We take a close look at how you can extract retained earnings from your corporation in a tax efficient manner.
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). Read more
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.
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. Read more
In August the Department of Finance published their changes to the taxation of life insurance as previewed in March 2013 Federal Budget. When final legislation is passed later this year, these changes will result in an updating to the “exempt test” which determines how much tax-deferred value can accumulate in a life insurance policy before it is subject to accrual taxation. The new rules take effect and will apply to policies issued January 1, 2016 and later.
Highlights of the new rules and their affect
For Cash Value Life Insurance:
- Effective with policies issued after 2015 the new rules will reduce the ability to tax-shelter accumulating cash values;
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About Chris Geldert
Recognizing the difficulties navigating corporate structures and the insurance world I specialize in assisting business owners protect, realize and transfer the value of their business. I focus and guiding owners through the process, working with their various professionals, ensuring solutions are implemented to properly manage the risks and maximize the benefits. Above all I work to earn your business.