Critical Illness and Accident Insurance: These benefits can provide extra financial support for serious illnesses or accidents, with options for additional coverage if it’s a priority for employees.

Specialty Benefits That Add Flexibility

Consider adding options that give employees more control over their benefits:

  • Health Care Spending Accounts (HCSAs): With HCSAs, employees have a set allowance to cover eligible health expenses. This flexibility lets employees pick and choose the coverage that fits their needs.
  • Emergency Medical Coverage: This can be particularly valuable for employees who travel frequently, covering unexpected medical costs on the road.
  • Retiree and Self-Employed Benefits: If you offer benefits for retirees or contractors, make sure these plans focus on the essentials, like prescriptions, dental, and vision, to keep things simple and effective.

Checking Value and Staying on Budget

Once you know what you’re covering, see if it aligns with what your team values most and if it’s worth the premium cost:

  • Utilization Analysis: Look at which benefits are most used. If something like dental care isn’t being used much, that could mean there’s room to adjust.
  • Employee Feedback: Ask employees directly what benefits do they find most valuable? This feedback can guide your decisions.

Making the Right Adjustments

When you have the full picture, it’s time to consider if adjustments would make the plan stronger or more efficient:

  • Benefit Modifications: Maybe it’s time to add a health spending account, adjust critical illness coverage, or tweak other benefits to better reflect what employees want.
  • Cost-Sharing Adjustments: Evaluate how the premium costs are split. Adjusting the cost share may help keep the plan sustainable for everyone.

With the right approach to your group benefits renewal, you can keep your plan valuable, easy to understand, and tailored to what your team needs most. This way, you’re not just offering a benefits package—you’re providing a solution that works.

Understanding Taxes Payable at Death in Canada

/in , , , /by

brandableContent

A common belief among Canadians is that they will be taxed on money they inherit. However, Canada does not impose an inheritance tax. Instead, after someone passes away, their final tax return must be filed, covering the income they earned up to the date of death. Any taxes owed are paid from the estate’s assets before the remaining funds are distributed to the beneficiaries.

While there isn’t an inheritance tax in Canada, other costs are associated with settling an estate. It’s important to understand these costs and how the process works.

Is There an Estate Tax in Canada?

Canada doesn’t have a traditional estate tax, but there are taxes and fees that apply after death. The Canada Revenue Agency (CRA) ensures that taxes are paid on any income earned up to the date of death. If there is a tax balance owing, the executor of the estate must file a final tax return and settle any outstanding taxes.

Earned Income

When you pass away, any earned income up to the date of death is included in your final tax return. This includes salary, wages, and other forms of income earned before death.

Deemed Disposition

Deemed disposition occurs when all your assets are treated as if they were sold at their current market value upon death. This means the difference between the original purchase price and the market value at the time of death is considered a capital gain.

Capital Gains:

If your assets have increased in value, the difference (capital gain) is taxable. Effective June 25, 2024, 50% of this gain is included in your income unless the total gain exceeds $250,000, in which case any amount above the first $250,000 the inclusion rate increases to two thirds.

What Property Does Deemed Disposition Apply To:

  • Non-Registered Investments: Securities, Mutual Funds, ETFs, Bonds

  • Income Properties

  • Businesses

  • Other Assets

Deemed Withdrawal

Deemed withdrawal applies to registered accounts such as RRSPs and RRIFs. The total value of these accounts is added to your income for the year of death, potentially leading to a significant tax liability.

Example: Earned Income, Deemed Disposition, and Deemed Withdrawal (Effective June 25, 2024)
Let’s consider an example to illustrate how earned income, deemed disposition, and deemed withdrawal work together, including how much of the estate is kept after taxes and how much is paid in taxes:

Scenario:

  • John earned $60,000 in salary up to the date of his death.

  • He owns an income property, stock portfolio and an RRSP.

  • Income Property: Purchased for $200,000, now worth $500,000.

  • Stock Portfolio: Purchased for $50,000, now worth $100,000.

  • RRSP: Total value of $150,000.

Earned Income:

  • John’s earned income of $60,000 is included in his final tax return.

Deemed Disposition:

1.  Income Property:

  •    Original Purchase Price: $200,000, Market Value at Death: $500,000

  •    Capital Gain: $500,000 – $200,000 = $300,000

  •    First $250,000 taxed at 50%: $125,000

  •    Remaining $50,000 taxed at two-thirds: $33,333

  •    Total Taxable Gain: $125,000 + $33,333 = $158,333

2.  Stock Portfolio:

  •    Original Purchase Price: $50,000, Market Value at Death: $100,000

  •    Capital Gain: $100,000 – $50,000 = $50,000

  •    Taxable Portion: 2/3 of $50,000 = $33,333 (Net capital gains exceed $250,000)

Deemed Withdrawal:

  • RRSP Value: $150,000

  • Added to Income: $150,000

Total Taxable Income Calculation:

  • Earned Income: $60,000

  • Taxable Gain from Income Property: $158,333

  • Taxable Gain from Stocks: $33,333

  • RRSP Added to Income: $150,000

  • Total Taxable Income: $60,000 + $158,333 + $33,333 + $150,000 = $401,666

Tax Liability:

  • Assuming John’s tax rate is 30%, his tax liability would be:

  • Total Tax Owed: 30% of $401,666 = $120,500

Estate’s Remaining Value:

  • John’s estate would need to pay $120,500 in taxes, which is 16.06% of the total estate value.

  • If the total value of the assets is $750,000 (including the stock portfolio, income property, and RRSP), the remaining value after taxes would be:

  • Remaining Estate Value: $750,000 – $120,500 = $629,500, which represents 83.93% of the estate.

So, after paying $120,500 in taxes, John’s estate would keep $629,500 to be distributed to the beneficiaries.

Strategies to Address Estate Taxes

To manage the tax burden on your estate, several strategies can be considered:

  1. Spousal Rollovers: Deferring taxes on RRSPs, RRIFs, and other assets by transferring them to your spouse can delay the tax liability until those assets are withdrawn or disposed of.

  2. Gifting Assets: Spreading out the gifting of assets over several years can reduce the overall taxable income in the year of death.

  3. Use of Life Insurance: Life insurance can provide funds to cover taxes, ensuring that your estate remains intact for your beneficiaries.

  4. Planning with a Will: Creating a detailed will that considers tax implications can help in minimizing the taxes payable and ensure your wishes are followed.

  5. Consider Trusts: Setting up trusts can be a way to manage and protect your assets, potentially reducing tax burdens.

Implementing these strategies effectively requires careful planning and consideration of your unique circumstances. Professional guidance can help tailor these strategies to your needs.

Understanding these rules helps in planning your estate effectively. For more personalized advice, feel free to contact us.

Understanding the Registered Education Savings Plan (RESP)

/in , , , /by

brandableContent

Planning for your child’s education can be both exciting and overwhelming. The rising costs of post-secondary education make it important for parents and families to consider the financial tools available to help ensure children have the opportunity to pursue their educational dreams. One such tool is the Registered Education Savings Plan (RESP), a tax-deferred savings account specifically designed to help save for a child’s post-secondary education in Canada.

Eligibility and How to Open an RESP

You can open a Single Plan for an individual beneficiary, such as your child, or a Family Plan if you wish to contribute to the education of multiple children in your family. The great news is that anyone can open an RESP for a child, whether you’re a parent, grandparent, or other family member, making it a versatile option for educational savings.

RESP Withdrawals and Beneficiary Requirements

RESPs can be used to cover a broad range of educational expenses. The only stipulation is that the beneficiary must attend a qualifying educational institution, which could be a university, college, or technical or vocational school. Withdrawals from the RESP will help support tuition, textbooks, living expenses, and more, as long as the student is enrolled part-time or full-time.

Key Benefits of an RESP

RESPs come with a range of benefits that make them an attractive savings vehicle for education:

– Lifetime Contribution Limit: You can contribute up to $50,000 over the lifetime of the plan for each beneficiary.

– Tax-Deferred Growth: While contributions to an RESP are not tax-deductible, the investment growth within the plan is tax-deferred. This allows your savings to grow faster, as taxes on the earnings are deferred until the funds are withdrawn.

– RESP Duration: You can keep the plan open for up to 35 years, giving you ample flexibility for when the funds may be needed.

Canadian Education Savings Grant (CESG)

One of the biggest incentives for opening an RESP is the Canadian Education Savings Grant (CESG). Through this program, the government will match 20% of your annual contributions, up to a maximum of $500 per year. Over time, this can accumulate to a lifetime maximum of $7,200 in CESG funds for each child. If you’re unable to contribute the maximum amount in a given year, the unused CESG contribution room is carry-forwardable, and you may be able to receive up to $1,000 in grant payments annually in future years.

Eligibility for CESG

To qualify for the CESG, the beneficiary must be:

– 17 years of age or younger

– A Canadian resident

– In possession of a valid Social Insurance Number (SIN)

A Smart Way to Save for the Future

Starting an RESP early can make a significant difference in how much you can save for your child’s education. With contributions that grow tax-deferred, along with generous government grants like the CESG, the RESP is a valuable tool to help ease the financial burden of post-secondary education. Planning for your child’s future today ensures that when the time comes, they can focus on their studies without worrying about the costs.

Consider opening an RESP to take advantage of the substantial benefits and opportunities this plan offers. Start investing in your child’s future today!

Setting Up Your Employee Benefits Program

/in , , /by

In the competitive landscape of today’s business world, an effective employee benefits program stands as a cornerstone of organizational success. Such programs not only serve as magnets for top talent but also highlight an organization’s unwavering commitment to the holistic well-being of its workforce.

Establishing a Benefits Budget
The foundation of a robust benefits program is a well-thought-out budget. By assessing the financial health of your organization, you can determine the funds you’re willing to allocate towards a comprehensive employee benefits package. It’s essential to delve deep into a cost analysis for each potential benefit, ensuring that the budget aligns with both the company’s capabilities and the employees’ needs.

Deciding on the Right Benefits
Once the budget is set, the next step is to curate the benefits that will form part of your program. Choices abound, from group health, dental, and vision insurance to paid time off, retirement savings plans, and flexible health savings accounts. There are also group life and disability insurance options, not to mention perks that foster a healthy work-life balance. While the budget will inevitably influence the selection, it’s paramount to weigh in the preferences and necessities of your employees.

Choosing a Benefits Provider
With a list of desired benefits in hand, the focus shifts to selecting the right provider. This involves researching providers that cater to your chosen benefits and juxtaposing the advantages and costs of each. Given the intricate nature of benefits plans, seeking expert advice can be invaluable in navigating this terrain and ensuring the best fit for your organization.

Finalizing the Benefits Program
After zeroing in on a provider, the next phase is to cement the details of your benefits program. This encompasses signing all requisite documentation and earmarking the date when the plan will kick off. While this might seem like a daunting task, remember that expert guidance can streamline the process, ensuring all i’s are dotted and t’s are crossed.

Communicating the Plan to Employees
The establishment of a benefits program is only half the battle. The other half is effective communication. Organize sessions to walk your employees through the nuances of the benefits plan, addressing any questions or concerns they might harbor. Furnish them with digital or printed copies of the benefits, elucidating both the costs they would incur and the contributions made by the company. It’s pivotal to ensure that every employee has a clear understanding of their benefits, coverages, and the provisions for their dependents. An online portal or resource can further empower employees to delve into their benefits at their own pace. And don’t forget to spotlight your benefits program on your organization’s career page and in job listings.

Tax Implications of Group Benefits
A noteworthy aspect of group benefits is their tax implications. Such benefits can be deducted before tax withholdings on an employee’s paycheck. For instance, if group health insurance premiums are covered by the organization, these amounts are eligible for deductions.

In Conclusion
Crafting a comprehensive employee benefits program is more than just a strategic move; it’s an investment in the future of the organization and its people. By adhering to the steps outlined, businesses can sculpt a benefits program that is both versatile and resonant, ensuring a harmonious and productive workplace.

The Health Spending Account for Business Owners and Incorporated Professionals

/in , , , /by

Are you tired of using your hard-earned after-tax dollars to cover medical expenses? As a business owner, the burden of managing healthcare costs can be overwhelming. However, there’s a little-known solution that can alleviate this financial strain – the Health Spending Account.

Designed specifically for entrepreneurs like you, the Health Spending Account offers a tax-efficient way to manage medical expenses. Say goodbye to paying out of pocket with after-tax dollars for your healthcare needs, and let’s explore the advantages of this specialized account tailored to meet the unique needs of business owners and incorporated professionals.

Who’s eligible?

The Health Spending Account is available to a wide range of businesses, making it an inclusive and flexible solution. Small businesses, professional corporations, and corporations that wish to supplement an existing health plan are all eligible to participate in this program. Whether you run a small family-owned enterprise, a professional practice, or a larger corporate entity, the Health Spending Account can cater to your specific needs and provide valuable healthcare benefits for you and your employees.

What are the benefits?

Tax Deductibility for Corporations

As a business owner or incorporated professional, you know the significance of minimizing tax burdens. The Health Spending Account allows your corporation to make contributions that are 100 percent tax-deductible. By taking advantage of this tax benefit, you can reduce your corporation’s taxable income, resulting in lower overall taxes. This leaves you with more funds to reinvest in your business, expand operations, or reward your hardworking employees.

Tax-Free Benefits for You and Your Employees

The Health Spending Account offers tax-free reimbursements for both you, as the business owner or incorporated professional, and your employees. Any medical expense covered through the account is received as tax-free income. This means you get to retain more of your earnings while providing valuable healthcare benefits to your workforce without increasing their taxable income. It’s a win-win situation that fosters employee satisfaction and loyalty.

No monthly premium to pay and cost-efficient

A Health Spending Account (HSA) offers a highly cost-efficient approach to managing medical expenses, providing individuals and businesses with significant financial advantages. One of the key benefits of an HSA is that there is no monthly premium to pay, unlike traditional health insurance plans. This means that participants can access valuable healthcare benefits without the burden of regular premium payments. With no ongoing costs, the HSA allows individuals and businesses to allocate their funds more strategically, ensuring that their healthcare budget is utilized efficiently. This cost-effective feature makes the Health Spending Account an attractive option for those seeking to optimize their healthcare spending while enjoying comprehensive medical coverage.

How it works

The Health Spending Account simplifies the process of managing healthcare expenses:

1. Employees pay for medical services out of pocket.

2. The employee submits the claim for reimbursement.

3. The claim amount is then reimbursed tax-free through the corporation’s account.

4. The claim is reimbursed to the employee.

This streamlined process eliminates the complexities associated with traditional health insurance plans, saving you time and effort.

To learn more about how a health spending account can benefit you, please reach out today to book a meeting, and we would be happy to help.

Empowering Your Family’s Financial Future: A Comprehensive Guide to Budgeting

/in , , , , , , , , , /by

Taking charge of your family’s financial well-being through effective budgeting is a crucial step in securing a brighter future. We’ll explore the significance of budgeting and provide practical tips to help you manage your money wisely while ensuring the best possible support for your loved ones, including those with disabilities and their Registered Disability Savings Plan (RDSP).

Why Budgeting Matters for Families

Budgeting is a powerful financial tool that holds importance for all families:

  1. Financial Clarity: It offers a clear overview of your family’s income and expenses, helping you make informed decisions about allocating funds.
  2. Goal Achievement: Budgeting helps you allocate funds not only for your loved one’s RDSP but also for other family financial goals, such as saving for education or a home.
  3. Expense Control: It identifies areas where you can cut back on expenses, freeing up money for your family’s financial priorities.
  4. Debt Reduction: By tracking spending, you can allocate extra funds to pay down debt faster, ensuring your family’s financial stability.
  5. Emergency Preparedness: A budget provides a financial safety net for unexpected expenses, which can be especially critical for families with additional financial responsibilities.

Steps to Effective Budgeting for Families

  1. Calculate Income: Determine your total monthly income, including salaries, government benefits, and any disability-related support for your loved one.
  2. List Expenses: Categorize expenses into fixed (e.g., housing, utilities) and variable (e.g., groceries, entertainment).
  3. Set Financial Goals: Define short-term and long-term financial goals for your family, ensuring that your loved one’s RDSP contributions are part of the plan.
  4. Create a Budget: Use budgeting tools or apps to allocate income to expenses, savings, and financial goals without exceeding your income.
  5. Monitor and Adjust: Regularly track spending against your budget, making necessary adjustments to ensure your family’s financial health.

Tips for Successful Budgeting

  1. Be Realistic: Set achievable goals and create a budget that accommodates your family’s unique needs, including the financial responsibilities associated with the RDSP.
  2. Prioritize Savings: Ensure that contributing to your loved one’s RDSP is a top financial priority, but don’t forget to save for other family goals too.
  3. Emergency Fund: Maintain an emergency fund to cover unexpected expenses, which can benefit all family members.
  4. Review and Cut Expenses: Periodically review expenses to find areas where you can save and allocate more funds to your family’s financial priorities.
  5. Pay Yourself First: Treat savings, including RDSP contributions, as non-negotiable expenses, just like other essential bills.
  6. Seek Professional Advice: Consult a financial advisor who specializes in disability-related financial planning for tailored guidance.

Budgeting is your family’s pathway to financial security and ensuring a brighter financial future. By budgeting wisely and prioritizing your loved one’s financial well-being, you can control your family’s finances, reduce stress, and work towards a future filled with financial peace of mind. Remember, financial success for families means making informed choices that align with your values and aspirations. Start budgeting today to achieve financial wellness for your entire family, balancing the needs of all family members, including those who rely on the support of the RDSP.