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Private Corporations Dodge a Bullet with the 2018 Federal Budget

The Liberal Government’s Federal Budget was delivered by Finance Minister, Bill Morneau, on February 27, 2018.  There had been much concern and speculation about the direction the budget would take with respect to the taxation of private corporations.  This was due to a release of the Department of Finance in July 2017 which contained private corporation tax proposals which addressed areas of concern to the government involving, among other things, business owners holding passive investments inside of their corporation.  There was speculation that if these proposals were implemented the effective tax rate on investment income earned by a private corporation and distributed to its shareholders could increase astronomically.  Thankfully, the concerns voiced by business and professional groups following the July proposals were effective in moderating the government’s actions.

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Update on Taxation Changes Affecting Private Corporations

Owners of private corporations should be concerned about proposed tax changes being explored by the Department of Finance.  In the Federal Budget of March 2017, Finance expressed their concern that private corporations were being used by high income Canadians to obtain tax advantages that were not available to other Canadian tax payers.  That concern led to the release of a consultation paper along with draft legislation last July.  Finance asked for input from interested parties and stakeholders during a consultation period that ended in October 2017.

What happens now is anyone’s guess and most likely, we will probably have to wait until the Spring to find out. There were three specific tax planning strategies employed by private corporations that the department was most concerned with: Read more

The Importance of Critical Illness Insurance in Retirement Planning

There are a number of obstacles that could potentially de-rail a comfortable retirement. These include marriage breakdown, a stock market crash, and being sued. Another huge obstacle would be the diagnosis of a life threatening critical illness affecting you or your spouse. While it might be difficult to insulate yourself against some of the threats to retirement security, Critical Illness insurance goes a long way to mitigate the financial disaster that could result from a change in health as we approach retirement.

Considering that the wealth of many Canadians is comprised of the equity in their homes and the balance of their retirement plans, having to access funds to combat a dreaded illness could put their retirement objectives in jeopardy. Imagine that you are just a few years into or approaching retirement and you or your spouse suffers a stroke. The prognosis is for a long recovery and the cost associated with recovery and care is projected to be substantial. Statistics show that 62,000 Canadians suffer a stroke each year* with over 80% surviving* many of whom would require ongoing care. Since 80% of all strokes happen to Canadians over 60 those unlucky enough could definitely see their retirement funding jeopardized. Read more

TFSA or RRSP 2018

One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?

Here’s the good news – it doesn’t have to be an either or choice.  Why not do both? Below are the features of both plans to help you understand the differences.

Tax Free Savings Account (TFSA) 

  • Any Canadian resident age 18 or over may open a TFSA. Contribution is not based on earned income.  There is no maximum age for contribution.
  • Maximum contribution is $5,500 per year.
  • There is carry forward room for each year in which the maximum contribution was not made. For those who have not yet contributed to a TFSA, the cumulative total contribution room as of 2017 is $52,000.  Read more

Is an Individual Pension Plan Right for you?

If you are a business owner or incorporated professional concerned about the most effective way to save for retirement, you may want to investigate Individual Pension Plans (IPPs).  An IPP is a defined benefit pension plan, similar to those found in larger companies or government organizations, but for the benefit of only one, or sometimes two individuals. For those owner/managers and incorporated professionals who meet certain criteria IPPs offer significant advantages.

The following are some of the advantages that Individual Pension Plans have over RRSPs:

Increased Contributions

The company can contribute to the owner’s retirement fund at a significantly higher level than the individual could contribute to his or her RRSP.  This is because the maximum contribution amount for an RSP is the same for all ages, whereas with an IPP it increases with age.  An IPP performs best if the pension member is over the age of 40, ideally over age 50.  For example, in 2016 the maximum RSP contribution was $25,370. For a 50-year-old, the IPP maximum contribution limit in 2016 was $32,841.  This increases to $39,626 at age 60. Read more

Are Life Insurance Premiums Ever Tax Deductible?

Considering that the proceeds of a life insurance policy are received tax free upon the death of the life insured, it is not surprising that the premiums of the policy are not tax deductible.  There are two circumstances, however, where premiums would be deductible for income tax purposes:

  1. If the life insurance policy is assigned to a lending institution that requires the assignment as a condition for a loan, for either investment or business purposes.
  2. If the life insurance policy is donated to a registered charity and the donor continues to pay the premiums on behalf of the charity.

Life insurance policies used as collateral security for a loan

The conditions under which the owner of a life insurance policy would be entitled to a collateral insurance deduction are as follows:

  • The loan advance must be made by a qualified financial institution that is in the business of lending money. This includes banks, finance companies, trust companies, credit unions or insurance companies.  It does not include private lending arrangements such as with friends or family members;
  • The lending institution must require the assignment of the policy owned by the borrower as a condition for granting the loan and a formal assignment of the policy must be made. There should be a letter or other documentation on file to substantiate the lender’s requirement for the life insurance assignment;
  • The proceeds of the loan must be used for investment or business purposes the income of which would be taxable to the borrower;
  • The life insurance policy assigned can be either an existing policy or one taken out for this specific purpose.

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The Healthcare Conversation You Need To Have Now

I came across this article in Forbes magazine and thought it was worth sharing.  This is relevant to anyone with aging parents – it puts protection in place for them and gives you peace of mind.

Why have a will when you have beneficiaries?

You give up some control when you just have beneficiaries and no will

by Ed Olkovich for MoneySense magazine

Q: I am married. I have RRIF and LIRA and my spouse has RRSPs. We have joint cashable accounts too. We have appointed each other as beneficiaries for every account. I am told this arrangement takes longer to settle on death if there is no will. Why do I still need a will?


Click to read the answer to this question on the MoneySense website.