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Tax Planning

BC Budget Highlights 2018

BC Finance Minister Carole James delivered the province’s 2018 budget update on February 20, 2018. The budget anticipates a surplus of $219 million for the current year, $281 million for 2019 and $284 million in 2020.

Corporate and personal tax rates remain unchanged.

The biggest changes are:

  • Elimination of Medical Services Plan (MSP Premiums) effective January 1, 2020
  • Addition of the Employer Health Tax (EHT)
  • Provincial Property Taxes
  • Childcare

The Employer Health Tax and Medical Services Plan premiums:

Effective January 1, 2020, the Medical Services Premium (MSP) will be eliminated. In last year’s budget update, MSP was reduced by 50% effective January 1, 2018. Starting in 2019, the budget introduces the Employer Health Tax (EHT). The EHT is to help fund the elimination of the MSP premiums.

The Employer Health Tax will be calculated as a percentage of payroll:

Provincial Property Transfer Taxes

Effective February 21, 2018, the following will occur:

  • The provincial property transfer taxes (PTT) will increase to 5% (from 3%) on residential property values above $3 million.
  • The PPT applies to foreign purchasers of residential properties in BC will increase to 20% (from 15%) and the tax will extend to include the Fraser Valley, Capital, Nanaimo and Central Okanagan Regional Districts.
  • There is a new speculation tax on residential property in BC. This tax is targeted at foreign and domestic homeowners who don’t pay income tax in BC. Starting in 2018, it’s a rate of $5/$1,000 of assessed value, in 2019, this will increase to $20/$1,000.

Childcare

There will be a new affordable child care benefit that will reduce child care costs by up to $1,250 per month per child by 2020. The new benefit will apply in September 2018. Families with pre-tax incomes of $45,000 or less will receive the full benefit, (up to the cost of care) while those who make up to $111,000 will receive a reduced amount, scaling based on income. The government will be releasing an online benefit calculator to help parents budget.

The budget will provide up to $350/month directly to licensed child care providers to reduce fees. They will be the following:

  • Up to $350/month for group infant/toddler care
  • Up to $200/month for family infant/toddler care
  • Up to $100/month for group care for children aged 3-5
  • Up to $60/month for family care for children aged 3-5

To learn how these changes will affect you, please don’t hesitate to contact us.

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The Clock is Ticking!

Don’t Put Off Your Decision to Buy Life Insurance

2016 is an opportune year to buy life insurance.  New laws affecting the taxation of life insurance come into effect on January 1, 2017. After this date new policies will not perform as well as they do currently.

The good news is that the proceeds of life insurance policies paid at death still remain tax free.  What has been affected is the amount of cash value that may accrue in a policy and the tax-free distribution of death proceeds from a life insurance policy owned in a corporation.

How will this impact your existing and future policies?

Adjustment to the Maximum Tax Actuarial Reserve

Whole Life and Universal Life policies are valuable vehicles in which to accumulate cash value. The limit of how much can be invested is governed by the Maximum Tax Actuarial Reserve (MTAR).  If the cash value ever exceeds the MTAR limit, the policy is deemed to be “offside” and will be subject to accrual taxation.

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9 Ways the 2016 Federal Budget Could Affect Your Business

The Trudeau government’s first budget contained a shock on the small business tax rate, and some smaller let-offs

by Murad Hemmadi for ProfitGuide

When Bill Morneau rose to deliver his first budget speech as Finance Minister in Justin Trudeau’s new federal government, entrepreneurs and the owners of Canada’s small- and medium-sized businesses held their breath.

Concerns over the small business tax deduction, stock options for startup employees and capital gains exemptions made this a crucial policy document for SMBs. Here’s what the 2016 federal budget will do and change, and what that means for you and your business.

1. Small Business Tax Rate Frozen

Companies that meet the criteria for a Canadian-Controlled Private Corporation (CPCC) pay a reduced effective rate on their first $500,000 of active business income. In last year’s budget, the then-Conservative government proposed to drop that rate in increments from 11% at the time to 9% by 2019.

As of January 1, 2016, the small business rate was 10.5%, and the 2016 budget “proposes that further reductions in the small business income tax rate be deferred.” In effect, that means the rate will stay where it is today until the government decides otherwise.

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Taxation of Life Insurance – New Rules Offer a Window of Opportunity

Permanent life insurance, such as Whole Life or Universal Life, has long been accepted as a tax efficient way of accumulating cash for future needs.  Soon the amount of funds that can be tax sheltered within a life insurance policy will be reduced by new tax rules which take effect January 1, 2017.  These changes may make 2016 the best year to buy cash value life insurance.

The changes to the tax rules regarding life insurance have resulted in an update to the “exempt test” which measures how much cash value can accumulate in a policy before it becomes subject to income tax.

Highlights of the new rules and their effect

For Cash Value Life Insurance:

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Changes to the Taxation of Estates

Estate, trust and tax planners have long favoured testamentary trusts as vehicles to pass along assets to beneficiaries or heirs.   A testamentary trust is generally a trust or estate that is created the day a person dies.  Commonly, these trusts are established in a testator’s will.

A significant benefit to testamentary trusts had been that income earned and retained in the trust received the same graduated rate of income tax as an individual tax payer.  Unfortunately, under the terms of Bill C-43, after January 1, 2016, all income retained in the trust will now be taxed at the highest rate of tax applicable in the province in which the trust is resident.

There will be two exceptions to this new rule – The Graduated Rate Estate (GRE) and a Qualified Disability Trust (QDT).

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Estate Planning Tips for Real Estate Investors

For many Canadians the majority of their wealth is held in personally owned real estate. For most this will be limited to their principal residence, however, investment in recreational and real estate investment property also forms a substantial part of some estates. Due to the nature of real estate, it is important to utilize estate planning to realize optimum gain and minimize tax implications.

Key Considerations for Real Estate Investment

  • Real estate is not a qualifying investment for the purposes of the Lifetime Capital Gains Exemption.
  • Leaving taxable property to a spouse through a spousal rollover in the will defers the tax until the spouse sells the property or dies.
  • Apart from the principal residence, real estate often creates a need for liquidity due to capital gains, estate equalization, mortgage repayment or other considerations.
  • Professional advice is often required to select the most advantageous ownership structure (i.e. personal, trust, holding company).
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Budget 2015 Highlights

On April 21, 2015, Finance Minister Joe Oliver tabled his first federal budget.  The provisions of the budget will be of particular interest to owners of small and medium sized businesses, seniors and families with children.  As well, those looking to make certain charitable donations will be encouraged by Oliver’s budget.

Below is a brief commentary on each of the key budget proposals.

For Seniors and Savers

Increase in Tax Free Savings Account (TFSA) Limit

  • Effective January 1, 2015 the annual contribution limit has been increased from $5,500 to $10,000;
  • As a consequence, the automatic indexing of the annual contribution limit has been eliminated;
  • On April 24, the CRA announced that even though this provision is not law as yet, they will allow increased deposits to a TFSA effective immediately.
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5 Recent Tax Changes for the 2015 Tax Season

Tax time is almost upon us and there are some recent changes which will affect many Canadian residents.  The important changes to keep in mind are as follows:

The Family Tax Cut

This is the watered down version of income splitting plan that was introduced by the Harper government in 2011.  The provisions allow couples with children under the age of 18 living with them to shift income from a higher income spouse to a lower income spouse so that the combined taxes payable will be reduced.  The most that can be taxed in the lower-income spouse’s hands is $50,000 resulting in a federal non-refundable tax credit which will provide maximum savings of $2,000.

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