Don’t lose all your hard-earned money to taxes

Don’t lose all your hard-earned money to taxes

Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:

  1. Make the most of the lifetime capital gains exemption

  2. Decrease your end-of-life tax bill

  3. Look into Immediate Financing Arrangements

Lifetime capital gains exemption

The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.

End-of-life tax bill

As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.

Consider an Immediate Financing Arrangement

An Immediate Financing Arrangement (IFA) lets your business:

  • Get a life insurance premium on behalf of a shareholder

  • Create a tax deduction

  • Transfer assets tax-free from the business to a shareholder’s estate

Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.

The Takeaway

While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.

Financial Planning For Self-Employed Contractors

Financial Planning for Self-Employed Contractors

Being a self-employed contractor can bring you a large cash flow and the satisfaction of being your own boss – but it can also make financial planning more complicated than being an employee.

When creating a financial plan, Self-employed contractors need to keep the following in mind:

  • Cash flow management – Knowing what money you have moving in and out of your business is essential. You never want to suddenly find out you are short on cash, especially if you are considering expanding your business.
  • Tax planning – Tax planning can be complicated for self-employed contractors. Working with a professional can help ensure you are aware of your options, such as claiming the correct tax deductions and the most tax-effective way to pay yourself.
  • Attracting and retaining good employees – Employees are looking for more than just a good paycheque; they also want a robust benefits program, work-life balance, and pension plans.
  • Risk management – You must protect yourself if something happens to you, such as being injured or falling ill. The best way to protect yourself is with the right insurance, such as disability, critical illness, and life insurance.
  • Retirement planning – As a self-employed contractor, this is a must as you won’t have a company pension plan to fall back on. You can’t work forever, so it’s essential to have a variety of income sources during your retirement years, including RRSPs, TFSAs, and an Individual Pension Plan (IPP).
  • Succession planning – This type of planning is critical and can be triggered by various events, including divorce, retirement, and your illness or death. You must put a plan in place that covers what will happen if any of these events occur. In addition, it’s essential to have the financial resources to ensure the plan can be successfully enacted.
  • Buy-sell agreement – If you are a self-employed contractor working with a partner, you must have a buy-sell agreement. This agreement stipulates what will happen if one partner leaves the business for any reason. Buy-sell agreements can be funded in various ways, including via life insurance.

The best way to ensure you’ve got a solid financial plan is to work with a good team who has your best interests in mind. No matter what aspect of financial planning you are interested in – from tax planning to succession planning – we can help you get started. So call us or contact us online today to get started!

The Six Steps to Financial Planning

The Six Steps to Financial Planning

Many people put off planning for their financial future because they’re overwhelmed with all the decisions they have to make. The good news is that there’s help at hand – in the form of a certified financial planner. A certified financial planner is trained to focus on all aspects of your finances – everything from your taxes to retirement savings.

A certified financial planner will develop a plan that works for you both today and in the future.

Meeting your financial planner

When you first meet with your financial planner, they will tell you about their obligations and responsibilities. They should:

  • Give you a general overview of the financial planning process

  • Tell you what services they provide and how they are compensated for them

  • Let you know what they will expect from you as a client

You should let your financial planner know how involved you want to be in creating and executing your financial plan. You should also ask any questions about the process or how compensation works.

Determining your goals and expectations

Now you’re ready to make your plan. But first, you and your financial planner should discuss your personal and financial goals and your current and future needs and priorities.

Your financial planner will make sure they have all the details they need. They may ask you to fill in questionnaires or provide documentation on your current financial state.

Reviewing your current financial state

Before your financial planner can get started on your financial plan, they need to know about your current situation – including cash flow, net worth and any taxes you may owe in the future.

To customize your financial plan, so it works for you, your financial planner must know about anything that could impact it – for example, a dependent adult child.

Developing the financial plan

Once they have all the information they need, your financial planner will create a customized plan that aligns with your goals, objectives, and risk tolerance. They will also provide you with information on projected returns and recommended actions.

Implementing the plan

Once you approve it, your financial planner should implement your plan. They should also help you contact other professionals they’ve recommended to assist with your financial plan – such as a lawyer or an insurance agent.

Monitoring the plan

Your certified financial planner should periodically contact you to adjust your financial plan. In addition, a life change – such as the birth of a child or retirement – may require adjustments to your financial plan.

It can be hard to plan for the future – but you don’t have to do it alone. Contact a certified financial planner or us today!

Ontario 2022 Budget Highlights

On April 29, 2022, Ontario’s Minister of Finance delivered the province’s 2022 budget, based on five different pillars. 

No Changes To Corporate or Personal Tax Rates

Budget 2022 did not introduce changes to Ontario’s corporate or personal tax rates.

Rebuilding The Economy

Budget 2022 wants to help rebuild the economy as follows:

  • Almost $1 billion is committed to critical legacy infrastructure, such as all-seasons roads.

  • Creating good manufacturing jobs. In the past 18 months, 12 billion dollars have been invested in supporting new electric vehicle production and battery manufacturing.

  • Enable Ontario employers to realize an estimated $8.9 billion in cost savings by cutting taxes and lowering electricity costs.

Better Jobs and Bigger Paycheques

Another focus is on more significant paycheques and better job opportunities. To support this:

  • The general minimum wage will rise to $15.50 per hour starting October 1, 2022.

  • $1 billion will be committed annually to employment and training programs for learning new skills or upgrading existing ones. 

  • Over three years, $114.4 million has been committed to the Skilled Trades Strategy, including expanding in-class training.

  • Ontario is expanding college degree granting. Colleges can start offering new degree programs in various sectors, including the automotive industry and health care.

Building Highways and Key Infrastructure

Budget 2022 commits to: 

  • Investing $158.8 billion in crucial infrastructure over ten years, with $20 billion spent in 2022–23.

  • $25.1 billion being spent over ten years to support major highways such as the Bradford Bypass, Highway 413, Highway 401 and Highway 7.

  • $61.6 billion over ten years to support public transit. This includes expanding GO train services to London and Bowmanville and expanding passenger rail service to Northern Ontario.

Keeping Costs Down

Another focus of Budget 2022 is to help people save money:

  • Tolls will be removed on Highways 412 and 418.

  • Starting July 1, the gas tax will be cut by 5.7 cents per litre for six months.

  • License plate renewal fees will be eliminated and refunded, leading to a $120/year savings in Southern Ontario and $60/year savings in Northern Ontario.

  • $300 in additional tax relief will be available on average for 1.1 million lower-income workers via the proposed Low-income Individuals and Families Tax Credit enhancement.

  • Supporting the creation of all types of housing.

  • Working towards an average of $10-a-day child care by September 2025.

Investing in Health Care

Budget 2022 also understands the importance of continuing to invest in health care. Money is committed as follows:

  • Over $40 billion for hospitals and other health infrastructure over ten years.

  • $764 million over two years to provide nurses with a retention incentive of up to $5,000.

  • $42.5 million over two years to expand medical education and training.

  • $1 billion for in-home care over three years.

We can help!

Wondering how tax changes in this year’s budget may impact personal finances or business affairs? Reach out to us – we’re here to answer any questions you may have!

2022 Federal Budget Highlights

Federal Budget 2022 – Highlights

On April 7, 2022, the Federal Government released their 2022 budget. We have broken down the highlights of the financial measures in this budget into the following different sections:

  • Housing

  • Alternative minimum tax

  • Dental care

  • Small businesses

  • Tradespeople

  • Canada Growth Fund

  • Climate

  • Bank and insurer taxes

Housing

There were several tax measures related to housing introduced in the budget.

Budget 2022 introduced a new kind of savings account – a Tax-Free First Home Savings Account (FHSA).

These are the key things you need to know about the new FHSAs:

  • You must be at least 18 years of age and a resident of Canada to open an account. You must also not currently own a home or have owned one in the previous four calendar years.

  • You can only open and use an FHSA once, and you must close it within a year after your first withdrawal.

  • Contributions are tax-deductible, and income earned in an FHSA will not be either while it is in the account or when you withdraw it.

  • There is a lifetime contribution limit of $40,00, with an annual contribution limit of $8,000. You can’t carry contribution room forward.

  • If you don’t use the funds in your FHSA within 15 years of opening it, you can transfer them to an RRSP or RRIF tax-free. Transfers to an RRSP do not impact your RRSP contribution room.

Two existing tax credits were increased, and a new one was introduced:

  • The First-Time Home Buyers’ Tax Credit amount was increased from $5000 to $10,000, giving up to $1,500 in direct support to home buyers. This tax credit applies to all homes purchased on or after January 1, 2022.

  • The annual expense limit for the Home Accessibility Tax Credit has been increased to $20,000 for 2022 and subsequent tax years.

  • A new tax credit, the Multigenerational Home Renovation Tax Credit, was introduced, which will start in 2023. This tax credit is a 15% refundable credit for eligible expenses up to $50,000 (maximum tax credit is $7,500) for constructing a secondary suite for a senior or an adult with a disability to live with a qualifying relative.

Budget 2022 proposes new rules, effective January 1, 2023, that anyone who sells a residential property they have held for less than 12 months would be subject to full taxation on their profits as business income. However, there will be some exemptions to these rules due to life events such as a death, disability, the birth of a child, a new job, or a divorce.

Budget 2022 also announces restrictions that would help ensure that Canadians, instead of foreign investors, own housing. A two-year ban will be introduced on non-residents buying residential property, with some exceptions, such as individuals who have work permits and are living in Canada.

Alternative Minimum Tax

In Canada, the top federal tax rate is 33% and starts at an income of $221,708. However, many high-income filers end up paying less tax than this due to tax deductions and tax credits.

The goal of the Alternative Minimum Tax (AMT), which has been around since 1986, is to ensure high-income Canadians are paying their fair share of taxes. However, it has not been substantially updated since it was introduced. In Budget 2022, the government indicated they would be investigating changes to the AMT, which will likely be disclosed in the fall 2022 economic update.

Dental Care

For many Canadians without private coverage, going to the dentist is too expensive. Budget 2022 commits $5.3 billion to provide dental care for Canadians with family incomes of less than $90,000 annually. Coverage will start for children under 12 this year and expand to children under 18, seniors and those living with a disability in 2023, with the program will be fully implemented by 2025.

Small Businesses

Small businesses currently have a 9% tax rate on the first $500,000 of taxable income (compared to the corporate tax rate of 15%). However, after a small business’ capital employed in Canada reaches $15 million, it is no longer eligible for the 9% tax rate.

Budget 2022 proposes gradually phasing out the small business tax rate so that businesses are not discouraged from expanding. The new cut-off for the lower tax rate will be $50 million.

Budget 2022 also includes a proposal to create an Employee Ownership Trust. This would be a new, dedicated trust under the Income Tax Act to support employee ownership.

Tradespeople

Budget 2022 introduces the Labour Mobility Deduction. This would allow eligible tradespersons and apprentices to deduct up to $4,000 a year in eligible travel and temporary relocation expenses.

Budget 2022 also commits to providing $84.2 million over four years to double funding for the Union Training and Innovation Program, which would help 3,500 apprentices from underrepresented groups each year.

Canada Growth Fund

Budget 2022 introduces a new Canada Growth Fund, with the goals of both diversifying our economy and helping achieve our climate goals.

The Canada Growth Fund aims to attract considerable private sector investment, support the restructuring of vital supply chains, and bolster our exports. The Canada Growth Fund will also provide backing to reduce our emissions and invest in the growth of low-carbon industries.

Climate

Budget 2022 continues to confirm the government’s commitment to fighting climate change. It commits $1.7 billion over five years to extend the Incentives for Zero-Emission Vehicles Program until March 2025 and also provides funding to create a national network of electric vehicle charging stations.

Budget 2022 also commits $250 million over four years to support the development of clean electricity, including inter-provincial electricity transmission projects and Small Modular Reactors.

Bank And Insurer Taxes

Budget 2022 introduced a new financial measure called the Canada Recovery Dividend. Banks and insurers will have to pay a one-time, 15% tax on 2021 taxable income above $1 billion. This tax will be payable over five years.

Budget 2022 also proposes increasing the tax rate on income above $100 million for banks and insurers to 16.5% (currently 15% for other corporations).

Wondering How This May Impact You?

If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!

2021 Income Tax Year Tips

Tax Tips You Need To Know Before Filing Your 2021 Taxes

This year’s tax deadline is April 30, 2022. We’ve got a list of tips to help you save on your taxes!

Claiming home office expenses

You can claim up to $500 under the “flat rate” method if you worked at home due to COVID-19. To claim more, you must use the detailed method to claim home office expenses.

Employer-provided benefits

If your employer reimburses you for certain costs (such as commuting costs, parking, and home office equipment) due to COVID-19, the CRA will generally not consider this a taxable benefit.

Repaying Covid-19 support payments

If you repaid COVID-19 benefits, you can deduct the amount on your tax return either for the year you received the benefit or the year you repaid it, or you can split the deduction between both years.

Climate Action incentive can no longer be claimed

As of 2021, this amount can’t be claimed as a refundable credit; instead, you’ll receive quarterly payments via the benefits system.

Disability tax credit (DTC)

If you or a family member are DTC claimants, then you should review the updated criteria for the tax credit in regards to mental functions, life-sustaining therapy and calculating therapy time.

Eligible educator school supply tax credit

This tax credit has been increased to 25 percent for eligible supplies (such as books and games) to a maximum of $1,000.

Tax deduction on interest payments

You can claim a tax deduction for the interest you’ve paid on any money you’ve borrowed to invest. However, you can only do this if you use the money to earn investment income (for example, a rental property).

The digital subscriptions tax credit

You can claim up to $500 as a tax credit if you have a digital subscription to a qualifying Canadian news outlet.

Self-employed? Be sure to set aside enough for personal income tax!

If you’re self-employed, be sure you put aside enough money (we recommend 25% of your income) to pay your tax bill when the time comes. You’re taxed only on your net income (total income minus expenses).

You need to plan ahead for tax changes if you want to retire abroad

Planning to retire abroad? If so, you need to be aware of the tax implications and plan accordingly. If you sell your house and move, you may be considered a “non-resident” and be subject to capital gains taxes on non-registered investments (even if you have not sold them) or have your pension subjected to a withholding tax.

You can stop making CPP contributions if you’re over 65 but plan to keep working

If you’re 65 and already collecting Canada Pension Plan (CPP) benefits but also still working, you may be able to stop making CPP contributions. To do so, you need to fill in the form CPT30.

Need help?

Not sure if you qualify for a credit or deduction? Give us a call – we’re here to save you money on your taxes!

Easy Exit: Business Succession in a Nutshell

Getting into the world of business is a meticulous task, but so is getting out of it

Whether you’ve just hit the ground running on your business or if you’ve been at it for a long time, there is no better time to plan your exit strategy than now. Although the process may seem taxing, we’ve answered a few questions you may have about planning your business succession strategy. 

1. Who do I talk to about this? 

Deciding on how to go about the transition requires careful planning, and you need to consult no less than people who are well equipped to help you out. First, talk to your key advisors such as bankers and financial partners. You could also use some advice from your accountant and lawyers. If your company has an advisory board, better consult them as well. You may also hire a specialist or a consultant, depending on how you choose to go about your business succession plan. 

2. Who should I choose as a successor? 

There are several ways to go about this, and your decision will ultimately be your personal choice. You may pass on your business to a family member or to your top executives or managers. You may also choose to sell it to an outsider. Whichever path you choose, you can also decide on how much you want to be involved in the business after you pass it on. That is, if you want to be involved at all. 

3. When should I inform my successor about my plans? 

While a surprise inheritance may be heartwarming, it’s not the same with inheriting a business. Getting a successor ready—whether it’s a family member or someone from your company—requires careful planning and training. As soon as you’ve chosen a successor, better get started on getting them ready for the big shoes they’re about to fill. This includes helping them equip themselves with the necessary skills, knowledge, and qualifications necessary to run your business. 

4. How do I plan the transition itself? 

The transition will be twofold—transferring ownership and handing over the business itself. As far as transferring ownership is concerned, you need to consider legal and financial details. These include valuation, financing and taxation. You also need to consider if you wish to keep your current legal structure (corporation, sole prop, partnership, etc.) or if you (or your successor) would like to change it. You also need to plan how to prepare various stakeholders in the business for the transition. How will you prepare your customers, clients, and employees? What would be their level of involvement? Make sure that you put different strategies in place in order to ensure transparency and consistency in communicating changes in your business, especially something as drastic as succession. 

5. Now that I have a business succession plan ready, can I go back to business as usual? 

Not really. Your business and your customers’ needs may change over time. This means that you need to keep reviewing and adjusting your plan as your business also evolves. 

Charitable Giving

Why do individuals give to charity:

● Leave a legacy

● Essential to organizations

● Meaningful tax relief for contributors

There are many ways to give and lots of potential tax savings:

1. Simple Cash Gifts
– Charitable tax credit

2. Gifts in Kind
– Charitable tax credit based on fair market value, if the market value is over $1,000, it’s best to get an independent valuation.

3. Bequest through your will
– Year of death up to 100% of net income for year of death and carryback for year preceding death

4. Life Insurance

Depending on setup:

5. Proceeds of RRSPs/RRIFS at Death
– Proceeds of income donated as charitable donation

6. Charitable Annuities
– Provide income to yourself and portion goes to charity

To learn more about charitable giving, please contact us.

2022 Financial Calendar

2022 Financial Calendar

Welcome to our 2022 financial calendar! This “at a glance” document lists important dates, including when government benefits are distributed and tax filing deadlines.

Be sure to bookmark this or add the dates listed to your personal calendar so you’re always in the loop!

Use our calendar to make sure you keep on track with your financial goals and avoid missing any critical tax or investment deadlines.

If you’re looking for help with your taxes, tax packages will be available in February 2022, so reach out to your accountant or us to book an appointment and get started on your taxes!

Important Dates

Dates to know:

  • January 1 is when the contribution room for your TFSA opens again. The maximum contribution for 2022 is $6,000.

  • The government will issue GST/HST credit payments on January 5, April 5, July 5, and October 5.

  • Canada Child Benefit payments (CCB) will be issued on the following dates: January 20, February 18, March 18, April 20, May 20, June 20, July 20, August 19, September 20, October 20, November 18, and December 13.

  • The government will issue CPP and OAS payments on the following dates: January 27, February 24, March 29, April 27, May 27, June 28, July 27, August 29, September 27, October 27, November 28, and December 21.

  • The final date for your RRSP contributions to be eligible for the 2021 tax year is March 1, 2022.

  • Bank of Canada’s interest rate announcements will be on January 26, March 2, April 13, June 1, July 13, September 7, October 26, and December 7.

  • May 2, 2022, is the last day to file personal income taxes, and tax payments are also due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2021.

  • May 3 to June 30 – The filing deadline for final tax returns if death occurred between November 1 and December 31. The due date for the final return is six months after the date of death.

  • The tax deadline for all self-employment returns is June 15, 2022. Any balance owing, however, is due May 2, 2022.

  • The deadline for final RESP, RDSP, and TFSA contributions is December 31.

  • December 31 is also the deadline for 2022 charitable contributions.

  • December 31 is also the deadline for individuals who turned 71 in 2022 to finish contributing to their RRSPs and convert them into RRIFs.