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INSIGHTS

2019 Year-End Tax Tips


2019 Tax Updates


CCPC (Canadian Controlled Private Corporation) tax rates:

  • CCPC small business tax rate: reduced to 12.5% in 2019 (combined Federal and Ontario, for taxable active business income to $500,000, payable three months after the fiscal year-end). Note: the small business tax rates will be further reduced to 12.2% in 2020. However, the personal tax rate for the non-eligible dividend will be increased correspondingly, resulting in no real tax reduction at the individual level.

  • CCPC passive income tax rate: remained at 50.17% in 201. Refundable portion remained at 30.67%. Note: New federal corporate tax change introduced a $50,000 threshold for 2019. Any CCPC passive income above $50,000 will reduce its small business limit at a five times rate (limited to federal tax only, not for Ontario small business limit).

  • The corporate investment portfolio should be managed to mitigate the impact from this passive income tax change. To reduce this impact, small business CCPCs should emphasize more on equity investment rather than interest income, as equity investment would generate future capital gains which will be taxable at a 50% income inclusion rate. However, you should contact us or your investment advisor for further discussions about your risk tolerance levels.

  • Refundable Part IV tax rate and dividend refund rate: on taxable dividends paid by a corporation remained at 38.33% in 2017. Note: 2019 dividend refund will also be subject to the above passive income treatment involving a complex non-eligible RDTOH concept. Contact us for these changes.

  • Tax on Income Splitting (TOSI): Significant punitive tax changes were introduced. See Owner Remunerations.


Personal tax rates:

  • Personal top marginal tax rate: in Ontario remained at 53.5% in 2019.

  • TFSA contribution limit: increased to $6,000 in 2019.

  • Must report sale of principal residence: in personal tax returns (including change of use or deemed dispositions) and designate principal residence for dispositions in 2016 and later years. Discuss with us for any sale or any change of use of real estate properties.

Small Business Owners


Owner-manager remunerations:

  • Preferred salary/dividends mix: Determine the preferred mix of salary and dividends for you and your family members for 2019 to consider the restrictions on income splitting rules introduced in 2018. Discuss with us for optimal dividend for family members, if meeting the requirements for excluded business or excluded shares.

  • Consider paying a reasonable salary instead, especially for a personal taxable income below $47,000, with proper support to justify the pay.

  • Paying enough taxable dividend to receive all the RDTOH refund inside the company.

  • Bonus accruals at year end must be paid within 179 days after the corporate year end, including appropriate source deductions and payroll taxes to be remitted on time.

  • Tax-effective dividends: Make tax-effective dividends such as non-taxable capital dividend before a capital loss is triggered.

  • Lifetime capital gain exemption (LCGE): Be mindful of qualifying small business corporation share status – too much passive investments could cast doubt on whether substantially all of the assets of a CCPC are used in active business, in turn jeopardising the ability to claim the $ 866,912 LCGE. Consider restructuring to allow excess funds to be moved on a tax-deferred basis out of operating company to preserve access to the LCGE.


Year-end tips:

  • Accelerate purchase of depreciable assets before the year end. Take advantage of the Accelerated Investment Incentive, which allows an increased first-year capital cost allowance (CCA) deduction for eligible depreciable assets acquired after November 20, 2018 (no ½ year rule and 1.5 of CCA rate).

  • Claim a business reserve for unpaid amount over a maximum of three years.

  • Claim a capital gains reserve – if you receive proceeds that include debt – over a maximum of four years (resulting in the capital gain being included in income over a maximum five years).

  • Shareholder loans to your corporation – Determine whether your corporation would benefit from deductible interest on shareholder loans made to the corporation, rather than additional salary or bonus payments that may be subject to payroll taxes.

  • Repay shareholder loans from your corporation on later than the end of the tax year after the one in which the amount was borrowed.

  • Use of private health services plan (PHSP) premiums instead of non-deductible medical expense.

  • Buy company owned life insurance policy to utilize corporate retained earnings and defer passive income.

  • Track motor vehicle use for business – maintain a logbook of mileage (including date, destinations, distance KMs, and purpose). Try to increase the business mileage to greater than 50% to reduce the standby charges of a company car.

  • Apply for SR&ED tax incentives: CCPC may have the ability to access the enhanced (and refundable) 35% SR&ED ITC. Ensure claims in respect of SR&ED expenditures or ITCs are filed by the deadline, which is 18months after the corporation’s year end.

  • Create a company stock options plan: To potentially obtain a 50% income deductions (note the new restrictions to $200,000 is for public companies only, not impacting CCPC).


Corporate matters:

  • A CCPC that will become a non-CCPC (i.e. become controlled by non-residents) should consider the deemed year-end rules and thin capitalization rules. Discuss with us.

  • Income from property: may be eligible for small business rate if CCPC has more than five full-time employees.

  • Mandatory e-filing of corporate income tax return – to avoid penalties – if corporate annual gross revenues exceed $1 million.

  • PSB Issue: Be mindful of personal services business (PSB), tax rate is at 44.5% in 2019. Discuss with us.


GST/HST considerations:

  • Mandatory e-filing of HST return – to avoid penalties – if business with annual taxable sales exceeding $1.5 million on an associated group basis.

  • Ensure GST/HST is charged on management and inter-company fees billed within your corporate group. Or submit RC4616 to treat certain taxable supplies within a closely related group as having been made for nil consideration.

  • If your company sells to customers in different provinces, be aware of the provincial place of supply rules to charge correct rate of GST/HST.

  • QST registration ― If your business makes digital and certain other supplies to “specified Quebec consumers,” even if it is not resident in Quebec and has no physical or significant presence in the province, it may be required to register for QST under a new specified registration system, effective September 1, 2019.

  • Ensure obtain required written documentation to support input tax credit claims.

Individuals


Year-end tips:

  • Make charitable donations and political contributions before year end. Take advantage of higher tax credits and first-time donor’s super credit (25% on up to $1,000 donations)

  • Employee gifts and awards – Ask your employer to provide you with non-cash gifts/awards. These will not be taxable to you if you receive non-cash with a total value to you of $500 or less annually.

  • Job-related courses – Ask your employer to pay for job-related courses directly, rather than paying you additional remuneration.

  • Canada training credit – starting 2020, eligible individuals aged 25 to 65 who are enrolled at eligible educational institutions can claim this new federal refundable tax credit on tuition and fees for training (annual allowance of $250 per year; $5,000 maximum lifetime tax credit)

  • Contribute $6,000 TFSA (tax free savings account). If you are planning a withdrawal from your TFSA, consider doing so before the end of 2019 instead of early in 2020 – amount withdrawn are not added to your TFSA contribution room until the beginning of the year after the withdrawal. Be mindful of over-contribution penalty of 1% per month for both TFSA and RRSP.

  • Home buyers’ incentives – If you are a first-time home buyer, consider withdrawing tax-free up to $35,000 from your RRSP, under the Home Buyers’ Plan. Amounts withdrawn must be repaid to your RRSP over 15 years. And claim the first-time home buyers’ tax credits

  • Sell investments with accrued losses before year end to offset capital gains realized in the year. Watch for superficial loss rules and consider your tax brackets.

  • Prescribed rate interest on intra-family loans outstanding in 2019 must be paid on or before January 30, 2020, to avoid attribution of income.

  • Review your will annually to ensure they meet your objectives and continue to align with current tax rules. Consider strategies to minimize probate fees (for example, owning assets in a holding company, combined with a dual will strategy, may reduce probate fees).


Tax efficient investments:

  • Hold investments intended for capital growth outside your RRSP and hold interest-generating investments inside RRSP.

  • Contribute to RESP for your child or grandchild. Plan for the RESP to receive the maximum lifetime Canada education savings grant of $7,200. Discuss with us about RESP withdrawing rules.

  • Pay childcare expenses for 2019 by December 31, 2019 and get qualifying receipts.

  • Canada Child Benefit – If you receive this benefit, invest the funds in a separate account in trust for your children. Investment income on these funds will not be taxable to you.

  • For high earners, consider hold investments in a corporation. Discuss the merits with us before setting up an investment holding corporation.

  • Repay debt that has non-deducible interest before other debt that has interest qualifying for deduction (e.g. investment loan) or tax credit (student loan).


International information reporting:

  • T1135: Review your foreign holdings to determine if you have a reporting obligation with a total cost of specified foreign property exceeding $100,000 at any time in the year – required to file form T1135.

  • T1134: for owning shares in non-resident corporations. Watch out for the foreign accrual property income (FAPI) complicated rules. Discuss the implications with us.

  • T1142: for distributions received in 2019 from a non-resident trust that the taxpayer is a discretionary beneficiary including the relevant distribution information.


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